Deregulating the Commercial Agents (Council Directive) Regulations 1993

The government has set forth plans to deregulate the Commercial Agents (Council Directive) Regulations 1993 (“CARs”), originally introduced to align UK law with an EU directive.

This move is part of the UK’s broader agenda to reshape its regulatory environment post-Brexit, aiming to make regulations more agile and suited to the national context. The consultation underscores the government’s goal of fostering a business-friendly environment that minimises regulatory burdens, allowing companies to innovate and thrive. This deregulatory push is also expected to enhance the UK’s appeal as a global business hub, particularly in fields such as clean energy, life sciences, and digital services.

What are the CARs?

CARs govern relationships between businesses and “commercial agents” (“CAs”) – individuals or entities representing a company in securing new business or negotiating sales. Unlike standard business contracts, CARs provide specific protections to CAs, such as compensation rights in cases of contract termination. Originally designed as a compromise among EU members, these regulations do not align well with UK common law, which traditionally offers businesses more freedom in establishing their contract terms. Before the CARs was enacted in 1993, principal-agent relationships in the UK were mainly guided by general agency and contract law, providing more flexibility for both parties to define their terms.

The government argues that CARs have led to ambiguities and complications within the UK’s legal system, primarily because of differences between UK contract law and the underlying framework of the EU directive, which was heavily influenced by French and German legal principles.

In particular, the mandatory compensation clause and other protective measures are seen as ill-fitting for the UK’s business-to-business regulatory landscape, where freedom of contract has typically prevailed. Deregulating CARs would return these relationships to a more traditional UK approach, allowing businesses greater flexibility to negotiate terms directly without added statutory obligations.

Moreover, CARs are currently enforceable only through private litigation, which can lead to additional costs and legal uncertainty for businesses, especially for smaller firms without concrete legal resources. The deregulatory proposal aims to simplify the legal framework, reducing the need for litigation and enabling more straightforward commercial agreements. Therefore, by eliminating CARs, the government hopes to minimise potential misunderstandings and administrative burdens that companies may face under the current system.

What would the proposal lead to?

The government’s proposal would prevent new commercial agency relationships from being created under CARs, while existing contracts governed by these regulations would remain valid. This deregulation initiative is part of the Retained EU Law (Revocation and Reform) Act 2023, which allows for the revision or elimination of EU-based laws which are deemed as unnecessary. As part of this consultation, the government was seeking feedback from business leaders, consumer groups, and legal experts on the potential impact of this change on business dynamics and legal certainty.

The consultation specifically pertains to Great Britain, as Northern Ireland has its own version of CARs, which may be reviewed independently by its executive. The overall goal is to strike a balance between deregulation that supports economic growth and preserving necessary protections for smaller entities that may face power imbalances in commercial negotiations.

This reform reflects the UK’s commitment to creating a competitive, flexible regulatory environment that can adapt to the evolving needs of businesses, thereby ensuring the UK remains a favourable place for commercial innovation and growth. Whether the government will pursue these deregulatory plans remains currently uncertain, and therefore businesses should operate under the assumption that the current regulations will continue in force for the foreseeable future.