One of the first steps towards a single market within the European Union came in the shape of a Directive to co-ordinate the laws of the member states relating to self-employed commercial agents (86/653/EEC).

This was adopted by the council in 1986 and has been implemented in Great Britain by means of secondary legislation, known as the Commercial Agents (Council Directive) Regulations 1993 (SI 93/3053).Unfortunately, a drafting defect existed concerning the grounds for excluding the payment of an indemnity or compensation.

As a result, the Commercial Agents (Council Directive) ( Amendment) Regulations 1993 (SI 93/3173) were produced.

Separate regulations have been made for Northern Ireland (SR 93/483).The regulations in Great Britain represent substantial changes to the English law of agency.

Their terms are implied into many commercial agency agreements, both written and oral, formal and informal.

In many ways, the regulations provide agents with protection which exceeds that provided by statute to employees - so much so that such agents can now be described as quasi employees.There were only limited transitional provisions.

The regulations apply to agency agreements existing on or made after 1 January 1994.

As such, provisions in agreements which are inconsistent with the specific rights and duties imposed by the regulations on a principal and his or her agent will have effect subject to the regulations.

Furthermore, rights accrued under contracts existing on 1 January 1994 continue to apply.Prior to 1 January 1994 there was little English statute law governing the rights and obligations of principals and agents.

Their rights and duties depended on the express or implied terms of the agency contract between them.Common law rules existed in the absence of, or overrode, express stipulation by the parties.

For example, there was an implied duty on both parties to act in good faith.

If the contract did not expressly provide for remuneration, a term for reasonable remuneration would be implied.

In the absence of agreement between the parties there was no provision for the consequences of termination of the contract.

Each case was decided on its facts taking into consideration the intention of the parties and all other surrounding circumstances.The new law, on the other hand, specifies the rights and duties of both principal and agent, the remuneration payable to an agent and the continuing obligations after the termination of the contract.

Some of these provisions are mandatory.

It is not possible to avoid them by a contrary express or implied provision in the contract.The regulations do not cover all agency agreements.

They apply only to commercial agents.

A commercial agent is defined as: 'A self-employed intermediary who has continuing authority to negotiate the sale and 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...'For this purpose, and despite some doubt by the DTI, it is generally considered that a 'self-employed intermediary' will include companies and firms as well as individuals.It is possible that principals may be able to take advantage of the definition of a 'commercial agent' to circumvent the regulations.

This might be achieved by entering into a series of single transaction agency agreements.

The reason for this is that the definition seems to require that a commercial agent must have continuing authority from the principal in order to come within the definition.

In addition, some uncertainty has been expressed as to whether 'negotiate' includes the case of an agent authorised to collect orders for goods, but not to vary prices or conditions of sale.

If it did not, then such an agent would fall outside the regulations.

It is generally accepted that this argument is unsustainable.The regulations go on to exclude certain people from the definition of commercial agent.

These include:-- a person who, in his capacity as an officer, is empowered to enter into commitments binding on a company or association.

For this purpose 'an officer' is thought to mean a director, chief executive, secretary or manager;-- a partner who is lawfully authorised to enter into commitments binding on his partners;-- a person who acts as insolvency practitioner (as defined in s.388 of the Insolvency Act 1986) or the equivalent in other countries;-- a person whose activities are unpaid;-- a person who is operating on commodity exchanges or in the commodity market.The regulations also do not apply to persons whose activities as commercial agents are to be considered secondary.

Various detailed indications are set out in the schedule to the regulations to assist in determining whether particular arrangements come within the regulations.Accordingly, the activities of a person as a commercial agent will be considered secondary, and an arrangement to which he or she is a party will be considered as not coming within the regulations where:-- the principal is not the manufacturer, importer or distributor of the goods;-- the goods are not specifically identified with the principal in the market in question;-- the agent does not devote substantially the whole of his time to representative activities;-- the goods are available in the market in question other than by means of the agent;-- the arrangement is described other than as one of commercial agency;-- promotional material is supplied direct to potential customers;-- agencies are granted without reference to existing agents in a particular area or in relation to a particular group;-- customers normally select the goods for themselves and merely place their orders through the agent.In addition, unless the contrary is established, mail order catalogue agents for consumer goods and consumer credit agents are presumed to fall outside the regulations.Under the regulations, a commercial agent owes certain duties to a principal.

These are a general duty to look after the principal's interests and act dutifully and in good faith.

In addition, an agent is required to make proper efforts to negotiate, and conclude, the transactions he or she is instructed to take care of.

