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Farmers benefit from diamond decision

View profile for Julia Seary
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The Commercial Agents (Council Directive) Regulations 1993 was implemented to clarify and protect the rights of commercial agents who engage with principals to sell products on their behalf.  Generally, commercial agents have the right to a compensation payment on termination of their arrangement; that is to say, should the principal terminate without due cause or the agent terminate with due cause, the agent would be entitled to be paid an amount as compensation to reflect the loss of goodwill generated in the agency business.  

Although the general rule is that the Regulations apply to all agency relationships for the sale of products, there is an exemption which means that the Regulations do not apply to ‘commercial agents when they operate on commodity exchanges or in the commodity market’.  As such, the principals would be alleviated from any obligation to pay their agents compensation on termination.

Whilst the definition of “commercial agents” has long been clear, what constitutes a “commodity” and also a “commodity exchange” or “commodity market” has, until recently, been left undefined for the purposes of the Regulations.  As a result,  lawyers have had to form their own position as to what falls into the category of “commodity” on a case by case basis.

Helpfully, the matter was addressed in the recent case of W Nagel (a firm) v. Pluczenik Diamond Company NV.  W Nagel was a commercial agent acting on behalf of Pluczenik to purchase diamonds. Pluczenik chose to terminate their agreement and W Nagel subsequently claimed for compensation under the Regulations. Pluczenik asserted that the Regulations did not apply, as the transactions being negotiated were sales on commodity exchanges and/or in the commodity market.

The Judge agreed and formally defined a “commodity” as any produce of agriculture, forestry or fisheries, such as coffee, sugar or grain. Moreover, a “commodity exchange” or “commodity market” is generally limited to wholesale trading, and focusses on generic goods bought or sold in bulk, which are indistinguishable from other goods of the same type.

It follows then, that any commercial agent who deals in transactions relating to raw materials within the commercial wholesale market will be exempt from the Regulations.  This is good news for farmers, who now have legal certainty in their agency contracts and assurance that any obligation to pay statutory compensation on termination does not apply.  It should be kept in mind, however, that as per the W Nagel decision, commercial agents operating within the agricultural market will still have the ability to claim damages for breach of contract.

If you would like to speak to the Corporate Commercial team at Roythornes about your business’ agency contracts, or require advice on a potential termination please call 01775 842573