Sagal (t/a Bunz Uk) v Atelier Bunz GmbH

The question in this appeal is whether the appellant (“Mr Sagal”) was a commercial agent of the respondent (“Bunz”) within the meaning of The Commercial Agents (Council Directive) Regulations 1993 (“the Regulations”). Article 2(1) of the Regulations 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.”

HH Judge Mackie QC sitting as a judge of the Commercial Court held (para 38) that Mr Sagal had no authority from Bunz to negotiate or contract on his behalf and that Mr Sagal was not, therefore, a commercial agent and that the terms of the Regulations did not apply to him.

The relevant business is the jewellery business. Mr Sagal had considerable experience in that business and had a shop in St Albans between 1988 and 1992. He had a business in Tel Aviv between 1996 and 2001 before deciding to do business with Bunz in 2002.

Bunz was and is a company which designs and manufactures jewellery made of platinum and gold. It employs about 45 people and is based in Dobel near Karlsruhe in South West Germany. Its products are sold in about 30 countries. Before 2002 the company supplied jewellery to about 10 shops in the United Kingdom. It was founded by Mr Georg Bunz in 1975 and his son, Mr Ruben Bunz, is now the Sales Manager of the company. Mr Sagal and Mr Ruben Bunz (“Mr Bunz”) first discussed the possibility of doing business together at the Basel Jewellery Fair in April 2002 and subsequently at Dobel when Mr Sagal produced a Business Plan whereby he would become the sole UK agent for Bunz.

The judge made findings about what the plan envisaged and, since those findings reflected the way business was in fact done, they are important.

By July 2002 Mr Sagal had launched himself under the trade name “Bunz UK”, procured note paper so headed and began to seek and secure orders. He sent letters to customers informing them of the “launch of Bunz UK – the UK branch of Bunz” and he also sent them brochures and price lists. The judge found that the price to UK customers was arrived at

“by dividing the list price [namely Bunz’s wholesale prices] by 2.2, a result which would give Mr Sagal a 25% margin.”

The judge then recorded the method of business that operated between 2002 and September 2005 when relationships deteriorated and grievances began:-

It was on the basis of this documentation, evidencing the contract made between the UK customer and Bunz UK (Mr Sagal) on the one hand and the contract between Mr Sagal and Bunz GmbH on the other hand, that the judge concluded that Mr Sagal had no authority from Bunz GmbH to negotiate or contract on its behalf. He did, however, make some further findings which are said to be arguably relevant:-

A potentially important matter at trial was whether Mr Sagal was entitled to charge his UK customers what he wished or whether he was obliged to adhere to Bunz GmbH’s prices albeit being entitled to his own discount. The judge (para 21) recorded Mr Sagal’s evidence that Bunz GmbH fixed the prices Mr Sagal was to charge and Mr Bunz’s contrary evidence that Mr Sagal’s prices were “for him” and he (Mr Bunz) only “suggested” a way in which Mr Sagal could obtain a return of 25% which is what he was seeking. The judge resolved this conflict by saying (para 27) that Mr Sagal’s claim that prices to UK customers were fixed by Bunz was not consistent with

Mr Stuart for Mr Sagal says that the judge got this last matter wrong and that infected his whole decision. He submits that Mr Sagal had no discretion in relation to the charge to be made to the UK retailers because Bunz GmbH set its German price and the UK price to retailers was set by mathematical calculation by reference to Bunz GmbH’s own price lists with Bunz UK receiving a commission of a fixed percentage on the price so fixed.

Mr Kimbell for the respondents submits that the judge was correct to hold that prices to UK customers were advisory rather that mandatory but, more fundamentally, he says that Mr Sagal’s way of doing business (as agreed with Bunz GmbH) was to make contracts in his own name and on his own behalf, albeit he was using the trade name “Bunz UK”, and that meant he never fell within the definition of “commercial agent” in the Regulations at all. To this Mr Stuart riposted that Mr Sagal had authority to negotiate the sale of the jewellery on behalf of Bunz GmbH and the mere fact that the mechanism chosen to implement that authority was to make a contract whereby he was personally liable as “Bunz UK” to the customer rather than to make a contract in the name of Bunz GmbH was irrelevant. That raises an important question of construction of Directive 86/653/EEC (OJ No.L.382 31 December 1986 p.17).

