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European Community (Commercial Agents)

Volume 949: debated on Tuesday 2 May 1978

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10.0 p.m.

I beg to move,

That this House takes note of Commission Document No. R/3/77 on Commercial Agents.
The Commission document is a proposal for a Council directive to co-ordinate the laws of the member States relating to self-employed commercial agents.

I should explain that "commercial agents" is a concept recognised and provided for in Continental legal codes, but they are not identified or specially provided for in our law. They are, broadly, people and firms that carry out the business of what in the United Kingdom we would probably call a manufacturer's agent, or with more precision, a manufacturer's selling agent. They are engaged by a principal to sell his goods on his behalf and in his name and generally remunerated by the payment of a commission. Such agents are widely used in international trade, particularly by small firms and when the size of the market does not justify a firm setting up its own sales network. They are also used in internal trade. Some agencies are handled by major international business houses, but it is thought that well over 50 per cent. of agents are individuals or proprietors of very small concerns. Estimates suggest a total of about 20,000 in the United Kingdom.

The proposal is based on Articles 57 and 100 of the treaty. It has two main objectives. One is to harmonise the commercial agency laws of the member States. Differences between these laws are, in the Commission's view, detrimental to the functioning of the Common Market, affecting conditions of competition and creating legal uncertainties. The other objective is to strengthen the position of the commercial agent, who is assumed to be the weaker party in negotiating with his principal. The proposal does this by setting out detailed, mandatory rules, regulating the main aspects of the contract between them.

I shall not take up the time of the House by going in detail over the contents of the proposed directive which are surveyed both in the explanatory memorandum and in the Select Committee's report. In brief, the proposed directive is derived from the provisions of the German commercial legal code, but it is, in general, both more comprehensive and more protective to the agent that the existing legal provisions in the individual member States. For the United Kingdom such legislation would be highly novel both in form and content.

Four main issues can, I think, be identified as arising from the proposal. The first is the case, in principle, for a directive on this issue. The second is the question of the implications for the structure of our law of agency. Third, the drafting of the proposed directive is criticised as being inadequate and, arising from this, is the fourth issue, namely that the scope of application of the directive is unclear.

On the first of these questions, hon. Members will see from the report that there are differing opinions—not surprisingly. The manufacturers' agents, represented primarily by the United Commercial Travellers Association section of ASTMS—UCTA—and the Manufacturers' Agents' Association, have long pressed for protection of the sort that the Commission wishes to introduce and welcome and strongly support the proposal. Their principals, represented by such organisations as the CBI and the Association of British Chambers of Commerce are unimpressed by the Commission's arguments and query the basic premise that the agent is in the weaker bargaining position. The regard the detail and complexity of the proposed directive as removing a useful measure of existing flexibility and as making insufficient allowance for developments in commercial practice. Although they are unhappy with the proposal, however, I think that I should mention that they have not indicated that they would be unable to live with it and, indeed, they are probably already dealing with provisions of a similar nature when they use agents on the Continent, although probably not as comprehensive as those proposed here.

Against this we have to set the case of the manufacturers' agents. They have put forward to us specific examples of the problems faced by the smaller agent—agents who have been unable to obtain written confirmation of the terms of their contracts, with consequent difficulties and disagreements over rates and payments of commission or notice of termination. They have complained that agents can be used to build up sales in an unpromising market and then put aside, without compensation, when the business has reached a level where the principal can set up his own sales organisation.

The absence of a legal requirement for a formal contract incorporating basic safeguards has, they feel, led to uncertainty and insecurity for a group of people who are doing a useful and valuable job and who deserve better treatment. They point out that this view has been recognised in the commercial agency laws or most other European countries. The present proposal, in whose formulation their international representative bodies have played a significant part, contains the provisions which they regard as necessary for establishing a reasonable level of security for their members.

I turn now to the legal issues arising from the present proposal. They spring partly from the implications of introducing codified Continental forms into a part of our law of agency, partly from the novelty of some of the provisions, and partly because of the drafting and uncertain coverage of the proposal.

The drafting of the proposal has been widely criticised. It gives rise not only to legal objections, but also to considerable uncertainty as to what the Commission is trying to do in detail, and where the Commission has explained what it is trying to do, it is not clear that the text will always achieve it. If the principle of a directive on this subject is to be accepted, there would appear to be a substantial amount of drafting work to be done if the present text is to be used as a basis.

The fourth issue, which has been the basis of much of the critical comment we have received, is the apparently very broad coverage of the directive. This can be interpreted as extending well beyond manufacturers' selling agents to include agencies involved in the buying of goods and a wide range of service agencies, possibly including, in certain circum- stances, solicitors, estate agents and stockbrokers. This appears primarily to arise from inadequacies of definition.

Even the exemptions are not free from this criticism. As the Select Committee says in its report, the tenor of the proposal
"as a whole is directed to a much narrower concept of a commerial agent".
Organisations representing both agents and principals involved in other fields of agency are anxious about the possible application of any directive to their activities. They do not consider the Commission's proposals are intended or designed to apply to them, and they wish to be either clearly excluded from its scope or for radical changes to be made in the provisions.

One particular problem is the mail order agent—generally a housewife operating from home and selling goods from a catalogue. There are some 3 million or 4 million such part-time agents in the United Kingdom. Here, the Commission has made an attempt to allow them to be excluded from some of the provisions of the directive, but it is doubtful how effective this would be, and the Mail Order Traders' Association considers that it would be impossible to apply the proposed directive to its members' use of agents.

I think that it will be agreed from what I have said that there are obviously major shortcomings in the definition which would have to be cleared up should it be decided to go ahead with a directive on this topic.

