Commercial Agent Regulations: What Do Principals And Agents Need To Know?

• Published date: 18 February 2022
• Subject Matter: Corporate/Commercial Law, Contracts and Commercial Law
• Law Firm: Withers LLP
• Author: Ms Lesley Timms and Francesco Paggiaro

What is a Commercial Agent and what does it mean?

A Commercial Agent is someone who is a self-employed intermediary who has continuing authority to negotiate and/or conclude the sale or purchase of goods on behalf of another person (the Principal). Commercial Agents are often used to introduce Principals to new buyers in new territories where the Principal has little experience of operating. An Agent will usually have their existing contacts, local knowledge and experience from which the Principal can benefit and it can be a quick and relatively straightforward way for a Principal to develop business in territories where they want to expand.

We have advised principals and agents in a variety of sectors including fashion and food/drinks, and the relationship generally works well for both parties. However, there inevitably comes a point when the Principal decides that it's time to take the Agent's functions in-house at which point, the relationship comes to an end. It is also at this point when the Principal will receive a letter from their Agent requesting a rather hefty payment. This is often the first that the Principal will hear about concepts such as Compensation, Pipeline and/or Indemnity payments and it is also the worst case scenario because - not having anticipated it - the Principal has not budgeted for it either. Regardless, however, the payments due can potentially be very high depending on the value that the agent has brought to the business over the years.

In this article, we discuss the application and effect of the Commercial Agency Regulations in both Italy and England and what the parties need to think about when entering into a new agreement. We also consider how parties might approach a situation when there is a potential or actual claim under those Regulations.

The Commercial Agents Regulations - what are they?

Both Italy and England have implemented the European Directive on self-employed commercial agents (the 'Regulations'). In England, it is important to note that the Regulations continue to apply post-Brexit. However, how they will be applied in the longer term remains to be seen. In Italy, agency agreements are regulated by Articles 1742 to 1753 of the Civil Code, which have been modified in accordance with the Regulations. In addition, they may also be affected by other rules, provided by some Collective Labour Agreements (the so called 'AEC'), to the extent that both the agent and the principal are parties to such organizations...