How any changes are ultimately implemented will depend on the next government’s legislative programme and priorities, but the fact they are under review is important, as is their current scope.  The consultation closes on 11 July 2024.

What are the regulations?

The regulations were originally introduced to implement an EU directive that, in turn, sought to harmonise different national laws on commercial agency and improve the position of commercial agents against their principals.  They relate to self-employed intermediaries who have continuing authority to negotiate the sale or purchase of goods on behalf of another person (known as “the principal”), or to negotiate and conclude the sale or purchase of goods on behalf of and in the name of that principal.

The regulations contain numerous provisions that cannot be excluded by agreement between the agent and principal and, in particular, provide for a termination payment to be payable by the principal in most situations (other than some limited exceptions, such as termination for the agent’s serious breach).

Accordingly, it has been important to understand when they apply and, from a principal’s perspective, what the amount of any likely termination payment would be. 

This is particularly relevant when deciding on which route to market to take,  as the disadvantages of substantial termination payments need to be weighed against the benefits of agency over distribution arrangements, such as from a competition law perspective.

Why are the regulations on the reform agenda?

Of all EU-derived commercial law, the regulations stand out as being at odds with the UK’s broader approach to the regulation of business-to-business contracts, which tends to rely on contractual freedom with only limited regulatory intervention.  Of course, business-to-consumer contracts are, by contrast, heavily regulated by a number of consumer-protection laws and regulations.

Whilst commercial agency had been widely recognised across civil legal systems, it didn’t exist as a concept in the UK prior to the regulations.  Indeed, the underlying EU directive evolved from a mixture of French and German agency laws.  As the directive left the precise form of implementation to member states, in the end it was not implemented in a harmonised manner nationally.

The UK opposed the original directive and the UK’s implementation of it, by means of the regulations, always appears to have been undertaken in haste.  The regulations were a “cut and paste” of the original EU directive and a lack of a thorough implementation into UK law has led to numerous interpretation issues ever since.

Uncertainty over termination payments

A key example of this relates to the calculation of termination payments. The directive permitted an “indemnity” (based on German principles) or “compensation” (based on French principles) approach to be adopted.  The UK approach in the regulations was to adopt both and allow the parties to elect which one to use, something that has led to considerable uncertainty for many years.

Lack of clarity on what constitutes secondary activities

A second area where poor implementation has caused continued uncertainty is around “secondary” activities.  The regulations do not cover agents whose activities are considered to be “secondary”, and the regulations cover this in a schedule to them.

However, rather than prescriptively stating what would be considered “secondary”, the regulations include a complicated formula that seeks to define what “primary” activities are. 

As a result, it is often the case that relationships, which don’t initially appear to be within what the drafters of the directive considered to be commercial agencies, can be potentially within the scope of the regulations as a result of not being clearly “secondary”.

What are “goods”?

Finally, whilst it would seem perfectly obvious as to what “goods” means, there has been continued case law on the subject since the regulations were implemented. 

As a result, “goods” have been held to include supplies of gas and electricity and commoditised software delivered by electronic download.

Potential outcome of the review

As a result of the uncertainty that has existed in respect of the regulations since their inception, and their outlier status in general business-to-business commercial law, they would make a very good candidate for removal as part of the deregulation programme. 

Although, it should be acknowledged that if they had been implemented in a better manner in the first place, then much of that confusion could well have been avoided. 

From the commentary that accompanied the consultation, it looks likely that any repeal of the regulations would be for new contracts that are put in place rather than any repeal having retrospective effect.

It remains to be seen how much impetus is put behind this deregulation attempt, and indeed post-Brexit deregulation more broadly, in the new parliament.