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COMMERCIAL LAW A-Z: A - AGENCY

‘Agency’ is a legal relationship - usually created by contract - between two parties. These parties are called ‘the principal’ and ‘the agent’. It is a relationship where the principal appoints the agent to act on his or her behalf. Under the relationship, the agent will have powers to bring about, modify, or terminate legal relationships between the principal and one or more third parties.


An agent therefore has powers to affect the legal position of the principal; for example, by entering into contracts with third parties on behalf of the principal. There is usually a limit on these powers. This is called the agent’s ‘authority’.


An agency agreement is a fiduciary one. A fiduciary relationship is one where one party puts special trust, confidence, or reliance in the other party. Because of this, the principal and agent will owe each other several obligations and duties


Commentary:


Business and commerce could not function without agents. Agents allow businesses and commercial enterprises, for example, to widen the scope of their activities. There are different types of agents. In the field of commerce, commercial agents are vital. Commercial agents may have different functions. For example, they may be appointed to help develop and widen a business’s customer base by finding new customers for a product or negotiating on behalf of the principal.


Although they play a vital role in business, commercial agents are also vulnerable. The courts have recognised this fact. In the English case of Page v Combined Shipping and Trading Co Ltd [1997], Lord Justice Staughton stated that “commercial agents are a downtrodden race, and need and should be afforded protection against their principals.”


In order to offer greater protection to commercial agents, the UK adopted EC Directive 86/653. This was achieved by implementing the Commercial Agents (Council Directive) Regulations 1993 (‘the Regulations’). The basic purpose of the Regulations was to strengthen legal protections for commercial agents in relation to their principals.


Regulation 2(1) of the Regulations defines a commercial agent. It provides that a commercial agent is:


‘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…’


In some ways, regulation 2(1) might seem to have limited scope. First, it only applies to commercial agents who are ‘self-employed’ [people who work for themselves and not, for example, as the employee of a company]. Secondly, the commercial agent must have ‘continuing authority’. This excludes, for example, commercial agents who are appointed for only a single transaction. Thirdly, the commercial agent must be appointed in relation to the sale or purchase of ‘goods’; the regulation does not, therefore, apply to commercial agents who are appointed, for example, to negotiate and conclude contracts for services.


Since the Regulations were passed, the English courts have had to consider the meaning of some of the words and terms used in regulation 2(1). English courts have been prepared to give a wide construction, where appropriate. The regulations do not define what activities may amount to ‘negotiation’. Many commercial agents, for example, do not have authority to agree prices or fix contractual terms with third parties. However, English courts have been willing to look at the purpose of the EC Directive and give effect to it. In PJ Pipe & Valve Co Ltd v Audco India [2005], for example, the English High Court was prepared to extend the meaning of ‘negotiation’ to activities which generate goodwill for the principal’s business. In that case, the commercial agent had no power to ‘negotiate’ contracts or prices. However, he had been appointed to promote the principal’s business and reputation. The High Court considered the purpose of the EC Directive and held that his activities amounted to ‘negotiation’.


*An intermediary is a person who acts as a link between other people.


COLLOCATION BANK:

to appoint an agent

to enter into a contract

to owe [someone] an obligation

to widen the scope of [something]

to afford protection against [something]

to implement a law/regulation/directive

to generate goodwill


(c) Cambridge Legal English Academy 2020

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