Monthly Archives: May 2015

Pipeline Commission or Pipe Dream?

Most commercial agents who sell goods know that if their agency is terminated, then under the Commercial Agents (Council Directive) Regulations 1993 they can claim compensation/an indemnity unless the agent’s behaviour has been so serious that the principal is justified in terminating the agency.  What is less well known, is that even if the principal is justified in terminating the agency so that the agent has no claim to compensation/an indemnity, the agent can still make a claim under Regulation 8 of the 1993 Regulations.  This right under Regulation 8 is commonly referred to as the right to “pipeline commission”.

So far as relevant, Regulation 8 provides as follows:

“Subject to regulation 9 below, a commercial agent shall be entitled to commission on commercial transactions concluded after the agency contract has terminated if –

(a) the transaction is mainly attributable to his efforts during the period covered by the agency contract and if the transaction was entered into within a reasonable period after that contact terminated;”

There is no express provision in the 1993 Regulations prohibiting a principal from excluding the rights of the agent under Regulation 8.  This is in contrast to the position under Regulation 17 which is the regulation which provides for payment of compensation/an indemnity.  There, the Regulations expressly state that the parties may not derogate from the agent’s right to compensation/an indemnity.  This has led most commentators to conclude that because there is no prohibition which expressly refers to Regulation 8, therefore the parties are free to exclude the rights of the agent to pipeline commission.  However, it is not clear if Regulation 8 can be excluded in the agency agreement and whilst the consensus is that it can be, the question awaits a definitive court decision.

If there is no exclusion in the agency agreement of the agent’s right to pipeline commission (or if the exclusion is held to be of no effect) the agent has to show that the transaction was “mainly attributable” to his efforts during the agency and that it was entered into within a “reasonable period” after the agency ended.  The agent would have to satisfy both of these requirements and not just one of them.  There is nothing in the Regulations which gives any guide as to what is “mainly attributable” or what is a “reasonable period”.  This is not surprising given the wide range of industries which use agents and the products sold within those industries.  Thus everything is fact specific and what may be a “reasonable period” in one set of circumstances will not be so in another.  The transaction must be “concluded” within the reasonable period.  The view has been taken in at least one court case, that a transaction is concluded when the relevant order is placed, as distinct from when the goods are delivered to the customer.

The transaction also has to be “mainly attributable” to the agent’s efforts during the existence of the agency.  The dictionary definition of “attributable” is “to regard as arising from a particular cause or source”.  The phrase is “mainly attributable” and not just “attributable” and much would depend on the technical complexity/reputation/comparative pricing of the product and on the standing of the agent within that particular industry.  It is commonsense that there has to be some form of causative link between the efforts of the commercial agent and the conclusion of the transaction, but it is not clear how direct that link has to be.  An agent could be expected to argue that Regulation 8(a) should be applied to all orders placed by customers who were initially introduced by the agent to the principal.  A principal could be expected to argue that what occurred after the original introduction e.g. the principal’s attendance at trade shows, product improvements, credit arrangements, should be looked at so as to decide whether the sale was mainly attributable to the original introduction of the customer.  Also the concept of “mainly attributable” and “reasonable period” are related in the sense that after a passage of time the agent’s influence on the customer would be likely to have waned.  Moreover a sale might still be held to be mainly attributable to the efforts of the agent yet not attract pipeline commission because it was not entered into within a reasonable period of the termination.

A principal could be expected to exclude the agent’s right to pipeline commission in the agency agreement and a well advised agent to object to the exclusion.  If this impasse was reached, it would be open to the parties to specify in the agency agreement what is a reasonable period for the purposes of calculating the pipeline commission.