For 30 years many third-party agents who buy or sell goods in Great Britain on the behalf of another (their principal) as opposed to in the agent’s own name have qualified for protection under the Commercial Agents (Council Directive) Regulations 1993 [The Commercial Agents (Council Directive) Regulations 1993] (the Regulations). If the criteria for the Regulations to apply is met, then they protect both individual self-employed agents and companies who act as agents.

The Regulations stem from a 1986 EEC Council Directive [Directive – 86/653 – EN – EUR-Lex]. Equivalent protection for agents is in place in Northern Ireland [Commercial Agents (Council Directive) Regulations (Northern Ireland) 1993] with similar, but not always identical, protection across EU member states.

The Regulations are generally favourable towards agents providing many protections, most of which cannot be contracted out of (even by agreement) whilst an agency arrangement remains in place. A key protection for agents is the right to claim a potentially significant compensation payment from their principal in most termination scenarios.

A distinguishing factor of the Regulations in Great Britain and Northern Ireland is that they apply only to agents who have authority to negotiate the sale or purchase of goods on behalf of their principal but not services.

Unhelpfully though the Regulations do not define what constitutes “goods” or a “sale” for the purposes of assessing if this criterium has been met and as a result, there has been significant discussion and litigation in the Courts on these issues.

Past cases have often concerned software given the prevalence in the industry of software “resellers” or “introducers” who facilitate access to third party software for end users which requires them to enter into an end user licence agreement with a third party licensor; and the changing nature of software delivery which has ranged from physical media to digital downloads and now software as a service (SaaS) since the Regulations came into force on 1 January 1994.

The latest case to be ruled on by the English High Court in September 2024 in the case of Kompakwerk GmbH v Liveperson Netherlands B.V. [CL-2018-000802] [High Court Judgment Template] concerned the question of whether an agent selling access to end users to a third-party SaaS product on the basis of an annually renewing licence should be considered an agent for the purposes of the Regulations.

In this case the Court has held that such an arrangement does not qualify for protection under the Regulations with key findings from the Court including:

• for a “sale” to have taken place for the purposes of the Regulations there must be a permanent divestment of a seller’s interest in a (software) product – in this case the Court held that the renewable 12 month-licence to use a SaaS service was akin to a rental and not a sale even if in reality that licence would usually or invariably be renewed on an annual basis; and
• in any event, the Court held that even if it had considered a sale to have taken place it viewed the SaaS offering in this case to be a provision of services and not goods. A key factor influencing the Courts view here being that the software in question was hosted on servers under the control of the principal and thus “the heart of the product was a service to which the customer subscribed”.

This judgment should provide comfort for licensors of pure SaaS products using resellers and introducers in Great Britain and Northern Ireland that such arrangements are unlikely to qualify for protection under the Regulations. However, care should still be taken to structure such arrangements in a way which mitigates the risk of the Regulations applying with principals remaining alert to the risk of scope creep in an agent’s activity or future technological changes which may risk straying back into the territory of a sale of goods.

A matter of days before the 2024 UK general election the then Conservative government did announce plans following an industry consultation on the Regulations to bring forward legislation to stop the Regulations from applying to new agency arrangements in Great Britain [Smarter regulation: deregulating the Commercial Agents (Council Directive) Regulations 1993 – GOV.UK]. It remains to be seen if this is something which the new Labour government will proceed with although based on its recent proposals to extend employee rights [Labour’s New Employment Rights Bill – Key Changes (UK)] it feels unlikely that at the same time the government would proceed with plans to reduce protections available to agents. For the moment principals would be well advised to continue working on the assumption that the Regulations will remain in force in the current form for some time to come.