An agent is also required to communicate to a principal all necessary information available to him or her and to comply with the principal's reasonable instructions.A principal has a corresponding obligation under the regulations to act dutifully and in good faith towards a commercial agent.

In addition, a principal is required to provide the agent with the necessary documentation relating to the goods and obtain for the agent information for the performance of the agency contract.

A principal is also required to notify the agent within a reasonable period once it is anticipated that the volume of business will be significantly lower than the agent could normally have expected.As a separate duty, a principal is required to inform an agent, within a reasonable period, of his or her acceptance, refusal or non-execution of business that the agent has arranged.

In essence this will require a principal to keep the agent informed of any omissions on his or her part in completing a transaction.All of these provisions concerning the rights and duties of a principal and commercial agent are mandatory.

It is not possible for them to be contracted out.The regulations contain express provisions as to the remuneration of a commercial agent where the contract is silent on the subject.

The agent has a right to such remuneration as it is customary for commercial agents to receive in the place where they carry on their activities.

Where there is no such customary practice, reasonable remuneration is payable, taking into account all the aspects of the transaction.

There is no customary practice with regard to the remuneration of agents in the UK.

However, a term for reasonable remuneration is implied by the common law.For the purpose of the regulations, commercial transactions on which commission is payable to a commercial agent fall into two categories: those concluded during the period of the agency contract; and those concluded after the agency contract has been terminated.

The latter category is a new concept in English law.Where a commercial transaction is concluded during the period of the agency contract, a principal is obliged by the regulations to pay commission to his or her commercial agent on that transaction if:-- the conclusion of the transaction resulted from the act of the agent;-- the transaction is a repeat order from a customer previously acquired by the agent, even if the order was not placed through him;-- the agent has an exclusive right to act as a commercial agent on behalf of the principal in a specific geographical area or in relation to a specific group of customers and where the transaction has been entered into with a customer belonging to that area or group.As a result, an agent is entitled to commission on passive sales and an exclusive agent is entitled to commission on passive and generic sales unless the parties contract out.Where a commercial transaction is concluded after the agency contract has been terminated, commission is payable by a principal to the commercial agent provided that:-- the transaction is mainly attributable to the agent's efforts during the period covered by the contract and the transaction was entered into within a reasonable time after the termination of the contract;-- the order of the third party reached the principal or the agent before the termination of the contract and either the conclusion of the transaction resulted from the act of the agent or the transaction was a repeat order from a previously acquired customer of the agent.In the former situation, no definite cut-off point is specified in respect of transactions entered into after the contract has been terminated.

To avoid the possibility of dispute to determine what is reasonable, consideration will need to be given to making express provision in the agency contract in respect of payment of commission after termination of the contract.A new agent will not be entitled to commission where it is payable to his or her predecessor unless it is possible to show that it is equitable for the commission to be shared between them.Having established the circumstances in which an entitlement to commission arises, the next step is to determine when it becomes due and payment should be made.

The regulations state commission becomes due as soon as one of the following circumstances occurs:-- when the principal has executed the transaction, or, according to his agreement with the third party, should have executed the transaction; or-- when the third party has executed the transaction; or-- at the latest when the third party has executed his part of the transaction or when the third party should have done so if the principal had executed his part of the transaction when he should have.These provisions appear considerably to increase the burden on a principal in paying a commercial agent.

The principal is no longer able to delay payment on the grounds of not having been paid by a third party.

What is meant by 'executed' is uncertain.

By way of comparison, the German Handelsgesetzbu ch, on which the Directive is largely based, provides for the entering into of the sale contract.When the commission has become due, a principal has to pay the commercial agent not later than on the last day of the month following the quarter in which it became due.

By the same time, the principal has to produce a statement to the agent showing how the commission has been calculated.If demanded by the agent he or she is also required to give to the agent all the information available to him or her as principal, including extracts from his or her own books of account, which is necessary to enable the agent to check the statement.

However, if it would be contrary to public policy to disclose such information, the principal is not required to do so.Any term contained in the agreement between a principal and commercial agent will be void if it is an attempt to exclude the protection afforded to a commercial agent with regard to when commission becomes due, when it must be paid and the obligation to furnish statements and information.

Nevertheless, in an attempt to impose clarity, it may be appropriate to specify in the agency contract what statements and information will be made available to the agent.A commercial agent will lose the right to commission if, through no fault of the principal, no contract between the third party and the principal is executed.

An agent will have to refund any commission which he or she has received if his or her right to it is extinguished.

The regulations do not specify the period within which such a refund should be made.

On the other hand, no allowance is made for the possibility of set off.

The parties are not able to contract out of this provision except insofar as it is to the benefit of the commercial agent.