These, then, are the issues to be dealt with by the member States when the proposal comes to be considered in the Council working party, and I should remind hon. Members that, although proposals for Community legislation on these questions have been under discussion within the EEC since well before its enlargement, the working party will be the first opportunity we shall have had to discuss the topic of other member States à neuf.

When these discussions will start, I cannot yet say. The Economic and Social Committee has already advised in favour of a directive along the lines suggested by the Commission, but the European Parliament has not yet given its view and the proposal will not be referred to a Council working party before the report from the Parliament has been received.

As far as the Government's attitude is concerned, we have already indicated in another place—and this has been noted by the Select Committee—that, in view of the conflicting and often critical reactions to the proposal in the United Kingdom, we are reserving our position until there has been an opportunity to explore with the other member States in the Council working party the value of the directive on this topic.

In the light of these discussions we shall be in a better position to decide on the practical benefits of such an instrument. If these were found to be worth while, we could take a view whether the form and content of the directive as proposed by the Commission are those most appropriate to meet the needs which it has identified. It may well be that something with narrower and more explicit definitions, yet with broader provisions, should be sought.

The Select Committee urged that this proposal should be considered by the House before our policy was finalised, and I am glad that an opportunity for an early debate has arisen tonight. We are anxious to have the views of the House, and I assure hon. Members that the Government will take particular notice of what they have to say on this deailed and complex document.

10.10 p.m.

The House will, I am sure, realise that this directive, if it is adopted, will in almost all its articles be mandatory on all member States. That will mean that the whole of our law of commercial agency will have to be rewritten in detail on what is fundamentally a German basis.

The draftsmen have taken the German code and tightened it up in various forms, as the Minister said, but it is wholly different—I nearly used the pejorative or disparaging word "alien"—from the concepts of the common law concerning commercial agency. We shall not be allowed, as the draft is at present, to opt out of almost any of its provisions.

It covers the most enormous field of activity. It does not affect only selling agents. In spite of criticisms and attempts in the Legal Committee of the European Parliament to get it amended—and such amendments were bitterly resisted by the Commission's representative—it covers also theatrical agents, estate agents, travel agents, literary agents and pop group agents. These are all people who are supposed to be able to make or break their so-called principals in their careers. It is said in another breath that these agents are in a poor and weak bargaining position, unable to stand up to their principals, although the vast majority of those included in the present definition are far stronger than their principals.

The straitjacket of the proposals is quite remarkable. For some reason which I do not understand—I shall take only two or three examples—the Commission seems to dislike very much the well-established practice of the del credere agent. The del credere agent—I refer to Article 21—is a commercial agent who guarantees the solvency and the performance of the third party whom he introduces. He guarantees payment himself. It has been a well-known practice in the United Kingdom over many centuries. It is not very popular on the Continent, because the same reputations for honesty have not always existed there.

The del credere agency system is of enormous benefit commercially, but it is to be "cabin'd, cribb'd, confin'd" in the most extraordinary way, and we cannot opt out of that. But what is the purpose of that sort of harmonisation? The del credere agency system, as at present constituted, cannot possibly cause any sort of distortion of competition. It is so minimal and marginal as not to be a reality in that sense. We have here an example, throughout this type of directive, of a desire to produce a uniformity of law which is, I think, in the wrong direction.

It seems to me that the del credere system is an excellent one, and that if there is to be uniformity it should be uniformity in favour of the British system rather than the German system. I should be quite happy with the present variety. On the whole, I think that this country gets commercial advantage from the fact that agents here are prepared to undertake long-term del credere positions even on the telephone, without any signature or any written evidence. Under Article 21 that will no longer be allowed, because the limitations require the most tremendous paraphernalia. Every individual transaction must be signed, be in writing and so on. It cannot be right that there should be that straitjacket imposed upon us.

There are other things. Article 9 states that commercial agents shall have
"authority to negotiate commercial transactions for account of the principal".
That rather goes without saying. It also states that he shall have authority to conclude agreementts in respect thereof only where the principal empowers him to do so. That seems to strike at the doctrine of ostensible authority—a well-known doctrine in the English law of agency by which, if an agent does conclude an agreement for which he has no existing authority, his principal may well be bound subsequently if, in fact, he has held himself out as having the authority and the doctrine of ostensible authority applies.

That may or may not be a desirable state of affairs. But it is the sort of state of affairs to which each individual country's law ought to apply its own traditional rules, even if they vary. There again, there can be no question of the distortion of competition or the distortion of the European market.

I only instance those two examples to show the rigid detail with which this class of directive is drafted and the tenacity with which the Commission guards and preserves its drafting—certainly in the Legal Committee, which is the committee of the European Parliament that I know.

My understanding of the directive was that it was to provide guidelines within which member States would be able to adapt and develop it as appropriate to their own law. Does the hon. and learned Gentleman agree that this from of mandatory directive is a distortion of what are generally accepted to be the Community's law-making processes?

I would agree entirely with the hon. Gentleman. I think this is a distortion. I think that the tenacity with which the Commission defends it is even more sinister than the development itself.

The theory upon which this directive is based is that the agent is a poor, weak fellow and needs a great deal of protection. It may be—although one makes no admissions about this—that with regard to goodwill, remuneration, terminal payments and things like that, the law should be altered in this country. I am not denying that there is perhaps a case for that. If it is to be altered there is no particular reason why it should not be altered in conformity with the spirit of this directive.

But for the rest of the law of agency to be pushed out in this detail is, to my mind, quite intolerable. Even with regard to the small, weak man with only one principal—which is the example always given by the Commission—I have grave doubts about that. In the Legal Committee of the European Parliament we knocked out Article 22—it may come back again—which equates the position of the self-employed agent with the employee in the case of bankruptcy. That is quite wrong. As hon. Members know, in a winding up or bankruptcy the employee has very great preference over trade creditors and people of that sort, and quite rightly so. If the self-employed man is to be equated with his position, it may well be that the self-employed commercial agent gets a preference in the liquidation of a principal, which defeats the claim of another self-employed trade creditor who may be a much smaller man than he is.

