B2/2005/2796
Neutral Citation Number: [2006] EWCA Civ 662
IN THE SUPREME COURT OF JUDICATURE 
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CENTRAL LONDON COUNTY COURT
(HIS HONOUR JUDGE KNIGHT QC)
 
Royal Courts of Justice 
Strand 
London, WC2 

Thursday, 27 April 2006
 B E F O R E:

LADY JUSTICE ARDEN
and
LORD JUSTICE MOORE-BICK
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MICHAEL EDWARDS
Claimant/Respondent
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INTERNATIONAL CONNECTION (UK) LIMITED
Defendant/Applicant
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  (DAR Transcript of 
Smith Bernal Wordwave Limited
190 Fleet Street, London EC4A 2AG
Tel No:  020 7404 1400  Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
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MR M SUTTON (instructed by Messrs Martin Shepherd & Co, London, N12 8LG) appeared on behalf of the Appellant

MR O SEGAL (instructed by Messrs Steeles LLP, London, WC1N 2BF) appeared on behalf of the Respondent
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J U D G M E N T 
1.	LORD JUSTICE MOORE-BICK:  This is an application for permission to appeal against the order of His Honour Judge Knight QC in the Central London County Court made following the trial of the action between the claimant and the defendant.  The claimant, Mr Edwards, is a salesman who specialises in the sale of fashion jewellery.  The defendant is a wholesale supplier of fashion jewellery, some of which it manufactures itself and some of which it imports from abroad.  In March 1992 Mr Edwards met Mr Tramer, the founder of the defendant company and at that time its managing director, at a trade show.  As a result of their discussions Mr Edwards was engaged by Mr Tramer under an oral agreement to promote and sell the defendant’s products in Cornwall, Devon, Somerset, Dorset and Wiltshire, which together made up a territory in which he was given the exclusive right to act on its behalf.  It was agreed that he should act on a self‑employed basis and would receive a commission on all sales achieved in his territory, whether the order was placed through him or directly with the defendant.

2.	Mr Edwards acted as what I will call a “sales agent” for the defendant in the West Country for a little over ten years.  He says, and indeed the judge found, that over that period he developed and maintained a large customer base for the defendant.  However, on 2 September 2002 his contract was summarily terminated and it was that which gave rise to the present dispute between the parties.  On 18 January 2005 he issued proceedings against the defendant in the Barnstaple County Court, but those proceedings were later transferred to the Central London County Court and that is how the matter eventually came before Judge Knight for trial.

3.	In his particulars of claim Mr Edwards set out the terms on which he said he had been engaged to act for the defendant and alleged that he was a “commercial agent” within the meaning of the Commercial Agents (Council Directive) Regulations 1993.  On that basis, he made a number of claims under the various provisions of the Regulations as follows:
(1) 	a claim under Regulation 7 for commission on goods sold by another wholesaler trading in his territory under the name of ‘Blue Banana’ to whom he alleged the defendant had supplied goods in breach of his exclusive rights;
(2)	a claim under Regulation 8 for commission on sales made by the defendant to customers in his territory after the termination of his agency, which he said were attributable to his efforts;
(3)	a claim under Regulation 12 for the disclosure of information relating to sales made by the defendant to customers within his territory to enable him to verify the amount of commission due to him;
(4)	a claim under Regulation 15 for damages for failure to give him the three months’ notice of the termination of his agency required by that Regulation; and
(5)	a claim under Regulation 17 for compensation for the termination of the agency.

4.	In its defence the defendant admitted that between March 1992 and September 2002 Mr Edwards had been engaged on a self‑employed basis with exclusive rights to promote and sell its products in the territory in question and that he was remunerated on a commission basis for the sales he achieved on its behalf.  However, it denied that he was a commercial agent within the meaning of the Regulations or that the Regulations applied to the relationship between them because he had business interests of his own which prevented him from devoting substantially the whole of his time to representative activities.  That was a reference to paragraph 3(c) of the Schedule to the Regulations, to which I shall return in due course.  On that basis, the defendant maintained that Mr Edwards’ claims were all misconceived.  It also said that even if the Regulations did apply in his case, he had failed to carry out his obligations properly and that it was entitled to terminate the agency with immediate effect as contemplated by Regulation 16.

