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Gailey v. Environmental Waste Controls & Ors [2003] ScotCS 300 (05 December 2003)

OUTER HOUSE, COURT OF SESSION

CA41/01

OPINION OF LORD DRUMMOND YOUNG

in the cause

LLOYD GAILEY

Pursuer;

against

(FIRST) ENVIRONMENTAL WASTE CONTROLS; (SECOND) WILLIAM ALEXANDER EDWARDS; (THIRD) JULIAN DAVID WATTS and (FOURTH) ENVIRONMENTAL WASTE CONTROLS LIMITED

Defenders:

________________

Pursuer: Clark; Drummond Miller WS

Defenders: Moynihan QC; Henderson Boyd Jackson WS

5 December 2003

[1] The pursuer has raised an action against the defenders in which he claims payment of monies said to be due to him following the termination of an agency relationship between him and the first and fourth defenders. He makes the following averments of fact. The first defenders were a partnership formed in about 1993 and carried on business as suppliers of waste compaction and handling equipment. The second and third defenders were the partners of the first defenders. In April 1995 the pursuer was engaged by the first defenders as a self-employed salesman for the purpose of supplying such equipment. He was given continuing authority to negotiate the sale of such equipment on behalf of the first defenders. He was issued with terms and conditions of engagement under which he was to be paid no salary but was entitled to a 50% commission on sales. In terms of his contract he was entitled to 50% of the net profit agreed beforehand by a partner for each machine sold by him. The rate of commission recognised that much of the time and effort expended by a salesman might not result in the conclusion of a contract. Thereafter, the pursuer negotiated sales, and earned and received commission. He worked full-time. The pursuer also negotiated contracts of a type known as a Facilities Management Contract (hereinafter referred to as "FMC"). I discuss the nature of such a contract below, in paragraphs [13]-[14]. At present it is sufficient to note that such a contract involves two main features: the first or fourth defenders supply, but do not sell, waste compaction and handling equipment to their customer, and the customer agrees to take and pay for a set number of waste uplifts per annum. In practice, some such uplifts may not be used, or alternatively the customer may require additional uplifts, which are charged for separately. The pursuer also claims 50% commission on the net profit made by the defenders on FMCs.

[2] In relation to the fourth defenders, the pursuer avers that they were incorporated on 15 December 1995. In about late 1997 the fourth defenders began to take the place of the first defenders in dealings with the pursuer and with customers. The fourth defenders carry on the business formerly carried on by the partnership. No alteration was made to the terms upon which the pursuer was to receive commission. He was accordingly engaged by the fourth defenders upon the same basis as he had been engaged by the first defenders. During the period from 1997 to 2000, the third defender, who was a director of the fourth defenders, confirmed to the pursuer that he would be paid commission at the rate of 50% on profits made by the fourth defenders, including profits on FMCs, and any unused or extra uplifts arising under such contracts. From about late 1997 contracts for waste compaction and handling negotiated by the pursuer began to be in the name of the fourth defenders. The fourth defenders made payment of commission to the pursuer. The pursuer makes a number of further averments about the relationship between the first defenders and the fourth defenders; I deal with these in paragraph [5] below.

[3] The pursuer then avers that, by letter dated 16 August 2000, the fourth defenders terminated his agency agreement with immediate effect. By fax dated 17 August 2000 the fourth defenders set forth their position on outstanding commission due to the pursuer and stated that from the date of termination the pursuer would not be entitled to any further commission, including commission on unused and extra uplifts. The pursuer now claims that he is entitled to payment from the first, second and third or alternatively the fourth defenders of the sum of £113,514.46; that sum is said to represent unpaid commission for contracts negotiated by him on behalf of the first and fourth defenders and certain retentions made by the defenders out of sums due to the pursuer. The pursuer further avers that he is a commercial agent within the meaning of the Commercial Agents (Council Directive) Regulations 1993, and he claims that he is in consequence is entitled to payment by the first, second and third or alternatively the fourth defenders of the sum of £220,159.92; this sum is said to represent the compensation due to him in terms of regulation 17(6) of those Regulations.

