Commercial Agents Regulations: meaning of "continuing authority to negotiate"

Summary: To qualify as a commercial agent under the Commercial Agents (Council Directive) Regulations 1993, the agent in question must be authorised to "negotiate" or "negotiate and conclude" transactions on his principal's behalf. The High Court has held that key activities in this context are, essentially, procuring transactions and acquiring customers for repeat orders. For the purposes of the Regulations, the word "negotiate" is given a wide meaning and focuses on the agent's ability to win business for the principal rather than to finalise the actual terms of the transaction: Invicta UK -v- International Brands Ltd [2013] EWHC 1564 (QB)

Background: Invicta, the claimant, acts for principals across the entire food and drink industry, selling to wholesalers rather than individual shops. The defendant (IBL) engaged Invicta as its sales agent in the UK to establish a significant market presence for its South African wine. According to the documentation, Invicta would seek orders in return for a monthly fee (as opposed to commission on the usual basis), and IBL would contract direct with the customer.

Usual rules of statutory interpretation "not appropriate". The judge, when examining the requirement in the Regulations and the underlying Directive for "continuing authority to negotiate the sale and purchase of goods… or to negotiate and conclude the sale or purchase of goods" on behalf of another person, quoted several authorities to show that the word "negotiate" is widely construed in this context. In Parks -v- Esso Petroleum Company Limited [1999] 18 TrL Rep, a definition along the lines of "deal with, manage or conduct" sales was accepted without any need for the agent to be involved in bargaining over price. Similarly, in PJ Pipe & Valve Company Limited -v- Audco [2005] EWHC 1904 (QB) an agent employed to promote the principal's capabilities generally and seek its designation as an approved vendor pre-tender, rather than soliciting orders at all, was entitled to rely on the Regulations. This reflected the purpose of the Directive, namely to protect commercial agents. The usual English law rules of statutory interpretation should not be applied.

Generating sales impossible without authority. The question of authority is determined, in the first instance, at the time when the agency agreement is made. At the core of both agreements was the requirement for Invicta to sell IBL's product and to contract in IBL's name where possible - both characteristic of a classic commercial agency. The commercial purpose was for Invicta to generate sales, which it could not do without the necessary authority to negotiate and/or conclude transactions within the parameters of the agreements. "Thus, the activities of a commercial agent extend to procuring transactions and acquiring customers for repeat orders. Neither of these activities need include negotiating the terms of the transaction, provided that the agent gets business in for the principal."

Please click on the links below for the other articles in the February 2010 commercial contracts newsletter:

• No exemplary damages awarded for breach of confidence
• Construction of confidentiality clauses: commercial agreements and employment contracts distinguished
• Exclusion and limitation clauses in professional services contracts held reasonable under UCTA
• Payment on contractual termination "not a penalty"
• Delay: make sure your contract provides a remedy
• Repudiatory breach and the importance of context when assessing impact