Mercantile International Group Plc v Chuan Soon Huat Industrial Group Ltd

Under the Commercial Agents (Council Directive) Regulations 1993, classification depends on substance, but genuine contractual documents cannot be disregarded where they evidence direct contracts between supplier and purchasers and are consistently performed.

An intermediary may remain a commercial agent despite retaining a negotiated mark-up, bearing interim payment risk, offering rebates, or making collateral arrangements. A mark-up is not decisive where the underlying relationship is agency. Collateral arrangements may coexist with agency, subject to fiduciary duties.

Mercantile International Group plc marketed timber products manufactured by Chuan Soon Huat Industrial Group Ltd. For more than 20 years, it negotiated contracts with purchasers which identified Chuan Soon Huat as seller and Mercantile as agent.

Andrew Smith J found that Mercantile was a commercial agent under regulation 2(1) of the Commercial Agents (Council Directive) Regulations 1993, although it was not remunerated by commission. Chuan Soon Huat appealed on the preliminary issue whether the parties’ arrangements were instead contracts of purchase and resale, principally because Mercantile retained an undisclosed mark-up and assumed payment risks.

Lord Justice Rix gave the judgment. Mr Justice Wilson and Lord Justice Waller agreed. The appeal was therefore dismissed unanimously.

1. Statutory test. Regulation 2(1) focuses on whether the intermediary has continuing authority to negotiate or conclude sales on behalf of, and where appropriate in the name of, a principal. A person acting as buyer or seller as principal is outside the definition.
2. Substance and documentation. The court accepted that agency is a matter of substance and that labels are not conclusive. However, where the parties’ documents are not shown to be a sham and consistently evidence direct contracts between the supplier and purchasers, the court cannot ignore their effect. The 1985, 1989 and 1994 agreements, together with the contract forms and the parties’ conduct, established continuing authority to act for Chuan Soon Huat.
3. Mark-up and commercial risk. A mark-up is not necessarily inconsistent with agency. Ex parte Bright, re Smith (1879) 10 Ch D 566 showed that an agent may be remunerated by a surplus over the principal’s price. The court explained that the significance of the mark-up in AMB Imballaggi Plastici SRL v Pacflex Ltd [1999] 2 All ER (Comm) 249 arose from the underlying finding of sale and resale and the absence of authority to act as agent. Those features were absent here. Rebates, discounts, credits and delivery terms could affect Mercantile’s net remuneration without changing the agency relationship.
4. Other matters. Payment arrangements and the absence of stock did not displace agency. On the accepted basis that the purchasers contracted with Chuan Soon Huat, title passed to them when the full contract price was paid. The retention of the mark-up was not commission for the Regulations, but that uncontested issue did not affect the classification.
5. Fiduciary duties and disposition. Collateral arrangements may coexist with agency, including a del credere guarantee or personal arrangements with purchasers. They require open agreement, full disclosure and the principal’s consent because of the fiduciary nature of agency. No breach was found. The appeal was dismissed, with the appellant ordered to pay the respondent’s costs.

• Court of Appeal (Civil Division): Appeal from the Queen’s Bench Division, Commercial Court, before Mr Justice Andrew Smith. The Court of Appeal dismissed the appeal against the preliminary finding that Mercantile was a commercial agent.