Double agent

Principals can avoid the implications of the Commercial Agents (Council Directive) Regulations 1993 (as amended) not by denying that agents are commercial agents, but by establishing that the agents' activities are secondary.

Following the recent decision in Crane v Sky In-Home Service Limited (1) and Secretary of State for Trade and Industry (2) [2007] EWHC 66 (Ch), this 'get out of jail free card' is likely to be considered even more closely by principals faced with claims under the Regulations.

In Crane, the claimant had acted as the first defendant's agent for the supply and installation of Sky box packages. In addition he acted as an agent for the first defendant's sister company selling subscriptions to the Sky Digital service. He also provided his own extended warranty service which, the first defendant claimed, he passed off as a Sky service. As a result he was given 14 days' notice of termination. The agent claimed compensation under the Regulations.

The Schedule to the Regulations sets out various provisions to determine whether an agent's activities are to be considered secondary. Where this is the case, the Regulations will not apply to such an agent (reg 2 (4)).

In looking at the claimant's activities, Briggs J focused on para 2 of the Schedule. He firstly considered para 2(a) which is concerned with whether the business for the principal is for the sale of goods of a particular kind. Briggs J found that the purpose of the paragraph is to focus on the commercial interests served by the development of a market for goods of the relevant kind. As such it made no difference if the goods in question were on the one hand sold by a 'large unitary corporation' with many different businesses or, on the other hand, a member of a group of companies.

Whether or not a particular arrangement is primary or secondary is to be determined by indications set out in paras 3 and 4 of the Schedule. Although the Schedule does not say so, Briggs J held that such indications represent a non-exclusive list of pointers.

Whilst this part of his decision is open to criticism, Briggs J was clearly correct in finding that the indications are 'directed at distinguishing between a relationship where the agent develops goodwill '¦ which passes to the principal, and one where that does not happen'¦'

Briggs J then examined the claimant's activities in the context of para 2. It was when this examination turned to para 2(b)(ii) that the claimant's case run into difficulties as this paragraph is focused on the attractive force that brings in repeat custom and so generates goodwill. Accordingly Briggs J distinguished the Sky+ boxes and HD boxes (for which the claimant was not an agent) from the box packages and found that the claimant's actions were to be considered secondary.

For the sake of completeness Briggs J considered the remaining parts of the Schedule. In doing so surprisingly he found that it was unnecessary that the principal's interests alone are served by the agent's activities. Instead the test could be met if it was in the interests of the shareholders in the group of which the principal was a part.

This was repeated in respect of:

• para 3(a) where the fact that the box packages were assembled from items from different manufacturers (and not by the first defendant) was not a problem; and
• para 3(b) where it was 'neither here nor there, if an associated company benefits from the goodwill.'

Briggs J's position can be criticised. Arguably it also contravenes the position taken by the Court of Appeal in Light v TY Europe where the lack of a contractual nexus between the sub-agents and principal prevented the sub-agents from successfully claiming compensation.

Crane was also concerned with the language used in reg 18(a). This excludes the agent's entitlement to indemnity or compensation where 'the principal has terminated the agency contract because of default attributable to the commercial agent which would justify immediate termination of the agency contract pursuant to reg 16. In turn reg 16 provides that the Regulations will not affect the application of any enactment or rule of law which provides for the immediate termination of the agency contract (a) because of the failure of one party to carry out all or part of his obligations under that contract '¦.'

What is the enactment or rule of law for the purpose of the Regulations? As Briggs J put it the obvious candidate 'is the doctrine of repudiatory breach'. But Briggs J did not accept that it was necessary to show that the principal did terminate the contract with immediate effect because of the agent's repudiatory breach.

On the facts the question arose as to whether in order to rely on reg 18(a) it was necessary that the principal terminate the contract with immediate effect. Briggs J was firmly of the opinion that the principal could terminate the agency contract otherwise than summarily or by the acceptance of a repudiatory breach. However, this was subject to the proviso that 'at that moment the principal had a right to terminate immediately within the meaning of Regulation 16'. The first defendant had given 14 days' notice. Such notice was capable of being relied upon for the purposes of reg 18(a). Accordingly from this interpretation it is the case that if at the moment of giving notice of termination the principal had the right to terminate immediately by acceptance of the agent's repudiatory breach, the fact that a period of notice might be given is irrelevant to the operation of the regulation.

Previously, agents have argued that agency contracts must terminate immediately for reg 18(a) to be capable of being relied on. As a result of Crane such arguments will now fall away.