Furthermore, if the self-employed small man with only one principal—which is always held up to us as the object to be protected—is equated with the employee, it considerably dilutes, or may do so, the employee's privilege. There will be less for the proper employee. If there is a small man who has only one principal, why is he not an employee in the first place? Everyone knows that the reason is perfectly simple. It is that for tax purposes it suits him to be self-employed, as often as not, and good luck to him—but he cannot have it both ways. That is the strongest objection.

I know that I have been much attacked by ASTMS, or whatever the union is in this matter, but that is the reason why, in my amendment, we knocked out Article 22. It seemed to me that the self-employed agent was trying to have it both ways. Far be it from me, from this Box, to cast any slur of any sort upon the self-employed. Nevertheless, when the self-employed refuse to take the kicks as well as the ha'pence, when they want to have all the privileges of the self-employed and all the privileges of the employee, I am bound to say that my enthusiasm for their cause is moderated.

I have listened as closely as I can to what the hon. and learned Member has said. Is it not the case that really all the dice are loaded in favour of the principal, and that, for example, an agent can become responsible for the bad debts of a principal in an insolvency or bankruptcy situation?

He cannot become responsible for the principal's debts, but his own claims may be deferred to those of the employees and, indeed, may be reduced because he is at present a trade creditor to the other trade creditors. The idea of his being preferred into the privileged position of an employee is what Article 22 suggested, which we, in the Legal Committee—although this is not final—have knocked out, and with the support of the Socialist Group in the European Parliament. It is the only occasion on which the Socialist Group voted in favour of the reduction of the mandatory qualities of this directive. In all other matters it has preserved the full straitjacket quality of this directive in its votes.

Therefore, I view this directive with a good deal of sadness. I say sadness because, as is well known, I think, I am a supporter of the directives and regulations which seek to prevent distortion of competition within the Community. But when the articles, particularly Article 100, are misused, as I think Article 100 is, for this purpose, for a harmonisation for harmonisation's sake, for a destruction of legal principles upon which the commercial life of the United Kingdom has been based for many years, I view such developments in the Commission and in the Community with a good deal of sorrow.

10.24 p.m.

I hope that the Government will support the broad principles of this directive. In saying that I am not dissenting from some of the criticisms made of the directive itself.

As the Minister has said, this matter came before the Select Committee on European Legislation. We heard evidence from the Board of Trade. We had evidence also from the UCTA section of ASTMS and written evidence from the Manufacturers' Agents Association in favour of the directive. We had evidence from the Confederation of British Industry against the directive. We had evidence from the Association of British Chambers of Commerce, which took a rather intermediate line and suggested that something was necessary to protect agents but not this particular directive. We also had evidence from the Mail Order Traders Association, which was anxious, as the Minister said, that it should be excluded. We received a letter from that association today. Articles 2 and 4 make it reasonably clear, as far as anything is clear in the directive, that the Mail Order Traders Association would not be included.

In the light of these views the Select Committee felt that there was no purpose in taking any other verbal evidence. It decided, as it was bound to do, that the matter was important, controversial and necessitated debate on the Floor of the House. Therefore, it has come to the Chamber for debate.

I am not an enthusiast for harmonisation by the Community and I ask whether the directive is necessary in general terms. Is it necessary to protect commercial agents or manufacturers' agents, call them what we will? We have had the evidence of both the UCTA Section of the ASTMS and the manufacturers' agents, which say clearly that it is. They defined some of the problems that are faced. They referred to commission that is earned, overdue and unpaid, which is not uncommon. I do not say that it is general but it is not uncommon among a significant minority of principals. There is the refusal of principals to reduce the contract of agency to writing, or inadequate written contracts. I understand that almost 50 per cent. of agents do not have written agreements. Therefore, it is difficult for them to enforce any contract in a court of law.

Yes, and expensive. There are principals who change the terms of an agency agreement in an arbitrary manner—for example, altering the percentage of commission payment and stoppage of an agent's retainer. There is unsatisfactorily defined territory and territory changes. There is the taking as "house accounts" those accounts that agents have built up, often with no compensatory payments for doing so. There is no goodwill compensation on termination of agency, and inadequate notice of arbitrary termination of agency. Quite often termination takes place with only one month's notice after several years. I have had experience in the courts of agents who have built up a considerable goodwill and who have been fired by their principal, who inherits the goodwill. There is no compensation and no redress because the matter is not able to be dealt with under the terms of the contract or else there is no written contract.

There are problems that arise from the insolvency and winding up of principals. Agents are made responsible for bad debts, for example. The hon. and learned Member for Darwen (Mr. Fletcher-Cooke) has said that the del credere agent is in a different position, but it often happens that agents are made responsible for bad debts who are not in business as del crèdere agents.

There is no doubt that there is plenty of evidence to show that these evils exist. That has been recognised by other countries. They have taken the view that it is not merely an EEC matter and of importance only to members of the EEC. Germany was the first country to introduce such a law. I understand that French protection goes further than the directive. There is similar legislation in Italy and the Benelux countries. Such legislation is not confined by any means to Community member States. I understand that there is legislation in Austria, Finland, Norway, Sweden and other countries that protects the agent. That is because it is recognised that he is in a weaker position.