[4] The defenders have challenged the relevancy of the pursuer's averments, and when the case called before me in debate their counsel argued that I should dismiss the action so far as it was directed against the first, second and third defenders, so far as it related to arrears of commission (but not retentions), and so far as it related to compensation due under the 1993 Regulations. I will deal with each of those matters in turn. I should record at this point that counsel for both parties made extensive reference to the contractual documentation that has been lodged in process. In accordance with the usual practice in the Commercial Court, that documentation was treated as if it formed part of the pleadings, and in this opinion I will rely on that documentation in the same way.

Position of first, second and third defenders
[5] The action is directed against the first, second and third defenders and alternatively against the fourth defenders. The first and second conclusions are for payment by the first, second and third defenders jointly and severally of the sums of £113,514.46 and £220,159.92. The third and fourth conclusions are framed as alternatives to the first and second conclusions, and are for payment by the fourth defenders of the same two amounts. I have summarised the pursuer's averments about the history of the fourth defenders and their basic relationship with the pursuer in paragraph [2] above. The pursuer goes on to aver that the fourth defenders had granted securities over a substantial part of their assets in favour of a finance company, with the result that the assets in question were not available to meet the claims of general creditors. He further states that he was engaged as an agent by the first defenders, that he does not know what happened to their assets, and that he is not aware of the precise business relationship between the first and fourth defenders. The pursuer then refers to a number of averments that formerly appeared in the defenders' pleadings. I observe that it is difficult to see the relevance of these averments, because in the latest version of the pleadings the defenders have stated clearly the relationship between the first and fourth defenders. The defenders aver as follows:

"[T]he first defenders ceased to trade on or about 31 August 1999. They were dissolved as that date.... [T]he fourth defenders have liability to the pursuer for any sum legitimately due to him".

The pursuer then avers that at no time during the course of the pursuer's agency did any of the defenders suggest him that his contract with the first defenders had come to an end, nor that his contract with the first defenders had been assigned to the fourth defenders; likewise, at no time was any such assignation intimated to the pursuer. In the absence of any suggestion of termination or assignation, the pursuer avers that either the fourth defenders are acting and have acted as agents for the first defenders or the fourth defenders have by implication from the whole circumstances succeeded to the first defenders' interest in the contract with the pursuer. That is said to explain why the conclusions are framed in the alternative.

[6] Counsel for the defenders argued that it appeared from the pursuer's averments that any liability owed to him by the first, second and third defenders had been taken over by the fourth defenders when they took over the business formerly carried on by the first defenders. There was no risk of prejudice to the pursuer, because the defenders expressly aver that the fourth defenders had assumed liability to the pursuer for any sum legitimately due to him.

[7] In my opinion the clear implication from the pursuer's averments is that all liabilities due to him by the defenders are those of the fourth defenders, and not of the first, second and third defenders. The relevant legal principles are in my opinion as follows. When a business is transferred by one entity to another, its existing liabilities will normally be taken over as between the parties to the transfer. The rights of third parties who have contracted with the transferor, however, are unaffected by any such transfer, which is, so far as the third party is concerned, res inter alios acta. Consequently the third party may still proceed against the transferor in respect of any liability that predates the transfer of the business; in that event the transferor will be able to claim an indemnity or relief from the transferee. If the third party proceeds against the transferee, the transferee will be obliged to accept liability in terms of the transfer agreement. If the third party is to be bound by the transfer agreement, in the sense of having his rights restricted to a claim against the transferee, he must either agree to that expressly or act in such a way that he either waives his rights against the transferor or is personally barred from proceeding against the transferor. Nevertheless, the court will readily draw the inference that the third party is bound by the transfer agreement, because that will normally accord with the commercial reality of the situation. The only exception to that is if there is a risk of prejudice to the third party; that might occur, for example, if there were a significant doubt about the solvency of the transferee. The foregoing principles relate to the existing liabilities of the transferor. These must be distinguished from new liabilities incurred after the transfer. Those liabilities will be the liabilities of the transferee. Normally that will appear from the contractual documentation. Even if there is no such documentation, however, if the third party knows that the business has been transferred the contract will inevitably be with the transferee, as that is the only reasonable conclusion in the light of the transfer.

