Open consultation

Smarter regulation: deregulating the Commercial Agents (Council Directive) Regulations 1993

Published 16 May 2024

Ministerial foreword

We want the UK to be a place where businesses can thrive. Businesses of all sizes do best when supported to grow without being hampered by overzealous regulation. Brexit provided us with the opportunity to re-think how and when we regulate. We are committed to removing from the UK statute book regulations that are unnecessary and burdensome while reforming or retaining regulation that is fit for purpose and of benefit to the UK. When new regulation is introduced, it will be subject to more consistent monitoring and evaluation to ensure that it is delivering on its aims.

By ensuring regulations are fit for purpose, businesses will have more opportunity to innovate, experiment, and capitalise on the UK’s global leadership in areas like clean energy technologies, life sciences, and digital services. This will cement our position as a world-class place to start and grow a business.

The Commercial Agents (Council Directive) Regulations 1993 are a product of our membership of the EU. The UK government opposed the underlying directive when it was introduced. Its provisions sit at odds with the legal systems which operate in the UK under which the relationship between principal and agent is governed by a mixture of the domestic rules on agency and contract law.

It’s time to review whether these regulations fit the UK. We think deregulating these regulations could simplify the law and free businesses to work with each other. But we want to hear from you. We want to use this consultation as part of our ongoing discussions with business, consumer groups and enforcement agencies to help maintain our global position as a dynamic, vibrant, and flexible economy.

Thank you for taking the time to respond to this consultation.

Kevin Hollinrake MP

Minister for Enterprise, Markets, and Small Business

Why we are consulting

After our exit from the EU, the European Union (Withdrawal) Act of 2018 preserved a substantial amount of EU law in our domestic legal framework as assimilated law. However, this category of law was never intended to sit on the statute book indefinitely. Assimilated laws retained after Brexit were agreed as part of a complex compromise made in Brussels, between 28 different EU member states, and these were not subject to the same levels of Parliamentary scrutiny as UK domestic legislation.

The Retained EU law (Revocation and Reform) Act 2023 provides us with an opportunity to put the UK statute book on a sustainable footing, following our exit from the EU. The act enables the UK government, via Parliament, to replace years of EU regulation with a more agile, home-grown regulatory approach that specifically meets the needs of the UK - seizing the benefits of Brexit to create the best regulated economy in the world, stimulating economic growth, innovation, and job creation.

The Commercial Agents (Council Directive) Regulations 1993 (‘CARs’) are a piece of assimilated EU law which implemented an EU directive. Over 30 years since their introduction, and with the opportunity of Brexit, it is right that we review these regulations to determine whether they work for UK businesses.

Consultation details and how to respond

Issued: 16 May 2024

Respond by: 11:59pm 11 July 2024

Consultation reference: Smarter regulation: deregulating the Commercial Agents Regulations

Audiences: We are particularly interested to hear from businesses and their trade associations, commercial agents, representative bodies, enforcers such as Trading Standards departments or their representatives, academics including legal academics, and consumers and their representatives.  When responding please state whether you are responding as an individual or representing an organisation.

Territorial extent: United Kingdom

Respond online: complete our qualtrics form

or

Write to:

The Department for Business and Trade

Consumer and Competition Policy Directorate

Old Admiralty Building
Admiralty Place
London
SW1A 2DY
United Kingdom

Your response will be most useful if it is framed in direct response to the questions posed, though further comments and evidence are also welcome. If you have further comments in addition to responses to the questions via the online form, you can submit these to commercialagents.consultation@businessandtrade.gov.uk.

In line with new Better Regulation framework guidance, an options assessment will be completed and submitted it to the Regulatory Policy Committee for independent scrutiny.

Background to The Commercial Agents (Council Directive) Regulations 1993

The Commercial Agents (Council Directive) Regulations (CARs) define the terms of engagement between a business and ‘commercial agents’ (CAs) who act on their behalf (for example to scout for new business and sell products). The CARs define a commercial agent as a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person (the ‘principal’), or to negotiate and conclude the sale or purchase of goods on behalf of and in the name of that principal. The CARs do not apply to a person who, in his capacity as an officer of a company or association, is empowered to enter into commitments binding on that company or association, a partner who is lawfully authorised to enter into commitments binding on his partners or a person who acts as an insolvency practitioner or the equivalent in any other jurisdiction.