The hon. and learned Gentleman has questioned that weakness. He referred to the number of agents who deal with one principal. I am told that about 60 per cent. of British agents—I am not including theatrical agents, insurance agents who are excluded under the draft directive, or mail order traders—have one principal. This applies to people who are mainly selling agents for manufacturers' goods. About 60 per cent. of them have one principal, or a few may do just a little business apart from that which they do for one principal upon whom they are dependent. If they lose their agency or their principal goes out of business, they are finished.

There is no doubt that they are in a weak position and they are conscious of their weakness. The majority of companies and firms treat them fairly. But the object of the directive—I shall not say whether it achieves it correctly—is that the principle of fairness and some kind of code of conduct should apply generally.

I agree with the hon. Gentleman on the question of compensation for what in another sphere is called unjust dismissal, or something on those lines, although not in the case of the self-employed, and that goodwill should be preserved. I think that in those areas there are legitimate causes for complaint in the present state of our law and that on that matter the hon. Gentleman will find unanimity.

The point is that in the great majority of cases the agent is in a weak bargaining position. I know that the objection of the Law Commission, of the House of Lords Committee which considered this matter and of the CBI is that this interferes with the freedom of contract. The freedom of contract is important, but it is not a fetish that we must always continue to worship.

When I studied law, I read Dicey's constitutional law. He was the great man on constitutional law. He set out the principles of the historical development of the law from "status to contract"; that is, from fixed relationships to relationships decided by free contract between free people. That sounded very nice. The history of the law in this country and in other countries has been precisely the opposite to that.

In employment it used to be called master and servant. There is now a vast body of legislation, introduced by Governments of both major parties, to protect the employee because of his weak bargaining position. There is a body of law on landlord and tenant to protect the tenant against the bad landlord. More recently we have had consumer legislation to protect the consumer against the unfair and immoral practices of certain unscrupulous dealers.

After all, freedom of contract can be applied only where the relations between the parties are equal and both have equal strength. I suggest that in this instance they do not have equal strength. Therefore, these people, and the unions representing them, feel that they should have legislative protection. I refer to legislative protection for a man who in many instances is no stronger in his bargaining power than an employee. He has not, as the hon. and learned Gentleman said, always chosen to be in that position rather than to be an employee. Frequently it suits the manufacturer to have an agent who is paid upon a commission basis rather than to have an employee to whom he has the responsibilities of an employer. Therefore, it is wrong to say that these people have chosen to be what they are and that they must take the rough with the smooth. I think that they are entitled, at any rate, to some of the protection accorded to employees because they are in fact quasi-employees.

I agree with the Minister and the hon. and learned Member for Darwen that much of the draftsmanship in the directive is obscure, imprecise and uncertain. A major job of draftsmanship and negotiation will have to be done. But one must bear in mind that the ensuing legislation must be passed by this Parliament, in our own terms. Then we can consider further the question of precision and certainty.

These people serve a useful purpose in the Community. In may cases they are suffering hardship and legal injustice because of the inadequacy of the present law. Some method of protecting them should be found and we should deal with the main matters about which they complain.

I do not support every detail of the directive. It is imprecise in the definition of a commercial agent. But some leglislation is necessary, irrespective of the Common Market or harmonisation. The precise form of legislation will be negotiated in the Common Market organisations. This deserves support. I hope that the Government will support such legislation in principle. I hope that they will work out in negotiations the principles around which the legislation can be made practicable, just and fair to both sides.

10.37 p.m.

Experience has taught me that when an hon. Member says that he will make a brief speech he rarely does so. I shall make a brief speech. I pay tribute to the hon. Member for Farnworth (Mr. Roper) and his Committee for their excellent report. On page 10 of the House of Commons Sixth Report from the Select Committee on European Legislation. &c. it is said in trenchant terms:

"From the view of the evidence summarised above, the Committee conclude that bodies representing the principals consider the draft Directive one-sided, detrimental to the interests of their members, unnecessary and in any case unworkable, while bodies representing commercial agents see it as offering protection to members whose business relationships are beset by uncertainty and insecurity …
This strong conflict of opinion, together with the trenchant criticism by the Law Commission leave the Committee with no choice but to recommend the draft Directive for further consideration by the House … at an early date; and, in their view, the earlier the date, the better."
I am glad that we are considering this today.

I refer to only one aspect of this matter—that of mail order traders. The hon. Member for Farnworth will know better than most that in the early days of this century working-class people bought their clothes through the tally man or club man. He used to come round each week and collect 3d or 6d to assist the working-class family to clothe their children.

There has been an explosion since then. Mail order traders have developed. They carry on the task of providing the working-class and others with clothing which can be selected from catalogues which are produced twice a year in order to carry on this pretty extensive business, which provides 13 million people, or probably more, with the opportunity to replenish their household stocks.

Total sales in 1976 by members of the Mail Order Traders Association were about £1,100 million, a vast trade. That was accomplished by about 4 million agents. They are not highly trained commercial people, but ordinary working-class housewives whose customers derive mainly from their immediate families and neighbours. Their average turnover was about £250 a year, of which they made a modest commission of £25. That may not be wealth beyond the dreams of avarice, but it represents a modest contribution to their economic circumstances.

Why should this highly personal and domestic organisation of sales be constricted into these regulations which are meant to apply to extensive businesses? Does anyone seriously pretend that the local agent with a £250 turnover is running a substantial business which must come within the directive? That is utter nonsense. While we might appreciate the principle of harmonisation on certain matters, we must remember that we have here an individualistic organisation which provides an enjoyable service.

I am told that the credit prices are, with very few exceptions, the same as the cash prices. All goods are sold with an unconditional guarantee. A directive which seeks to harmonise the law relating to self-employed agents is much too gigantic an instrument to operate in this limited sphere.

I hope, therefore, that the Minister will consider the arguments advanced by the mail order traders in favour of their exclusion from the directive. Some means of excluding them should be found—if not in the way that they advocate, then in some other way. I hope that the Minister will seriously consider the representations that have been made to him and will afford relief to these organisations.