5.	It is worth noting at this stage that it was common ground on the pleadings, therefore, that Mr Edwards had been engaged to act on a commission basis as an agent or representative of some kind to promote the defendant’s products and to procure sales in the territory in question, that he was given the exclusive right to represent the defendant for that purpose and that he had acted in that capacity for a period of over ten years.  It was also common ground that the agreement had been terminated summarily.  Given the nature of the defence, therefore, I find it surprising that the particulars of claim were not promptly amended to put forward alternative claims at common law in respect of most, if not all, of the amounts claimed.  However, that was not done, either then or at any later date, and as a result the claim went to trial as a claim under the Regulations and nothing else.  

6.	At the trial the judge heard evidence from both Mr Edwards and Mr Tramer as well as other witnesses.  In paragraph 15 of his judgment he made a number of critical findings which included the following:
(a)	that the purpose of the agreement was to develop a market for the defendant’s products in the territory on an exclusive basis;
(b)	that Mr Edwards did develop a market from an original base of two to three customers, to a total of  some two hundred customers; 
(c)	that in respect of transactions generated by Mr Edwards orders were normally individually negotiated and that orders sent by customers direct to the defendant had been obtained by him, but were handled in that way as a matter of business convenience.
In addition, in paragraph 18 of his judgment he found that, although Mr Edwards had also spent some time looking after his own business interests, he had devoted substantially the whole of his time to representing the defendant’s business. 

7.	On the basis of those findings the judge held that Mr Edwards was a commercial agent and that the Regulations did apply in this case.  In paragraph 26 of his judgment he held that Mr Edwards had not repudiated the agreement, as the defendant contended, and that the agency had been wrongfully terminated in circumstances which entitled him to compensation.  Finally, in paragraph 31 the judge held that Mr Edwards was entitled to damages for infringement of his exclusive rights by reason of the defendant’s supply of goods direct to ‘Blue Banana’.

8.	The judge then went on to consider the amount to be awarded in respect of the various heads of claim.  He awarded Mr Edwards a total of £24,000 in respect of outstanding commission and compensation for the termination of the agency together with interest in the sum of £8,000, making £32,000 in all.  The defendant was ordered to pay Mr Edwards’ costs of the proceedings, part of which were to be assessed on the indemnity basis.  The judge refused the defendant permission to appeal and so the defendant made an application to this court. It has also applied for a stay of execution pending appeal on the grounds that, if it is required to pay the judgment debt, there is a real risk that Mr Edwards will be unable to repay the money if its appeal is successful.

9.	The sole ground of appeal in this case is that on the evidence before him the judge was wrong to hold that the agreement between Mr Edwards and the defendant was one to which the Regulations applied. Longmore LJ, who considered these applications on paper, adjourned them to an oral hearing on notice to Mr Edwards partly to enable the parties to explain to the court how allowing the appeal would affect the position, given that the defendant did not challenge the judge’s finding that it had wrongfully terminated the agency relationship.  The defendant’s answer to that question is that because the claim has been made under the Regulations alone and not in the alternative under the general law, it must fail in its entirety if the Regulations do not apply.  This somewhat unattractive answer overlooks the fact that the court has power to permit a party to amend its statement of case at any stage in the proceedings if it considers it just to do so. However, no application to amend has yet been made and the question whether it would be appropriate to give permission for an amendment in this case does not arise.

10.	At this point, it is necessary to refer to certain parts of the Regulations themselves.  Regulation 2(1) defines a commercial agent as: 
“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 or purchase of goods on behalf of and in the name of that principal.”

11.	That definition, taken by itself, would appear to cover the position of Mr Edwards in this case, but by virtue of Regulations 2(3) and 2(4) the Regulations as a whole do not apply to persons whose activities as commercial agents are to be considered “secondary”.  The Schedule to the Regulations contains a number of paragraphs aimed at identifying the circumstances in which an agent’s activities are to be regarded as secondary for this purpose.  The principal paragraph is paragraph 2, which sets out what must be the primary purpose of the arrangement between the agent and his principal if the agent’s activities are not to be regarded as secondary.  