[8] In the present case, the pursuer avers that from approximately late 1997 the fourth defenders began to take the place of the first defenders in dealings with the pursuer and with customers. He further avers that the fourth defenders carry on the business formerly carried on by the first defenders, and that he was engaged as an agent by the fourth defenders on the same terms as he had been engaged by the first defenders. In my opinion these averments amount to a statement that the first defenders' business was transferred to the fourth defenders with effect from approximately late 1997, and that the pursuer was aware of such transfer. That means that all liabilities incurred to the pursuer since that time will be those of the fourth defenders, and not of the first defenders. It is only liabilities dating from before the time of the transfer that may still be the liability of the first defenders.

[9] The liabilities that the pursuer seeks to enforce in the present action fall into two categories. The first category consists of commission and retention monies that the pursuer claims to be due under his contract of agency. The relevant contracts with customers are enumerated in a schedule, Schedule 2, produced by the pursuer and incorporated into the pleadings as a result of a minute of amendment tendered and allowed at the start of the debate. The great majority of the contracts listed in that schedule date from the period after 1997. The only contracts that appear to date from 1997 are those relating to Safeway stores in Swindon and Bellshill and to Dykebar Hospital. In these three cases, however, the relative contractual documentation, which is listed in Schedule 2, makes it clear that the contracts concluded by the customer were with the fourth defenders. The written contracts with the customers (numbers 7/67, 7/75 and 7/83 of process) expressly state that the contractor is "Environmental Waste Controls Limited", the fourth defenders. The pursuer's name appears on all of those forms as the salesman. Thus it is inconceivable that he could not have been aware that the contracts had in fact been concluded by the fourth defenders. The inference from that is that these were new contracts, concluded after the transfer of the business. Thus any liability is that of the fourth defenders.

[10] The second category of liability that the pursuer seeks to enforce is liability to pay compensation under the Commercial Agents (Council Directive) Regulations 1993. It is clear that any such obligation must be that of the party with whom the pursuer had an agency relationship immediately before that relationship was terminated. The relationship was terminated in August 2000. By that time the business had been transferred to the fourth defenders, and indeed it is clear that all contracts with customers had been concluded by the fourth defenders for at least two years previously. In these circumstances any liability to pay compensation must be that of the fourth defenders, and not of the first, second and third defenders. That follows merely from the transfer of the business, a fact that was known to and clearly acquiesced in by the pursuer.

[11] Counsel for the pursuer argued that the picture relating to the transfer of the business was not clear. Even after 1997, the partnership was still involved in rendering invoices for the supply of goods; one such example, an invoice issued to Polaroid, had occurred as late as 2000. In such cases, counsel sought to draw from the absence of the word "limited" on the invoice in question the inference that the partnership issued the invoice. It appeared to me, however, that the absence of the word "limited" was much more readily explained as a mere oversight. It is notorious that limited companies are frequently referred to in ordinary usage without the word "limited", and the obvious conclusion is that that is what happened here. I do not therefore think that the omission of the word "limited" from an invoice is by itself of any real significance. In the present case, the surrounding circumstances appear in my view to point very clearly to the conclusion that the invoice was intended to be issued on behalf of the company, the fourth defenders, rather than the partnership. Counsel for the pursuer also argued that, in judging the pursuer's averments, regard should be had to the defenders' position on record. There were no averments by the defenders in which they sought to explain their position in relation to the transition between the first and fourth defenders. In my opinion that criticism is not well founded. The defenders in fact aver that the first defenders ceased to trade on or about 31 August 1999 and were dissolved as at that date. The defenders further aver that the fourth defenders have liability to the pursuer for any sum legitimately due to him. That is a clear statement that the pursuer's right of action lies against the fourth defenders. The defenders are entitled in my opinion to rely on the clear inference from the pursuer's own averments, taken together with documents referred to in those averments, that the business of the first defenders had been transferred to the fourth defenders from 1997 onwards. It is clear that the transfer was complete by 31 August 1999.

[12] In the foregoing circumstances I am of opinion that the entire liabilities of the defenders to the pursuer as at 16 August 2000 were those of the fourth defenders. I consider the pursuer's agency relationship had been transferred to the fourth defenders from 1997 onwards, in such a way that no liabilities remained with the first defenders by the time the relationship was terminated. For this reason I will sustain the defenders' plea to the relevancy of the pursuer's averments so far as it relates to the case directed against the first, second and third defenders.