This question is whether the Directive applies only to agents who bring their principals into direct contractual relationship with their customers or whether it can also apply to agents who make their own contracts with their customers. The defining words of the Directive itself are almost identical to the words in the regulation but it is perhaps important to recite Article 1(2) of the Directive itself:-

“For the purposes of this Directive ‘commercial agent’ shall mean a self-employed intermediary who has continuing authority to negotiate the sale or the purchase of goods on behalf of another person, hereinafter called the ‘principal’, or to negotiate and conclude such transactions on behalf of and in the name of the principal.”

The difficulty with a construction which includes agents, who make contracts in their own name and on their own behalf is that there would then be no need for the second limb of the definition. If someone is an agent for another he will invariably have authority to negotiate (namely, to find out the terms on which a third party wishes to contract) on behalf of his principal; the question may then arise whether he has authority to contract on behalf of his principal. The first limb of the definition envisages that the agent does not have authority to contract on his principal’s behalf but only has authority to negotiate terms on behalf of his principal and then refer back to him to see whether he wants to make a contract on certain terms with a third party customer. To my mind the definition further envisages that, if the principal does want to make a contract with the customer, he will then do so and there will then be a contract made directly between the customer and the principal which will be made in the name of the principal. It does not envisage that, after the agent refers back to the principal and obtains the go-ahead for making a contract, the agent will enter into a contract in his own name with the customer; the reason for that is that, although he will then have authority to conclude a contract which is not in the principal’s name, he will not come within the second limb of the definition which is the limb dealing with authority to contract. In other words agents with authority to contract (as opposed to authority to negotiate) are only commercial agents for the purposes of the Directive if they have authority to contract (and do contract) in the name of the principal as well as on his behalf. That is precisely the authority which Mr Sagal did not have since, as the documents show, he never contracted in the name Bunz GmbH but only in the name of Bunz UK which was (as Mr Stuart recognised) a mere trade name for himself.

It is, of course, possible as a matter of English law for a principal to authorise an agent to make a contract on behalf of the principal but in the name of the agent rather than in the name of the principal. To my mind agents who contract in that way do not come within the definition of “commercial agents”. It is perhaps not difficult to see why this should be so. If a principal is unidentified or undisclosed on the face of the contract it will often be difficult to ascertain whether a particular contract is, or contracts in general are, made on his behalf or not. It may require oral and undocumented evidence of the parties’ intention. I doubt if the framers of the Directive thought that courts should receive detailed oral evidence over many days about the details of the parties’ commercial relationships in order to decide whether someone was a “commercial agent”. If the Directive only applies where the principal’s name appears on the face of the contracts made with the third parties, the inquiry can be a quick and straightforward inquiry, only requiring disclosure of the parties’ contractual documentation.

While the English authorities have not had to grapple directly with this particular debate about the proper construction of the Directive, they are by no means inconsistent with the above conclusion. In AMB Imballaggi Plastici SRL v Pacflex Ltd [1999] 2 All ER (Comm) 249 the judge had found that there was no formalised contract between the claimant principal and the defendant agent but that the way the agent had chosen to do his business was on the basis of a sale (by the principal to the agent) and a re-sale (by the agent to the customer or third party); the agent charged a mark-up chosen by it and not dictated by the claimant. This court held that the agent was not a commercial agent within the Regulations because it had throughout acted on its own behalf not on behalf of any principal. The court does not appear to have had any argument addressed to it about the detailed terms of the contractual documentation but held that an arrangement whereby the agent was entitled to choose his own mark-up on resale to the third party was unlikely to constitute a “commercial agency”. (No doubt this holding accounted for the detailed argument below on the question whether the price to the UK customer was imposed or only advisory). Waller LJ said (page 252):-

“If a person buys or sells himself as principal he is outside the ambit of the regulations. That is so because in negotiating that sale or purchase he is acting on his own behalf and not on behalf of another.”

