The Commercial Agents (Council Directive) Regulations 1993 (“CARs”) explained

The Commercial Agents Regulations (CARs) govern the relationship between a commercial agent and its principal when goods are being sold. It's important to note that providing services is not within the scope of the CARs.

Under the CARs, a commercial agent is defined as a self-employed intermediary authorised to negotiate the sale or purchase of goods on behalf of another person (the principal). The CARs impose mandatory rules for both the agent and principal regarding remuneration, commission, termination notice, termination payments and trade restrictions.

This article looks through the key provisions of the CARs and the obligations for both commercial agents and principals. 

Duties owed by agents:

• act dutifully and in good faith
• act in the interests of their principal
• make proper efforts to negotiate and, where appropriate, conclude the transactions they are instructed to handle
• communicate to their principal all necessary information
• comply with reasonable instructions given by their principal

Duties owed by principals:

• act dutifully and in good faith
• provide their commercial agent with the necessary documentation relating to the goods concerned
• obtain the information necessary for the agent to perform their duties and promptly notify their commercial agent if they anticipate a significant drop in transaction volume than the commercial agent would normally have expected
• inform their commercial agent within a reasonable period, of their acceptance, refusal, or non-execution of a commercial transaction the agent has arranged for them

Remuneration and commission

Entitlement to remuneration

In the absence of a relevant remuneration term in any agency contract, the CARs impose default provisions. Agents are entitled to receive either customary practice renumeration or, if that cannot be determined, reasonable remuneration for the transaction. 

It is crucial to review the payment provisions within any agency contract to understand true entitlements. 

Entitlement to commission

Commercial agents are also entitled to commission during the agency contract, and (in some circumstances) after the contract has concluded.

Termination of agency contracts

Notice periods

If an agency contract does not contain any termination provisions (or if the parties did not enter into a contract), then either party may terminate by notice. However, in order to terminate an agency contract effectively, the CARs prescribe that the party seeking to terminate must provide at least: 

• one month notice for the first year of the contract
• two months’ notice for the second year
• three months’ notice for the third year and for any subsequent years

Parties are free to agree longer notice periods, but the principal’s notice period must be as long as the commercial agent’s. 

Termination payments

A commercial agent is entitled to an indemnity or compensation on termination of an agency contract. Unless explicitly stated otherwise in the contract, agents are entitled to compensation. 

Under the CARs, a commercial agent has one year following termination of the agency contract to pursue their entitlement to an indemnity or compensation, or they lose their entitlement.