Will the hon. Gentleman consider two points? Even as drafted I do not think that the directive is likely to include mail order traders, but I agree that it should be made clear that that is the case.

I am sure that the hon. Gentleman did not intend to mislead the House with his quotation. The quotation that he made was not the view of the Committee but was a quotation from the Law Commission. In what I considered to be a very one-sided report, the Commission made a strong attack on the directive. Without necessarily accepting the Commission's view, the Committee said that if such views existed, clearly the matter should be debated by the House.

I do not want to delay the House any further. If the hon. Member assures me that mail order houses are excluded and the Minister confirms this, I shall be very happy.

10.46 p.m.

I want to return later to the question of the Mail Order Traders' Association because it is obviously important. But first of all I wish to deal with other areas of importance.

The Confederation of British Industry said in evidence to the Select Committee:
"The draft directive is another example of new law being made in the guise of harmonisation."
It may well be that one of the things we expect from the EEC is that on some occasions, when there is an attempt to harmonise the law, some member States will have inadequate law—as appears to be the case with the United Kingdom in this instance. In such cases the creation of new law will be necessary in those member States. The harmonisation process will mean introducing into our legal system a new area of law. That is why we are in difficulty.

As the hon. Member for Southend, East (Sir S. McAdden) said, the Select Committee, in taking evidence, found that, on the one hand, the principals were critical of the directive while, on the other, those who represented the commercial agents saw considerable advantages in it. We were not attempting in the Select Committee to strike a balance between the two interests. This is a matter for the House, not the Select Committee.

We were also concerned about the points made by the Law Commission. I quote what may be a one-sided remark, but there can be no doubt that the Law Commission's report must be taken seriously. It said of this directive:
"Its defects of substance, presentation and drafting are such that it fails even to provide a basis for negotiation."
That is very strong criticism from the Law Commission about an EEC directive, and it was provoked by the possibility of increased uncertainty in English law, which might arise from the introduction of this directive.

We are faced with the rather peculiar nature of this directive. The problem is that the term "commercial agent" has no precise connotation in English law as it stands. It was said to us by the representatives of the Lord Chancellor's Department who came before the Select Committee that the introduction of this directive into English law would probably increase uncertainty in certain circumstances, rather than reduce it. Therefore, we were particularly concerned that Community law would have this effect on our legal system, as distinct from the arguments about whether it is desirable for commercial agents.

We are delighted that the Government have given us an opportunity to discuss this matter. We feel very strongly that in the Community's discussions considerable attempts are made to put it into a format compatible with the rest of British law. Otherwise we will have a whole series of difficulties. Although we might deal with very real problems for commercial agents, we might create certain other considerable legal problems going much wider than that. It was thought that it was by no means clear that the directive would not apply to travel agents, literary and theatrical agents, stockbrokers and forwarding agents. Clearly the tenor of the directive is intended to cover a much narrower range.

The Mail Order Traders' Association has a particular problem because the directive appeared to its legal advisers to include mail order traders' agents—the housewives who do this work on a part-time basis—when clearly this was not the original intention of the Commission in drafting the directive. The problem may arise because outside the United Kingdom the concept of the mail order trader is not known and therefore the Commission was not aware of our problems.

Does my hon. Friend agree that Article 4 probably deals with this matter? It says:

"It is left to the member States to decide whether the directive is to apply in whole or in part to persons who carry on business as commercial agents but by way of secondary activity only".

One of the problems is whether, when a housewife has only one employment, as a mail order agent, that would be a secondary activity. This is the ambiguity of the directive which is causing considerable concern to the Mail Order Traders' Association. A solicitor's work as a commercial agent would be a secondary activity, but it might be construed that the part-time mail order work of a housewife with no other gainful employment was her primary activity rather than her secondary activity. But I do not wish to get involved further in the complexities of women's liberation.

I return to the question of the quasi-direct applicability of directives. The Select Committee was concerned about this and I asked the representative of the Lord Chancellor about this problem. He replied:
"In a sense this is another of the difficulties we see because it"—
that is the directive—
"contains a degree of detail which makes it very difficult to implement it other than by using its language or something very close to its language. It is in a sense a directive drafted in the terms of a regulation."
It is this character of a directive that becomes virtually mandatory and does not give freedom to member States to adapt and develop within the general context of their own law which concerned us particularly. I asked the Lord Chancellor's Department why it thought the Commission was moving in this direction. The reply was:
"They are drafting with an increasing degree of detail possibly because the member States have expressed some dissatisfaction with diverse interpretation of directives that were not so detailed."
That is one possible interpretation. There are others. It may be that the Commission is dissatisfied with the way in which some member States have acted on rather more loosely drafted directives.

There are here important and fundamental questions about Community law and about the nature and concept of a directive within Community law. They require much more fundamental examination than can be done solely on the example of this instrument, though I hope that the Minister will bring it to the attention of the Lord Chancellor and other Law Officers because the House wants this matter to be sorted out with a great deal more clarity.

I hope that we shall make satisfactory progress. I share with my hon. Friend the Member for Birmingham, Erdington (Mr. Silverman) the concern that there should be a proper code of law dealing with commercial agents, but I do not think that the directive as drafted is the ideal way to achieve that end.

I hope that the Minister and his officials will be able in the working group to make considerable changes to these proposals. However, if what we have heard from the hon. and learned Member for Darwen (Mr. Fletcher-Cooke) about the obstinacy of the Commission is anything to go by, we may be charging them with a difficult task. But the House will want to see this instrument in its revised form so that we may give our opinion on the matter when it comes before us in a significantly changed form, and before it finally goes to the Council of Ministers for approval.

