Consignment agents and the Commercial Agents Regulations - a tough sell?

July 13, 2012

A consignment agent’s role is to receive goods from a party (the consignor) for the purpose of sale. The ownership of the goods remains with the consignor and the agent sells the goods on behalf of the consignor, according to his instructions. The agent will then deduct his commission from the proceeds of sale received and transfer the remaining monies to the consignor.

Initially, such an arrangement would seem to class the consignment agent as a “commercial agent” under the Commercial Agents Regulations 1993 (the Regulations). However, further analysis suggests that this is not necessarily the case. 

Under regulation 2(1) of the Regulations, a “commercial agent” means:

“a self employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person (the “principal”) or to negotiate and conclude the sale of purchase of goods on behalf of and in the name of that principal.”

In addition to this, when considering whether an intermediary can be classed as a commercial agent, it is necessary to look at the facts of the case and in particular:

  1. who is making the sale;
  2. who is accepting the risk for the goods; and
  3. who is passing title of the goods to the customer,

as an agent cannot be classed as a commercial agent if he is responsible for these matters. 

In considering a consignment agent’s position under the Regulations, it is useful to compare their role with the agent in the case of Mercantile International Group v Chuan Soon Huat Industrial Group Limited.

In this case, the claimant argued that it had acted for twenty years as the defendant timber products manufacturer’s commercial agent.

There had been a series of agreements between the parties. The most recent agreement expressly appointed the claimant as the defendant’s agent. In addition it provided for the claimant to be remunerated by a mark-up between the prices charged by the defendant to the claimant and those negotiated by the claimant with end buyers. In addition the agreements provided for the claimant to be responsible out of its own funds for paying the defendant for products supplied.

The defendant argued that although the agreements between the parties used the language of agency, the substance of the relationship was consistent only with the purchase and resale of products by the claimant as part of a chain. In particular the defendant pointed out that the claimant entered into contracts with end buyers that were in different terms to those between the claimant and the defendant.

The Court of Appeal did not agree with the defendant’s argument and instead pointed out that the contractual documentation purported to describe the relationship between the parties as that of agency. It was impossible to ignore its effect.

In comparing the positions of the agent in the Mercantile case and a consignment agent, one must keep in mind that each consignment agreement will have its own individual facts. However, on analysis of the substance of the relationships,  the key issue appears to be the facts around the sale of the products.

If it was not for the existence of contractual documentation in the Mercantile case that described the relationship between the parties as that of agency, the entering into contracts with customers on different terms than those with the manufacturer could well have seen the court rule that the agent’s role was more akin to a distributor than a commercial agent.

Accordingly, if a consignment agent is held responsible by the consignor for making the sale and, at the same time, marks up the price of the product from that being charged by the consignor, in order to receive remuneration for his services, it is arguable that the agent will be classed as a distributor rather than a commercial agent. The consignor would be able to argue that, as did the defendant in the Mercantile case, the substance of the relationship was consistent only with the purchase and resale of products by the consignment agent as part of a chain. The result of which would mean that the consignment agent is effectively passing title of the product to the customer and therefore, as mentioned above, ruling himself out as being classed as a commercial agent.

The outcome of any dispute over this would of course be reliant on the facts of each individual case and any agreements in place between the parties, however, in the absence of any agreement purporting to describe a consignment agent as a commercial agent, it can not be taken for granted that such an agent will be deemed a commercial agent under the Regulations. 


Related pages:

Agency, Distribution and International Trade more

Commercial more

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