#8607 - Commercial Intermediaries

Commercial Intermediaries

Methods of getting products on the market:

selling directly to customers
Appointing an agent
Appointing a distributor
Licensing technology

Agency

Types	marketing - market Principal’s (‘P’) products and finds/introduces customers to market - Regs less likely to apply to marketing As Sales - classic commercial A relationship. A sales A enters into the contract w/the customer by signing it for and on behalf of and in name of P
Key terms of A ag	Include the following
Appointment	3 x types exclusive - means P agrees not to appoint anyone else in A’s territory or do it themselves Sole- same as exclusive but P can still sell Non-exclusive - P can appoint any numbers of As in territory and sell themselves
Remuneration	Paid via a number of mechanisms: % of invoice of products sold; or Fixed minimum consideration; or Sliding/increasing scale of commission (more A sells, the higher the commission rate)
Rights and duties of A	CL - implied duties fiduciary duty to act in good faith Exercise r’able care and skill Account to P for all property received Right of A to r’able remuneration Right of A to be indemnified against liabilities incurred in performing his duties CL - contract law A ag what is expressly agreed Commercial Agents (Council Directive) Regulations 1993 (Regulations) will either imply or override certain cl’s (c) Regulations [see box below]

Regulations

Who is commercial A to which Regs apply?	(1) w/in definition of A - defined Ref 2(1) as ‘self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of [P] or or negotiate and conclude the sale or purchase of goods on behalf or and in P’s name’ Therefore on the whole usually sale As although market As could still fall w/in definition reg 1(3) if both parties agree contract is to be governed by another MS’s law, a UK court must apply that MS’s equivalent reg - even if A was acting in UK If both parties agree contract is to be governed by English/Scottish law (even though A is operating in another MS) and equivalent MS reg allow parties to choose English/Scottish law, court must apply Regs
Reg 3 - A’s duties	Look after P’s interests Act dutifully and in good faith Communicate all necessary info to P Comply w/P r’able instructions
Reg 4 - P’s duties	act dutifully and in good faith Provide all necessary docs in goods for A Provide all necessary info for A Let A know if trans’s procured by A are accepted or refused
Reg 6 - Remuneration	Usually dealt w/expressly but if no applicable custom, remuneration must be r’able
	Nb. Regs 7, 8 and 9 are not mandatory and can be contracted out of expressly
Reg 7 - Commission during contract	A entitled to commission during contract when: trans has been concluded as a result of his action Reg 7(1)(a); or The contract is signed a customer who has previously been introduced by the A Reg 7(1)(b); or The contract is signed w/a customer who is w/in the A’s exclusively agreed territory or customer group Reg 7(2)
Reg 8 - Commission after contract	A entitled to commission after contract when, Reg 8(a) and (b): trans entered into (contract w/customer) was ‘mainly attributable’ to A’s effort and it was entered into w/in a r’able time after the agency ended; or In acc w/conds in Reg 7, the trans results from an order being place w/P before A ended Nb common for P to exclude Reg 8
Reg 9 - apportioning commission between outgoing and new As	Apportionment of commission earned under reg 8 if ‘equitable’.
	Regs 10(2) and (3), 14-15 and 17-19 are mandatory
Reg 10(2) and (3) - When is commission due and payable?	Reg 10(2) - comm is due when P becomes liable for sum Reg 10(3) - comm is payable not later than the last day of the month following the quarter in which it became due
Regs 14-15 - Minimum notice periods	Apply where A contract has indefinite term. Minimum notice periods apply as follows: during first yr of A - 1 month During 2nd yr of A - 2 months During 3rd yr and subsequently - 3 months
Regs 17-19 - Indemnity OR compensation payable on termination	Compensation = amount of payment is calculated by valuing business A has built up during term of ag. Reg 17(6) P must compensate A for ‘damage’ he suffers as a result of termination Lonsdale v Howard and Hallam HL found: Compensation can be awarded for any damage suffered by A (not limited to what is fair and r’able) Losses will include value of A business @ time of termination, in particular value of goodwill built up by A which would otherwise pass to P free of charge In valuing goodwill, correct approach is to consider the price a buyer of A’s business would ahve paid for goodwill Indemnity - regs 17(2)-(5) = amount of payment takes account of: the extent to which A has brought new customers/significantly increased business; AND The P continues to derive ‘substantial benefits’; AND Indemnity is ‘equitable in all circs’ If these conds are satisfied, I payment is limited to 1 yr’s salary based on average annual commission earned over last 5 yrs of A
Which to pick?	Not an easy decision! P doesn’t haven’t benefit of hindsight and will not know (a) how long A will last and (b) how successful A will be If A is likely to continue for a long, 1 yr indemnity may be preferable as @ least it is certain and predictable
No comp or I payable in following circs	when immediate termination of A by P is justifiable Reg 18(a) When it was A who terminated A (unless justifiable) Reg 18(b); and/or When A has failed to notify P w/in 1 yr following A that A intends to clam Reg 17(9)
Reg 20 - Restraint of trade	Doctrine of restraint of trade invalidates any contract term which has effect of preventing a party from engaging in any business activity, unless term protects legitimate business interest of other party and goes no further than is r’able on facts Reg applies in addition to CL

Who is commercial A to which Regs apply?