10.56 p.m.

There are two parliamentary virtues to which I do not normally lay claim. One is humility and the other is brevity. But faced with a complex legal document, in the presence of some well-trained legal minds, I shall take refuge in both. This is a highly complex matter, and the possible introduction of complex statute law of this kind in an area which has previously largely been dealt with by the common law is a highly unsatisfactory way of proceeding. In a thinly attended House, despite some excellent work carried out by the Select Committee, this hardly seems to be the best way to proceed. With the best will in the world, it is hard to grasp the full and intricate details of a complex document of this kind.

The draft directive is based on two principles, one of which is that the activities of commercial agents
"play a very important part in interpenetration of markets and for that reason in the growth of intra-Community trade".
The other principle is that commercial agents need protection because they are commercially weak vis-à-vis their principles.

These are two principles which to a certain extent conflict. If these agents represent such a powerful economic force, I find it hard to believe that as a generality they are as commercially weak as has been suggested in this debate. I emphasise "as a generality" because I have no doubt that there are exceptions. I find it hard to accept that the differences in the legal sphere in individual members of the Community pose a major problem and that this represents a powerful and significant barrier to intra-Community trade.

It is incumbent on those who support this draft directive, or even upon the Commission, to prove that this is a barrier to trade. If it is not a barrier to international trade, I do not feel we need to embark upon this significant course of changing the whole basis of agency law in the United Kingdom.

Despite the points made by the hon. Member for Birmingham, Erdington (Mr. Silverman) about the problems faced by certain commercial agents, we have had no specific example of how intra-Community trade is hindered in any way by these differences in legal rules. If there is no such evidence, surely we should be looking not to EEC directives, which in this case will have a quasi-mandatory effect, but to our own law to consider whether there are any areas where we should be taking certain steps to protect certain individuals who are at a disadvantage.

I believe that the case has not been made out by the Community for a draft directive with this wide-ranging effect and great significance. Evidence should be put before the House that laws of this kind are necessary. There is nothing in the draft directive to persuade us that we should take into consideration a proposal of this kind.

I turn to the question of the commercial weakness of the agent. The vast majority of agents choose to be commercial agents and prefer to have the commercial freedom of being an agent without being shackled by the detailed contractual terms that migh be imposed upon them if the draft directive were to come into force.

As I understand it, the directive could well apply to people such as selling agents, estate agents, pop group agents and theatrical agents. I have not often heard it suggested that the estate agent is commercially weak vis-à-vis his principal. I have not often heard it suggested that the pop artists's agent is commercially weak vis-à-vis his principals. We are generally talking about a smaller number of commercial agents. I accept that there might be cases involving a small number of individuals, but no one from my constituency has ever written to me complaining that he has been badly treated by his principal, though there might be such people. Their contract could be terminated unfairly, commissions might not be paid to them, they might receive no goodwill payment on the termination of their contract. I accept that that could happen.

I very much respected the hon. Gentleman's speech. He advanced concrete examples, which are often lacking in these theoretical debates on EEC matters. He gave solid examples, and that is important.

Perhaps there are points that we should consider in terms of United Kingdom law, but I do not accept that simply because some commercial agents get a bad deal we should change the whole basis of United Kingdom agency law as proposed. Nor do I accept that we should therefore apply the agency changes to the whole wide-ranging field of all the other principals who are by no means in a weak position; they are in a strong position.

But, pursuing the hon. Gentleman's point, I wonder whether the organisation which presumably made representations to him is really speaking in the long-term interests of its members. Presumably it is in the interests of the manufacturer and many agents that there is a great deal of flexibility and freedom in the arrangements between them. Might not it be detrimental in the long run if one forced them in effect to have proper contracts of engagement, specific commission terms, termination agreements and the like? Would not many organisations say "It is far better to have an employee rather than this flexible arrangement with an agent"?

I suspect that the net result would be that the agent would lose, because there would be fewer agency agreements available, and that the consumers would lose, because there would be less choice for them to buy from a variety of agents. That point has been well made by the discussion we have had about the impact of the draft directive on the mail order business through catalogues, which undoubtedly plays a significant part in consumer sales in this country.

The hon. Gentleman sought to assure us that the draft directive would exclude mail order activities. But the Minister was precise in his statement that as drafted it did not exclude them. Whether it is intended in principle to exclude them, I do not know, but in practice we have a ministerial statement that it does not do so at present.

This is a wide-ranging proposal, touching on an enormous range of activities that offer a wide choice of outlets to the British consumer and, generally speaking, work satisfactorily. I have heard no evidence to show why we should introduce this major change into our law. Until we have such evidence, we should not go further in this matter. If there are specific cases of injustice, let us make not major changes in the law but minor alterations that will allow us to close the loopholes and then proceed with a greater degree of certainty about what the law is.

In new legislation introduced in this House, as with the directives, we often go for the wide-ranging changes that leave the law in a greater state of uncertainty, steamroller legislation that changes pretty well everything. Then for decades ahead we are not quite sure what the law is. It is far better to close the small loopholes in response to specific evidence of specific injustice than to have wide-ranging changes of this nature. The hon. Member for Erdington has made the case only so far. It goes only a tiny part of the way. There is no overwhelming case for the change that is proposed.

11.5 p.m.

I begin by declaring an interest as a sponsored member of ASTMS. It is well know that it was the United Commercial Travellers Association section, of ASTMS which made certain important references to the often weak position that the agent is in. The hon. Member for Faversham (Mr. Moate) said that he did not accept that in general terms the agent was in a weak position but that, where evidence could be brought to show that agents were in a weak position, he would be happy to see legislation introduced in this country, quite separate from any harmonisation of EEC regulations.