12.	Paragraph 2 itself reads as follows:
“An arrangement falls within this paragraph if 
(a) the business of the principal is the sale, or as the case may be purchase, of goods of a particular kind; and 
(b) the goods concerned are such that 
(i) transactions are normally individually negotiated and concluded on a commercial basis; and 
(ii) procuring a transaction on one occasion is likely to lead to further transactions in those goods with that customer on future occasions, or to transactions in those goods with other customers in the same geographical area or among the same group of customers, and 
that accordingly it is in the commercial interests of the principal in developing the market in those goods to appoint a representative to such customers with a view to the representative devoting effort, skill and expenditure from his own resources to that end.”

13.	Paragraphs 3 and 4 of the Schedule then set out a number of matters, the presence or absence of which are to be taken as indications that the arrangement falls within paragraph 2.  They provide as follows:
“3.	The following are indications that an arrangement falls within paragraph 2 above and the absence of any of them is an indication to the contrary -
(a)	the principal is the manufacturer importer or distributor of the goods;
(b)	the goods are specifically identified with the principal in the market in question rather than or to a greater extent than with any other person; 
(c)	the agent devotes substantially the whole of his time to representative activities (whether for one principal or for a number of principals whose interests are not conflicting);
(d)	the goods are not normally available in the market in question other than by means of the agent;
(e)	the arrangement is described as one of commercial agency.

“4.	The following are indications that an arrangement does not fall within paragraph 2 above -
(a) 	promotional material is supplied direct to potential customers;
(b)	persons are granted agencies without reference to existing agents in a particular area or in relation to a particular group;
(c) 	customers normally select the goods for themselves and merely place their orders through the agent.”

14.	In each of these paragraphs the matters in question are expressly referred to “indications” and I think it is clear, therefore, that they are intended to provide assistance in deciding whether the arrangement under consideration does or does not fall within paragraph 2 without being determinative of that question one way or the other.  How much weight is to be given to any individual indication is presumably a matter for the judge who must nonetheless bear in mind the critical characteristics set out in paragraph 2.

15.	Mr Sutton submitted that it was for a claimant to prove all the facts and matters necessary to establish that the Regulations applied in his case.  In principle I would accept that it is for a person making a claim under the Regulations to establish that they apply to him, but Mr. Sutton took the matter further. He submitted that it is not sufficient that the claimant should simply demonstrate that he is a commercial agent as defined in Regulation 2(1), but that he must go further and establish that his activities as a commercial agent are not secondary.  Support for that proposition is to be found in the Scots case of Gailey v Environmental Waste Controls [2003] ScotCS 300, [2004] EuLR 423, but I confess to entertaining some doubt whether that view is entirely correct.  I think it is at least arguable that once a claimant has shown that he is a commercial agent within the meaning of Regulation 2(1) it is for the defendant, if he wishes to do so, to show that his activities in that capacity were secondary within the meaning of Regulation 2(3) and the Schedule to the Regulations. However, the question was not the subject of any detailed argument before us and it is unnecessary to express a final view on it for the purposes of disposing of these applications.  

16.	On the basis that it was for Mr Edwards to satisfy the court of all matters which would bring him within the Regulations, Mr Sutton submitted that the judge was wrong on the evidence before him to find that the primary purpose of the arrangement between him and the defendant was such as to satisfy the requirements of paragraph 2 of the Schedule.  While acknowledging that some of the positive indications set out in paragraph 3 were present in this case, he submitted that certain essential requirements had not been met. In particular, he submitted that, in the light of the way in which Mr Edwards had carried out his functions under the arrangement, there was insufficient evidence to show that transactions carried out during the period of the agency were individually negotiated by him (an argument clearly directed to paragraph 2(b)(i) of the Schedule), or that he had devoted substantially the whole of his time to representing the defendant (clearly a reference to paragraph 3(c)).

17.	In my view the purpose of Regulation 2(4) and of paragraphs 2, 3 and 4 of the Schedule is to distinguish between those persons falling within the definition of a commercial agent in Regulation 2(1) who are engaged primarily to carry out the functions of a commercial agent, that is, generating customers, obtaining repeat orders, and creating and developing a market for their principal’s goods, and those who are primarily engaged for some other purpose but who incidentally provide some or all of those services.  In the latter case their activities can properly be described as “secondary”. One essential criterion in paragraph 2 of the circumstances under which a person is engaged for the primary purpose of acting as a commercial agent is that to be found in the final lines of that paragraph, namely:
“ . . . . . that accordingly it is in the commercial interests of the principal in developing the market in those goods to appoint a representative to such customers with a view to the representative devoting effort, skill and expenditure from his own resources to that end.”