In that case therefore it was clear, as a matter of fact, that the so-called agent was not in fact acting on behalf of the so-called principal. It does not follow that every agent acting on behalf of the principal is necessarily a “commercial agent” especially if contracts are made in his own name and not in the name of the principal.

Mark-up is not, however, conclusive against commercial agency. In Mercantile International Group Plc v Chuan Soon Huat Industrial Group Ltd [2002] 1 All ER (Comm) 788 the defendant principal was content for the claimant agent to retain an undisclosed margin on contracts made with third parties in the United Kingdom. But all the contracts made with those third parties stated that the contracts were made with the principal and that the claimant was acting as agent only. This court held that that documentation had to be conclusive unless the documentation could be shown to be a sham, other factors allegedly inconsistent with the claimant being an agent (e.g. the mark-up) could not be relied on to displace that documentation. Rix LJ cited the Pacflex case and the earlier case of Re Nevill ex p White (1871) LR6 Ch. App 697 in both of which it had been held that the parties were in truth seller and buyer rather than principal and agent but he then said (page 798a) that it was critical in both cases that there had not been contractual documentation stating that the contracts were made between the third party and the principal. So where there is documentation, that documentation is critical. Here the documentation is to the opposite effect to that in the MIG case and, to my mind, the opposite conclusion must follow namely that there is no commercial agency.

HH Judge Mackie QC said that, in a case where the picture presented by the documents was clear, oral evidence from many witnesses about the details of the parties’ relationships

“was not going to change that clear picture.”

I agree with that conclusion and would, therefore, conclude that Mr Sagal was not a commercial agent within the meaning of the Directive.

I would add that even in a case where counsel are able to argue that the effect of the documentation is (or may be) equivocal, judges should be cautious about allowing the question whether commercial agency exists to develop into an extended trial with extensive oral evidence. The basic documentation should be before the court at any case management conference and, before the judge gives permission for further discovery or exchange of witness statements, counsel should be in a position to explain why discovery or oral evidence is necessary. Permission to adduce further documents or oral evidence should only be granted where the judge is satisfied that the matter cannot be fairly decided on the basic documentation alone. Bunz GmbH is, of course, German; most German businessmen would be surprised that it should take four days of trial to determine the question whether somebody is a “commercial agent” within the meaning of the Directive and appalled at the resulting cost compared with the cost of resolving such an issue in their domestic courts. We were told that Bunz GmbH is now in liquidation or administration; one can only hope that that is not because of the expense of these English proceedings.

Mr Stuart was critical of the judge for not considering the oral evidence of the witnesses in detail. He singled out the evidence of a UK customer, Mr Trevor Fitzgerald, whose understanding was, apparently, that he was dealing with Bunz GmbH and who did not consider Mr Sagal himself had any contractual liability. In fact the judge did set out this gentleman’s evidence but added (correctly) that his analysis of the contractual position from his distant standpoint added nothing. Mr Stuart also sought to attack the judge’s findings of fact that the prices charged to UK customers were advised rather than imposed. The basis of this attack was that the prices were always arrived at by dividing Bunz GmbH’s list prices by a factor of 2.2. That is not something that was evident on the face of the contractual documents themselves; the most that could be said was that it was a conclusion that could be reached if one compared the contractual documents with an extra-contractual document. But just as mark-up at the discretion of the agent is not conclusive against “commercial agency” (see MIG) if the contractual documents make it clear that the contract is made on behalf of and in the name of the principal, so the absence of discretionary mark-up is not conclusive in favour of “commercial agency” if the contractual documents make it clear that the contract is in the name of the agent rather than in the name of the principal.

Mr Stuart also sought to criticise the judge for not dealing in detail with the effect of all of the findings set out in paragraph 7 above. In fact most of them tend (if anything) to negative rather than support a finding of commercial agency but the truth is that they are all of no consequence in comparison with the contractual documentation.

For all these reasons I would dismiss this appeal.

I agree.

I also agree.