I start from the premise that I very much regret that we have to look to the European Community or to the Commission to try to deal with this problem which is faced by many commercial agents. It the hon. Member for Faversham and others feel that the agents are not in a weak position, and that is not a very good argument, may I, like my hon. Friend the Member for Birmingham, Erdington (Mr. Silverman), draw attention to some of the points that UCTA members of ASTMS have made?

They have referred to the question of commission earned being overdue and unpaid. Surely it does not matter whether they are in a weak or a strong position. This is not a satisfactory state of affairs. These people have told of principals refusing to reduce contracts of agency to writing. I seem to remember that under the Tory Industrial Relations Act everything had to be put into writing. The Tories were very much in favour of written contracts and goodness knows what. I should not have thought that we could complain about people having a contract in writing.

The agents speak of principals changing the terms of the agency agreement. They talk of goodwill compensation. Many agents may well establish a good-will and then the principal will decide to get rid of that agent, appoint someone else and establish an enlarged area of goodwill. I would have thought that this was likely to happen too often with arbitrary terminations. There is also the question of bad debts, winding-up, insolvency and so on. Whether people are in a weak or a strong position, these matters need to be cleared up. I would prefer to see the Government doing something about them rather than waiting for harmonisation proposals.

Hon. Members have spoken of equality in terms of contracts. I doubt whether we can say that the contracts entered into are between two equal and consenting parties. This is the kind of nonsense we had throughout the nineteenth century to attempt to stop the development of trade unions. Something that the hon. Member for Faversham said reminded me of some of the utterances made during the nineteenth century. He said that the commercial agents may find that in the long run this move is not to their advantage.

There were entrepreneurs in the nineteenth century who said that if they stopped young children from going down the mines or reduced the working day from 16 hours to 12 hours, in the long run it would be to the disadvantage of the workers. It was said that it would not be to the advantage of workers to combine and form trade unions. We have been told that the Employment Protection Act will not be to the advantage of working people. More and more working people are demanding that they, too, should have these protections. Either they fight for them through their unions, or this Government and other Governments establish them in law. It is wrong that commercial agents should be left out completely. Many of them are in a weak position.

I think, however, that it is a fair criticism that the directive covers far too many areas. But I still thin that Article 4, read right through to the end, makes it clear that mail order establishments, married women and so on will not be covered, although there is a good deal of exploitation in that area. Perhaps that problem should be looked at just as the whole problem of home work is now being looked at by the TUC.

I welcome proposals of this kind, although I can see that there are some contradictory provisions which would need to be ironed out. But I hope that the Labour Government will bring forward some legislation so that the interests of commercial agents may be much more protected than they are at the moment without having to wait for harmonisation or, indeed, any edict from the Commission.

11.11 p.m.

We have had a rather unusual debate in that a number of hon. Members who are not well known for their support of the EEC have found merit in at least supporting the general thrust of the directive, although being critical of many of its detailed points, whilst three Conservative Members who are normally in support of the Common Market have been universally critical.

I think, despite this, that there has been, broad agreement on both sides of the House as to the merits of the directive in terms of its alleged intentions, about its weaknesses, particularly in terms of its over-extended scope and the uncertainty of tis range of application, about the undesirability of over-extending its application, and about the problems of poor drafting.

The hon. and learned Member for Darwen (Mr. Fletcher-Cooke) said that he felt that the directive represented a very undesirable straitjacket in a number of ways that he indicated. Certainly one way is over the question of definition. It is true that the definition is very broad. In addition to covering manufacturers' selling agents, it could be held to cover a very wide range of commercial intermediary services, including buying agents and many types of agent in the service sector, such as travel agents, freight forwarders; and, in certain of their activities, it might embrace stockbrokers and estate agents. It also appears to apply to the 3 to 4 million housewives mail order agents, although, as I have said, the Commission's intention here is not altogether clear.

There is, additionally, a wide-ranging group of individuals from whom there is no specific legal provision in United Kingdom law who engage in what can be classified as peripheral undertakings, mainly by way of secondary activity, who would not recognise themselves as manufacturers' agents but who could nevertheless well be covered by the scope of the directive as drafted.

The hon. Gentleman said that the intention of the Commission is not clear. Unfortunately, it is very clear according to its words. In the Legal Committee we sought on many occasions to exclude such people as estate agents, theatrical agents, and literary agents, and the Commission resisted such proposals. So its intention is clear.

I stated that the intention of the Commission in respect of mail order agents was unclear, and certainly it needs clarification. We feel that it needs clarification in one particular way only, namely, that they should be excluded. I was not saying that it was unclear in respect of all the other categories of occupation that I have mentioned.

The hon. and learned Gentleman spoke about the apparent proposal to limit del credere agents. It has been put to us that the provisions could have the effect of making del credere agency impossible, but certainly the directive is supposed to protect del credere agents. Their agreements would have to be in writing, and the directive limits the scope of agreements which can be entered into. Indeed, it is all part of the general scheme to cover all commercial agents. But I accept the hon. and learned Gentleman's comments.

The hon. and learned Gentleman also referred to the mandatory rules of the directive. This was also referred to by my hon. Friend the Member for Farnworth (Mr. Roper), the Chairman of the Select Committee. I take this opportunity to congratulate the Select Committee for an elucidating, valuable and balanced report. My hon. Friend made the point that the mandatory rules of the directive are a distortion of normal EEC lawmaking procedures. He quoted the statement in evidence before the Select Committee that the directive was drafted more as a regulation. There is a lot of justification for that comment.

