Sub-Agents Left Out in the Cold
by Paul Samuel Director, Ashby Cohen Solicitors
An agent who is a commercial agent within the meaning of The Agents (Council Directive) Regulations 1993 ("the Regulations") has an independence which an employee does not have. Unless his agency contract expressly prohibits this, the agent can delegate his duties to sub-agents.
Many principals do prohibit the agent from appointing sub-agents as the sub-agent is one removed from the principal with the result that the principal is one removed from the customer. However, there are numerous agency agreements which do not contain any such prohibition.
What happens when the main agent retires or just wants to give up the main agency or the principal terminates the main agency because of some default on the part of the main agent which justifies the principal bringing it to an end? Where does that leave the sub-agent? Depending on the circumstances in which the main agency ends, the main agent may be able to bring a claim for compensation / indemnity against the principal, but can the sub-agent?
The Regulations do not make any mention at all of sub- agents and the argument goes that if the Regulations had intended to cover the position of sub-agents, they would have expressly mentioned them.
The Government's guidance notes issued when the Regulations were introduced stated, in reply to the question "are sub-agency agreements covered by the Regulations?", that :
"Whilst the position is not clear, the Regulations are, in principle, capable of covering sub-agency agreements"
Nevertheless, a case called Light and Others v Ty Europe Ltd decided in 2003 in the Court of Appeal is authority that the sub-agents would be unable to bring a claim against the principal.
Briefly, the Court of Appeal case involved a principal who manufactured cuddly toys, a main agent who was paid a commission of 15% and sub-agents of the main agent who were paid a commission of 10%. The main agency was for a fixed period and came to an end. The main agent ceased trading and had no assets and dropped out of the picture. The sub-agents brought claims for compensation under the Regulations against the principal. The High Court agreed that the sub- agents could bring a compensation claim against the principal. However, the principal appealed and the Court of Appeal reversed that decision.
The Court of Appeal held that the sub-agents were commercial agents of the principal within the meaning of the Regulations, but went on to rule that that was not enough. A further question had to be asked. This was whether there had to be a contract between the sub- agent and the principal for the Regulations to apply. The principal in that case said that the wording of the Regulations made it clear that a contract was required whereas the case for the sub-agents was that no such contract was required. The Court of Appeal held that a sub-agent of the principal who has no contract with that principal has no right to claim under the Regulations against that principal when the sub-agency ends. The Court of Appeal declined to refer the question to the European Court of Justice, commenting that the Regulations are clear and that there was no need to make a referral.
Thus a sub-agent would have to challenge a unanimous Court of Appeal decision if he wanted to bring a claim against the principal
The next question is whether the sub-agents could bring a claim against the main agent.
The Court of Appeal case which decided that there had to be a contract between the sub-agent and the principal for the Regulations to apply also, in passing, touched upon the question of whether the sub-agents could bring a claim against the main agent. The Court of Appeal commented "the claimants were probably not [the main agent's] commercial agents because they were not selling on its behalf, but I can see no reason why as [the main agent's ] agents they should not have been able to establish a stake in [the main agent's] compensation claim.
Whether they could have compelled [the main agent] to make such a claim is more problematical, but a combination of commercial pressure and resourceful lawyers might have done the trick".
This was only a passing comment in the case by the Court of Appeal, which was not asked to decide if the sub-agents could bring a claim under the Regulations as against the main agent (presumably because in that case the main agent had ceased trading and had no assets). The argument against the sub-agents being able to bring a claim under the Regulations against the main agent is picked up in the above quoted passing comment from the Court of Appeal that " the claimants were probably not the main agent's commercial agents because they were not selling on its behalf".
In other words, as between the main agent and the sub-agents, the main agent does not own the goods which are of course owned by the principal and the sub-agents negotiated the sale of the goods on behalf of the principal and not on behalf of the main agent. If this argument were upheld, it would mean that a sub- agent would be left without a claim against either the principal or the sub-agent.
As indicated by the comment which the Court of Appeal made, the courts are likely to try to construe the Regulations so as to give the sub-agents "a stake" in the sum which the principal pays over to the main agent. This pre-supposes that the principal makes a payment to the main agent and even if he does, the sub-agent in practice will have to have strong nerves and deep pockets to try to establish his "stake".
Article written by Paul Samuel of Ashby Cohen LLP, a leading law firm operating in all areas of employment law, partnership law and in matters arising out of the Commercial Agents (Council Directive) Regulations 1993.
Ashby Cohen Solicitors Ltd 18 Hanover Street, London W1S 1YN Tel: 0207 408 1338 Email:
info@ashbycohen.co.uk www.ashbycohen.co.uk
Disclaimer: This column does not contain legal advice and is for general guidance only. Agentbase, Ashby Cohen LLP and the writer accept no liability in connection with the general guidance given in this column. Please ensure that you obtain legal advice before acting in reliance upon anything in this article. For example, please be clear that the answers given in this column may not cover all possible angles, aspects, relevant considerations and/or points of law and so that all or any information which is given above needs in every instance to be referred for legal advice for clarification and amplification, before being relied upon
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