The CARs include elements similar to employment law, such as guaranteeing compensation is paid to CAs when principals terminate contracts. They, therefore, provide some protection to businesses who may lack the legal knowledge of larger firms they contract with, or who face unfavourable terms being imposed on them. The CARs are subject to private enforcement only, through the courts.  

The underlying Commercial Agents Directive 1986 is based on a hybrid of French and German law. The CARs do not sit easily with the UK’s broader legislative framework, which recognises – in contrast to business to consumer contracts, for example – that businesses should in principle have the freedom to agree contractual terms between themselves.

In UK contract law, legal contracts define relationships between two commercial entities. It has been suggested that the EU directive and its basis in French and German law runs counter to the underlying philosophy of contract law in both England or Wales and Scotland. For example, German law has domestic legislation with inbuilt protections for CAs working in their territory, including the inalienable right to compensation or other forms of payment or indemnity at the end of a contract.

Prior to 1993 when the CARs came into effect, if a principal-agent relationship made on the basis of the UK law fell into dispute, the courts would rely on the contract and the law of agency to determine the case.

The intention of the Commercial Agents Directive was to provide consistent protections for commercial agents should the contract between principal and CA end. Commercial agency agreements must meet certain conditions for the CARs to apply to them. The CARs include rights which cannot be overridden by contractual agreement between the parties. The CARs also include rights which may be overwritten by other provisions in the contract.

If the necessary conditions are met for the CARs to apply to a relationship between a principal and agent, then even in cases where there is no written contract, the CARs remain enforceable. Some of the regulations within the CARs apply to principals, some apply to CAs, and some apply to both parties.

To the extent that an agent, falls within the definition of ‘commercial agent’, certain requirements of the CARs cannot be excluded, for example:  

• Regulations 3 and 4 provide that both commercial agents and their principals are to act in good faith, communicate necessary info, and comply with reasonable instructions from each other

• Regulation 10, certain provisions regarding commission

• Regulation 13, commercial agent entitled to receive written contract terms

• Regulation 15, if contracts are set up without a definite term or are set up for a definite term but then are allowed to run on beyond the original term, a minimum notice period to terminate the contract applies (this is 1 month per year the contract has been in force, up to a maximum of 3 months’ notice) — if longer notice is agreed, the principal’s notice can’t be shorter than the agent’s

• Regulation 17, commercial agents have the right to compensation for damages suffered as a result of termination of a contract where the agent is deprived of the commission or have not enabled the agent to pay off the costs incurred when winding down the contract — the commercial agent has 1 year to pursue their entitlement

• Regulation 18, exclusion of indemnity or compensation where agent terminates the contract themselves, or agent assigns their rights to another

• certain other terms may be displaced by agreement between the parties

Having regulations that take precedence over contractual terms is arguably unusual in the UK for business-to-business transactions. The existence of the CARs can therefore lead to confusion for those who may not be aware of the regulations or are not sure whether or not they apply to them. From the perspective of a genuine self-employed person who doesn’t have access to sophisticated commercial advice, the regulations could make a difference in correcting the power imbalance when contracting with a large firm.

The drafting of the CARs has led to several ambiguities which continue to be tested in the court system, including on who qualifies as a CA, which contracts should be in scope, and how the amount of compensation should be calculated.

Government proposal: deregulation

The government proposes to bring forward legislation to prevent new CAs being created in future under the Commercial Agents (Council Directive) Regulations 1993. For the future, this will return the position for CAs back to that of 1993 when contracts were negotiated individually within the context of agency. This would be similar to the situation as now for service contracts which are out of scope of the CARs. Should the government proceed with this proposal, the provisions of the CARs will continue to apply to those principal-agency relationships where the CARs already apply.