The hon. and learned Gentleman. I am glad to say accepted the desirability of making certain changes in the United Kingdom law. This was a case that my hon. Friend the Member for Bristol, North-West (Mr. Thomas) and my hon. Friend the Member for Birmingham, Erdington (Mr. Silverman) also strongly pressed. I think there is general agreement about the desirability for changes where there is manifest weakness in the position of the agent—for example, over the question of what were called terminal payments, and over goodwill or clientele allowances, that is lump-sum payments on the termination of an agency if increased and continuing business is brought to the principal. There is, I believe, on each side of the House agreement about the desirability of extending this right which is lacking under existing practice or in existing contracts for the agent.

The hon. and learned Gentleman went on to make a comment about the question of preferred creditor status. I think he made the point that it was unreasonable for the commercial agent to derive both the benefits of self-employment for tax purposes and the benefit of being at the same time, as it were, an employee in terms of protection in the event of bankruptcy. This is one of the points which we shall be considering further. It involves a significant change in the laws relating to bankruptcy and company insolvency. It certainly adds to the already long list of preferred creditors who pro-cede ordinary trade creditors. Therefore, the question of the precise status of the commercial agent, whether self-employed or a quasi-employee, is a relevant consideration here, together with the question of how to balance the rights of the different classes of person.

My hon. Friend the Member for Erdington listed the disadvantages of commercial agents. He rightly drew attention to the fact that it is certainly possible to document—and it has been documented—that in particular cases there is hardship. He drew attention to the example of commission being earned and then being either overdue or unpaid, to the refusal of principals to reduce the contract of agency to writing, and to inadequate written contracts. He also referred to principals changing the terms of any agency agreement in an arbitrary manner, and to the problems arising from the insolvency or winding up of principles in terms of agents being made responsible for bad debts. Those are specific complaints. Certainly in terms of this specific drafting—directed towards the target at which we believe the directive should be directed—they are proper complaints. They are injustices which should be reversed.

I take the point of my hon. Friend the Member for Bristol, North-West that it is perhaps regrettable that we have to wait for a harmonisation measure from the Commission for this purpose. I take the point, which I think he was making, that we should not look a gift horse in the mouth in this case and that we should take advantage of this opportunity to ensure that the justice of the case of the agent is secured by this means.

Must we wait for a draft directive of this kind, or are there means whereby the Minister's Department, through recommended codes of conduct or the like, can bring about better agency arrangements which would apply effectively to the vast majority of cases?

It is certainly possible for us to consider the introduction of a code of practice. However, we are already in the middle of 1978. It is proposed that this directive should be adopted—whether the timetable is kept to is another matter—by 1st January 1980 and would apply from 1st July 1980. Whether, given the well understood problems of the parliamentary timetable and the immediate uncertainties over the period ahead, it would be possible to secure this within United Kingdom law is a matter which the Government have to consider. But, in the absence of progress being made via this route, certainly we would consider achieving the same objective in the way in which the hon. Gentleman suggested.

I am happy to hear those last few words from my hon. Friend. As the Conservative Party managed to nationalise Rolls-Royce in a matter of hours, I should not have thought it was too difficult to get a small Bill dealing with this matter through. I do not think it would strain the Lib-Lab pact that much.

I take my hon. Friend's point. Certainly a real opportunity is afforded by this directive. I hope that the European Parliament will bring forward its report soon for consideration by the Council working party. Although I can give no indication of how long it will be, I hope that we do not have to wait long in order to engage in the discussions within the council working party—which we believe are right—to make progress on this measure.

My hon. Friend the Member for Erdington drew attention to the problems of the general law of agency. As was said, there is little statute law here, but common law rules exist which apply in the absence of—it may, indeed, sometimes override—the expressed stipulation of the parties. As was said on both sides of the House the present situation is not satisfactory. There is a need for a proper code of practice, or code of law, beyond that which exists to protect the position of commercial agents.

Perhaps I may refer specifically to the position of mail order agents. The hon. Member for Southend, East (Sir S. McAdden) devoted his speech to the desirability of excluding them. As my hon. Friend the Member for Bristol, North-West said, the arangements in Article 4(1) for agencies carried on as a secondary activity were designed—the word is "designed"—to allow mail order agents to be excluded from some provisions of the proposed directive. But this does not, however, adequately cover the situation. We are in touch with the Mail Order Traders' Association and have indicated that we share its aim in seeking to exclude mail order traders from the scope of any directive. We have explored with the association possible methods for more clearly and completely excluding mail order selling. I can give an assurance that we share the view that they should be excluded and that we are certainly making a determined effort to ensure that that is achieved.

My hon. Friend the Member for Farnworth drew particular attention to the problem of definition and to the fact that there is a danger that it could increase uncertainty. I share his sentiment. I agree that there is a need to ensure that the directive is cast in a format which is acceptable in English law. I can certainly give an assurance that we shall aim for this in the Council of Europe working party. I take note also of the fact that my hon. Friend says that the House will wish to see the directive in its revised form. In view of the manifest inadequacies of the directive as draft at present, I certainly take full note of that request.

Most of the other member States, I think, are unlikely to oppose the idea of a directive in principle, though they may well have their preferences in terms of a less detailed and restrictive formulation, as has been expressed here tonight. It may be that some form of EEC legislation will result eventually. In these circumstances, the most sensible course for us may be to work for a better drafted directive, limited to manufacturers' selling agents and with mandatory provisions confined to a few which most justifiably protect their negotiating position vis-à-vis principals who are often but by no means always economically stronger. It seems to us that that is one way, and perhaps the best way, to approach this proposed directive.

However, I can give an assurance that all the comments that have been made tonight about this very difficult, complex and rather unclear and badly drafted directive, yet one which nevertheless has a valuable purpose, will be taken fully into account in the Government's discussions and input into the council working party in due course, which I hope will be shortly.

Question put and agreed to.


That this House takes note of Commission Document No. R/3/77 on Commercial Agents.