In most cases the arrangement will fall within paragraph 2, and the agent’s activities will not be considered secondary, if its primary purpose is to achieve those ends.  

18.	Mr Sutton submitted that the evidence before the judge in this case was that many orders were in fact placed by customers direct with the defendant and that in many cases those customers had experienced little or no contact with Mr Edwards.  There was therefore, he submitted, insufficient evidence to establish that any significant number of sales made within Mr Edwards’ territory had resulted from his personal intervention, so that he could not establish that transactions were, in the words of paragraph 2(b)(i), “normally individually negotiated”.  He also submitted that the evidence of the number of sales and the amount of income generated by Mr Edwards’ own business activities was sufficient to demonstrate that he must have devoted a significant proportion of his working time to that business at the expense of the defendant’s.  Finally, he relied on the fact that there was evidence that promotional material was supplied direct to customers and that in many cases customers selected goods for themselves.

19.	The judge made certain findings about these matters to which I have already referred and to which I shall return in a moment, but in my view these arguments all fail to take account of the fact that paragraph 1 of the Schedule to the Regulations, which identifies the circumstances in which the activities of the agent are to be considered secondary, is essentially concerned with whether the primary purpose of the arrangement between the agent and the principal is, or is not, of a kind that falls within in paragraph 2: see the comments of Morison J in Tamarind International & Ors v Eastern Natural Gas (Retail) Limited & Ors [2000] EuLR 708 at paragraph 28.  In other words, the question to which paragraphs 2 to 4 are all directed is whether the primary purpose of the arrangement is that the agent, by the exercise of his effort, skill and expenditure, should develop a market for the principal’s goods through personal contact with customers.  Paragraph 2 itself is not directly concerned with what is actually done pursuant to the arrangement, but with the characteristics of the arrangement itself and the reference in paragraph 2(b)(i) to transactions being “normally individually negotiated and concluded on a commercial basis” is not a reference to what has occurred pursuant to the arrangement but to the nature of the goods to which that arrangement relates.  Moreover, since paragraphs 3 and 4 are clearly intended to assist in determining whether the criteria set out in paragraph 2 are met, they must be read with that in mind.  In my view, paragraphs 3(a), (b), (d) and (e) and paragraphs 4(a), (b) and (c) are clearly generic in nature, describing market conditions of one kind or another which tend to indicate that the purpose of the agency is, or is not, as the case may be, of the kind set out in paragraph 2, rather than referring to what has actually taken place pursuant to the arrangement.  

20.	At first sight paragraph 3(c) is different, being concerned with the agent’s own activities, but in my view it fits quite naturally into the same scheme because the fact that a person devotes substantially the whole of his time to representative activities (and so might be described as a professional agent) makes it more likely that the primary purpose of his arrangement with the principal was to perform functions of the kind set out in paragraph 2.  In my view, as in the case of the other indications, this paragraph is also looking to the circumstances surrounding the making of the arrangement and its essential nature, rather than to the manner in which it was subsequently performed.  But even if I am wrong about that, it is only one of many indicative factors and cannot be regarded as determinative.

21.	As I have already mentioned, in paragraph 15 of his judgment the judge made a number of clear findings.  They include the finding that:

“The aim of the agreement made between Mr Edwards and ICL [the defendant] was for Mr Edwards to develop a market for ICL’s goods on an exclusive basis in the territory.”

I do not understand that finding to be challenged, but in any event, since it was admitted on the pleadings that Mr Edwards was engaged to promote and sell the defendants’ products in the territory assigned to him, the judge could hardly have come to any other conclusion.  

22.	As I have said, the judge also made a finding that transactions generated by Mr Edwards were normally individually negotiated and that the placing of orders by customers direct with the defendant was simply a matter of convenience; they were still the result of his efforts.  That finding was clearly aimed at paragraph 2(b)(i) of the Schedule, although for the reasons I have given I do not think that provision is directed to the manner in which the agency was actually performed.