Deregulating would simplify the UK’s legislative framework, reduce court time spent on interpreting these regulations, and most importantly make it simpler for businesses to contract with each other.

We are consulting to test this proposition. We are interested in hearing what the impacts on business would be of deregulation and the advantages and disadvantages of doing so.

The proposals we are consulting on cover Great Britain only. Similar regulations for Northern Ireland are set out in the Commercial Agents (Council Directive) Regulations (Northern Ireland) 1993. It will be a matter for the Northern Ireland Executive to determine if and how it reforms these regulations. The requirements of the Northern Ireland regulations broadly mirror those of its Great Britain equivalent. The department will work with the Northern Ireland Executive, including to share the findings from this consultation, to inform policy development in Northern Ireland.

Questions

1. Please indicate whether you are responding as:

   1. An individual
   2. A business with no employees
   3. A business with 1 to 49 employees
   4. A business with 250 or more employees
   5. A trade association
   6. A consumer group
   7. An enforcer, such as a Trading Standards department
   8. A lawyer
   9. An academic
   10. Other (please describe)
2. If you are responding as a business, please indicate whether you identify as:
   1. A commercial agent in scope of these regulations
   2. A principal in scope of these regulations
   3. Neither

3. To what extent do you feel you understand the impacts the Commercial Agents (Council Directive) Regulations 1993 (CARs) have on the contractual agreements between commercial agents and principals? 
   [Very well, Well, Neutral, Poorly, Very poorly, Don’t know]

4. Please explain your answer.

5. How important do you feel the protections the CARs provide to commercial agents are?
   [Very important, Somewhat important, Neutral, Not very important, Not at all important, Don’t know]

6. Please explain your answer

7. How important do you feel the protections the CARs provide to principals are?
   [Very important, Somewhat important, Neutral, Not very important, Not at all important, Don’t know]

8. Please explain your answer

9. Would deregulating the CARs reduce or increase the ability for commercial agents and principals to enter into contractual agreements?
   [Reduce, Stay the same, Increase, Don’t know]

10. Please explain your answer.

11. Would deregulating the CARs reduce or increase the incidence of legal disputes between agents and principals?
    [Reduce, Stay the same, Increase, Don’t know]

12. Please explain your answer.

13. Would deregulating the CARs reduce or increase the ability of commercial agents to enter into agreements with international principals?
    [Reduce, Stay the same, Increase, Don’t know]

14. Please explain your answer.

15. Would deregulating the CARs reduce or increase the ability of principals to enter into agreements with international commercial agents?
    [Reduce, Stay the same, Increase, Don’t know]

16. Please explain your answer.

17. If the CARs were deregulated, they would continue to apply to commercial agencies created before the date of deregulation, up until their natural expiration. Do you agree with this approach?
    [Yes, No, Don’t know]

18. Please explain your answer.

19. What other impacts might there be for commercial agents if the CARs were deregulated?
    [open text]

20. What other impacts might there be for principals if the CARs were deregulated? [open text]

21. Do you think that the CARs should be deregulated?
    [Yes, No, Don’t Know]

22. Please provide the main reasons for your answer.
    [open text]

Do you have any other comments on the CARs?
[open text]

Confidentiality and data protection

Information you provide in response to this consultation, including personal information, may be disclosed in accordance with UK legislation (the Freedom of Information Act 2000, the Data Protection Act 2018 and the Environmental Information Regulations 2004).

Every care will be taken to ensure the confidentiality of the data. If you would like your responses to remain anonymous, please state this clearly. While we will endeavour to do this, it cannot be guaranteed. An automatic confidentiality disclaimer generated by your IT system will not be regarded by us as a confidentiality request.

We will process your personal data in accordance with all applicable data protection laws. See our public consultations privacy policy.

We will summarise all responses and publish this summary on the smarter regulation: deregulating the commercial agents regulations consultation page. The summary will include a list of names of organisations that responded, but not people’s personal names, addresses or other contact details.

Quality assurance

This consultation has been carried out in accordance with the government’s consultation principles.