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Appointing Commercial Agents and The Importance of Having an Agreement Between Principal and Agent

Friday, 8 March 2013

The engagement of commercial agents using standard form contracts or otherwise has become commonplace for businesses today. However, it is imperative that businesses understand the legal implications of a principal-agent relationship before proceeding to authorize a commercial agent to act on the behalf of the company in relation to daily commercial transactions.

The Commercial Agents (Council Directive) Regulations, 1993

The Commercial Agents (Council Directive) Regulations, 1993 (“the Regulations”) defines a commercial agent to mean a “self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of their principal or to negotiate and conclude such transactions on behalf of and in the name of that principal”.

The law does not require an agency agreement to be in writing for the agency relationship to exist; the agreement can be concluded orally.

Agreement Between Principal and Agent

Besides the Regulations, the relationship of a principal is also governed by the actual agency agreement between principal and agent. Generally, an agent is any person who is authorised by a principal to represent the business of the principal and conclude commercial transactions with third parties on the behalf of the principal.

There is nothing under the law to suggest that only individuals can act as agents; corporation and partnerships can also be authorised to work as agents.

Even though an agency agreement may be concluded orally under the law, parties are strongly encouraged to put it in writing in order to set out the rights and duties categorically. This is helpful in the event of a future dispute.

Acting as Agent

It is important to note that an agent must contract in the name of the principal and not in his own name. Also, the agent is liable to carry out the directions of his principal in good faith and communicate the outcome of the negotiations with third parties to the principal without any manipulation or making of secret profits.

The same goes equally for the principal who is obliged to provide the agent with a statement of commission and any other information that is necessary for the agent to perform the terms of the agreement.

Acting as Principal

Due to the statutory rights of agents, the principal must act with substantial caution while the agency agreement is in place. Importantly, the principal may be faced with a suit for compensation or indemnity if the agency agreement is unilaterally terminated by the principal in contravention of the Regulations.


In light the Regulations, businesses employing commercial agents to negotiate on their behalf with third parties are encouraged to carefully understand not only the actual terms of the agency agreement but also the implications under the Regulations.

If you need help understanding the nature of relationships that your company has with third parties or assistance drafting contracts, Rollingsons has experienced lawyers who can advise you. For more information please contact James Crichton via e-mail or by telephone on 0207 611 4848.