The difference between being an intermediary and a commercial agent is important as it can affect the rights, obligations, and liabilities of parties involved in a contract.
In a recent High Court case, the difference between intermediaries and commercial agents was put in the limelight. The judge highlighted it as a significant element in considering whether a binding contract had been established. Specifically, whether the intermediary in the deal was a ‘pure’ intermediary or an agent.
Background to ‘RSW International v Purple Surgical Manufacturing’
The defendants, Purple Surgical, manufactured and supplied medical instruments and devices in an industry which saw a global surge in demand during the COVID-19 pandemic. The increase in demand for medical equipment saw Purple Surgical gain significant business with the NHS.
The claimants, RSW, were in the business of imports and distributions. They believed they should be the designated vehicle for the supply of PPE from a third-party to Purple Surgical.
Due to external circumstances, the supply chain bowed. However, RSW claimed that Purple Surgical had contractually offered to purchase PPE in a deal worth over £3.5 million. Following the offer, a pro forma invoice was supplied to Purple Surgical, which they failed to pay and refused the notion that a binding contract had been entered into.
In the midst of the deal, a person representing his own business, named Mr Bailey, approached the claimants with the premise of assisting in creating a relationship for RSW with a supplier to the NHS. To reach a verdict on whether RSW had a fair claim, the Court started by deciding the position of Mr Bailey, and whether or not he was a ‘pure’ intermediary or agent, as the difference would be crucial in the outcome of the case.
Intermediaries v. Commercial Agents
An intermediary is someone who acts as a communicator between various parties when trying to bring about an agreement. Their activities in the role shouldn’t go beyond relaying messages between parties in relation to the opportunity.
In contrast, an agent, while they still may communicate on behalf of the parties to one another, also has the ability and authority to enter into binding agreements. Commercial agents are able to enter into agreements on behalf of parties due to having substantial knowledge of the subject matter, being able to provide advice to parties on the details of the transaction, and having a relationship with a party which trust and have confidence in them.
In the Commercial Agents Regulation, a commercial agent is defined as being “a self-employed intermediary who has a continuing authority to negotiate the sale or purchase of goods on behalf of another person, the principal.” Thus, they will act under common law duties, fiduciary duties and in compliance with Commercial Agents Regulations.
The distinction between intermediaries and agents is therefore crucial, as the differences affect the outcome of agreements. Agents have more authority, greater legal protection, and more duties than intermediaries.
High Court Ruling
In concluding the case, the court found that Mr Bailey was an intermediary acting as a dual agent for both parties. Mr Bailey had the authority of an intermediary to receive and communicate information on behalf of the companies. However, he did not have the authority to create a binding contract without express agreement. Furthermore, the court found that the act of sending a pro forma invoice by the claimant was simply an attempt to progress negotiations, and not an indication of entering into a binding contract. Thus, the claim was dismissed.
How We Can Help
Ensuring that all forms of agreements are well drafted with clear intentions is crucial in preventing potential disputes that may arise. Berry Smith consistently drafts and advises on many types of agreements for our clients, such as, agency, distribution, and introducer agreements. If you are thinking of entering into an agreement, Berry Smith can assist in ensuring that it is water-tight and fit for purpose.
Please contact us if you would like more information about the issues raised in this article or any other aspect of Commercial law at 029 2034 5511 or commercial@berrysmith.com