(1) w/in definition of A - defined Ref 2(1) as ‘self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of [P] or or negotiate and conclude the sale or purchase of goods on behalf or and in P’s name’

Therefore on the whole usually sale As although market As could still fall w/in definition

reg 1(3) if both parties agree contract is to be governed by another MS’s law, a UK court must apply that MS’s equivalent reg - even if A was acting in UK
If both parties agree contract is to be governed by English/Scottish law (even though A is operating in another MS) and equivalent MS reg allow parties to choose English/Scottish law, court must apply Regs

Reg 3 -

A’s duties

Look after P’s interests
Act dutifully and in good faith
Communicate all necessary info to P
Comply w/P r’able instructions

Reg 4 -

P’s duties

act dutifully and in good faith
Provide all necessary docs in goods for A
Provide all necessary info for A
Let A know if trans’s procured by A are accepted or refused

Reg 6 -

Remuneration

Usually dealt w/expressly but if no applicable custom, remuneration must be r’able

Nb. Regs 7, 8 and 9 are not mandatory and can be contracted out of expressly

Reg 7 -

Commission during contract

A entitled to commission during contract when:

trans has been concluded as a result of his action Reg 7(1)(a); or
The contract is signed a customer who has previously been introduced by the A Reg 7(1)(b); or
The contract is signed w/a customer who is w/in the A’s exclusively agreed territory or customer group Reg 7(2)

Reg 8 -

Commission after contract

A entitled to commission after contract when, Reg 8(a) and (b):

trans entered into (contract w/customer) was ‘mainly attributable’ to A’s effort and it was entered into w/in a r’able time after the agency ended; or
In acc w/conds in Reg 7, the trans results from an order being place w/P before A ended

Nb common for P to exclude Reg 8

Reg 9 - apportioning commission between outgoing and new As

Apportionment of commission earned under reg 8 if ‘equitable’.

Regs 10(2) and (3), 14-15 and 17-19 are mandatory

Reg 10(2) and (3) -

When is commission due and payable?

Reg 10(2) - comm is due when P becomes liable for sum

Reg 10(3) - comm is payable not later than the last day of the month following the quarter in which it became due

Regs 14-15 -

Minimum notice periods

Apply where A contract has indefinite term. Minimum notice periods apply as follows:

during first yr of A - 1 month
During 2nd yr of A - 2 months
During 3rd yr and subsequently - 3 months

Regs 17-19 -

Indemnity OR compensation payable on termination

Compensation = amount of payment is calculated by valuing business A has built up during term of ag. Reg 17(6) P must compensate A for ‘damage’ he suffers as a result of termination

Lonsdale v Howard and Hallam HL found:
Compensation can be awarded for any damage suffered by A (not limited to what is fair and r’able)
Losses will include value of A business @ time of termination, in particular value of goodwill built up by A which would otherwise pass to P free of charge
In valuing goodwill, correct approach is to consider the price a buyer of A’s business would ahve paid for goodwill

Indemnity - regs 17(2)-(5) = amount of payment takes account of:

the extent to which A has brought new customers/significantly increased business; AND
The P continues to derive ‘substantial benefits’; AND
Indemnity is ‘equitable in all circs’

If these conds are satisfied, I payment is limited to 1 yr’s salary based on average annual commission earned over last 5 yrs of A

Which to pick?

Not an easy decision! P doesn’t haven’t benefit of hindsight and will not know (a) how long A will last and (b) how successful A will be

If A is likely to continue for a long, 1 yr indemnity may be preferable as @ least it is certain and predictable

No comp or I payable in following circs

when immediate termination of A by P is justifiable Reg 18(a)
When it was A who terminated A (unless justifiable) Reg 18(b); and/or
When A has failed to notify P w/in 1 yr following A that A intends to clam Reg 17(9)

Reg 20 -

Restraint of trade

Doctrine of restraint of trade invalidates any contract term which has effect of preventing a party from engaging in any business activity, unless term protects legitimate business interest of other party and goes no further than is r’able on facts
Reg applies in addition to CL

Nb. A and competition law:

a genuine A does not establish a chain of trans’s as the P and A are treated effectively as 1 single entity

Does EU law apply to A [even if not genuine A]?

see VABE and vertical table above, A usually covered by VABE and therefore out of Art 101

Distribution

Types	exclusive: supplier/manufacturer agrees to sell its stuff to one D in a defined territory and agrees not to appoint any other Ds in that territory and agrees not to sell themselves Sole: same as exclusive but S/M reserves right to sell themselves in that territory Non-exclusive: S/M has complete freedom to appoint as many Ds in territory as it likes and also to sell itself Selective: S/M can appoint as many Ds as it likes but must meet specified criteria
Main provisions of D ag	products Territory Confidential info IP (particularly TMs) Minimum sales/minimum purchase targets Appointment Duration Duties of D Conds of sale Termination provisions Product liability as does S/M -> D -> Customer
Competition Law	Unlike A, Art 101 is always prima facie relevant to D. However, they may also use VABE

Types

exclusive: supplier/manufacturer agrees to sell its stuff to one D in a defined territory and agrees not to appoint any other Ds in that territory and agrees not to sell themselves
Sole: same as exclusive but S/M reserves right to sell themselves in that territory
Non-exclusive: S/M has complete freedom to appoint as many Ds in territory as it likes and also to sell itself
Selective: S/M can appoint as many Ds as it likes but must meet specified criteria

Main provisions of D ag

products
Territory
Confidential info
IP (particularly TMs)
Minimum sales/minimum purchase targets
Appointment
Duration
Duties of D
Conds of sale
Termination provisions
Product liability as does S/M -> D -> Customer

Competition Law

Unlike A, Art 101 is always prima facie relevant to D.

However, they may also use VABE

#8607 - Commercial Intermediaries - Commercial and IP

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