23.	Although the point does not appear clearly in the notice of appeal, Mr Sutton suggested before us this morning that in the light of the evidence before him the judge’s findings of fact cannot be sustained and indeed were perverse.  The difficulty with that submission, however, is that the learned judge was unable to accept much of the evidence put forward on behalf of the defendant and did accept the evidence of Mr Edwards after having heard him cross‑examined.  In my view there is no basis on which this court could say that the judge’s findings were perverse.  On the contrary, there clearly was evidence on the basis of which he could make the findings to which I have referred.  But in any event, for the reasons I have given, I do not think the question whether Mr Edwards’ activities were secondary within the meaning of paragraph 1 of the Schedule falls to be determined by what actually took place during the currency of the agreement.	

24.	In my view, having regard to the admitted fact that Mr Edwards was engaged to promote and sell the defendant’s products in the territory assigned to him and to the absence of any suggestion that the arrangement had any purpose other than to develop a market for the defendant’s products, the judge was clearly right to hold that the Regulations applied in this case.  In those circumstances I am not persuaded that an appeal would have any real prospect of success and, for my part, I would dismiss these applications.

25.	LADY JUSTICE ARDEN:  I agree with my Lord that this application should be dismissed for the reasons that he has given.  I desire to add some short observations on one matter alone.  This application has proceeded on the basis that the onus of proof that the agent is within Regulation 2(1) and within paragraph 2 of the Schedule falls on the person claiming to have been the agent to whom the Regulations apply.  The structure of the Regulations, it will be recalled, provides in Regulation 2(1) for a person to be a commercial agent if he is a:

“Self‑employed intermediary who has a continuing authority to negotiate the sale or purchase of goods on behalf of another person (‘the principal’), or to negotiate and conclude the sale or purchase of goods on behalf of and in the name of the principal …”

26.	Paragraph 2(4) of the Regulations provides that the Regulations do not apply to the persons referred to in paragraph 3 above, and in Regulation 2(3) it is stated that the provisions of the Schedule to the Regulations have effect for the purpose of determining the persons whose activities as commercial agents are to be considered secondary.  In the Scottish case of Gailey v Environmental Waste Controls & Ors [2004] EU Law Reports 423 at 443 to 44B, Lord Drummond Young sitting in the outer house of the Court of Session held as follows in relation to the burden of proof under the Regulations:

“I am of opinion that an agent who seeks to found on the Regulations must aver and prove both sufficient to bring himself within Regulation 2(1) of the Regulations and sufficient to bring himself within paragraph 2 of the Schedule.  In reaching this conclusion, I have relied principally on this general scheme of Regulation 2 and the Schedule.  I have also had regard to the well-established principle that if a pursuer requires to possess a special capacity to advance a claim, it is for him to plead that he possesses each of the characteristics necessary to establish that capacity.”

I have read that quotation from page 14 of the appeal bundle.  

27.	Like my Lord, I do not wish to be taken as accepting the proposition that the onus of proof of the application of both Regulation 2(1) and paragraph 2 of the Schedule to the Regulations falls on the person claiming to be the agent.  The point has not been fully argued.  We have indeed only heard Mr Sutton on the question whether he should have permission to appeal, and we have not heard from the respondent at all.  It may well be that when the matter is fully argued, it is found that the person claiming to be the agent to whom the Regulations apply simply has to show that paragraph 2(1) of the Regulations apply to him, and it then falls to the defendant to raise any particular matter which he contends means that the Regulations do not apply, for instance by virtue of Regulation 2(4).  I draw attention to the fact that in England and Wales the Civil Procedure Rules 16.5(2)(b) provide that a defendant must state as follows in his defence:

“Where the defendant denies an allegation … (b) if he intends to put forward a different version of events from that given by the claimant, he must state his own version.”

28.	It may be that the rules as to pleading and as to the onus of proof are different in Scotland.  The Regulations do not appear to be designed to harmonise rules on onus of proof, though the Regulations are designed to implement a council directive.  It may therefore be that the onus of proof in respect of paragraph 2 of the Schedule falls on the person asserting that the agent was secondary.  With those observations, I agree with the order my Lord proposes.

Order: Application refused.