Arrears of commission
[13] The first part of the pursuer's claim, reflected in the first and third conclusions, is for commission that he claims to be due but unpaid, and also for certain retentions made by the relevant defenders (in the event the fourth defenders) from sums due to him. At debate counsel for the defenders challenged the relevancy of the pursuer's averments so far as they related to unpaid commission. His criticisms related to the way in which the pursuer had treated FMCs, and in particular the extra uplifts and unused uplifts that arose under those contracts. FMCs are described in the parties' pleadings. In essence, an FMC is a form of contract in terms of which the fourth defenders agree to install waste handling equipment at a customer's premises for a specified term, to maintain that equipment and to collect it at the end of the contractual term. The fourth defenders agree with their customer that they will uplift the waste from the machinery on a specified number of occasions per year. The payments made by the customer are based on the number of such uplifts; no separate charge is made for the provision of the equipment, and the fourth defenders are reimbursed for the capital cost of the equipment and their administrative, finance and other costs through the charge made for uplifting waste. It is clear, and indeed it is admitted by the pursuer, that an FMC is not a contract for the sale or purchase of the equipment concerned. It rather involves the provision of services, namely the supply of waste handling equipment and the uplift of waste from such equipment on a specified number of occasions. Such uplifts are normally performed by the fourth defenders' subcontractors. Perhaps inevitably, it is very difficult to forecast the number of uplifts that will be required by any particular customer. If the forecast is too high, fewer uplifts will be required than the customer is obliged to pay for; that leads to the phenomenon of unused uplifts. If the forecast is too low, on the other hand, additional uplifts will be required, and the customer will have to pay for these separately. Both unused uplifts and additional uplifts are potentially very profitable to the fourth defenders. In the case of an unused uplift, the customer is obliged to make the contractual payment for the uplift, but the fourth defenders do not require to pay a sub-contractor to carry out the work. In the case of additional uplifts, the amount that is charged is normally the same as the amount charged per uplift under the main contract. Under the main contract, however, the charge per uplift is calculated in such a way that it reimburses the fourth defenders not only for the cost of the uplift, plus their profit thereon, but also for such matters as the capital cost of installing the waste handling equipment, the financing of such equipment and depreciation on such equipment. In the case of an additional uplift, the capital cost of the equipment, together with financing and depreciation, has been allowed for in full in the payments made under the main contract. Consequently the charge per additional uplift yields a greater profit to the fourth defenders than the payment per uplift made under the main contract.

[14] The pursuer makes a number of additional averments about FMCs. He states that such contracts normally run for a period of five years, and that the customer is obliged to make payment for that period. The standard form of contract prevents the customer from terminating the contract during the contract period, and provides that the customer should remain liable for the payments due for the entire contract period. The customer is also bound to make payment for any additional uplifts. Consequently the fourth defenders can readily calculate their profit during the term of the contract at the outset, as the customer is liable for the agreed number of contractual uplifts whether used or not. Actual profit can be computed by deducting from the gross profit on the contract certain costs and expenses, including the cost of purchase and finance of the equipment used, delivery costs and installation costs. That provides a figure for the initial actual profit on the contract. Additional uplifts will create extra profit for the defenders, and profit will be available from unused uplifts. In those circumstances, no losses can arise to the defenders; the defenders can readily hold customers to the agreed contractual terms, and have no reason to accept less attractive terms. The defenders, by contrast, aver that in practice customers resisted paying for additional uplifts at the contract rate because that rate included the capital costs that the fourth defenders had recovered through the basic number of uplifts specified in the FMC; customers realised that the costs involved in additional uplifts were marginal revenue costs and not capital costs. Similarly, customers resisted paying for a substantial number of unused uplifts. The defenders aver that despite the terms of the FMC it was in the commercial interests of the fourth defenders to renegotiate the contracts to satisfy the customers in these respects. They aver that that is what they did, renegotiating contracts after the first anniversary. They further aver that agents such as the pursuer had no entitlement to commission on profits earned after the first year of an FMC.

[15] In relation to commission, the pursuer avers that he was issued with terms and conditions of engagement by the first defenders, under which he was entitled to a 50% commission on sales. This took the form of 50% of the net profit agreed beforehand by a partner of the first defenders for each machine sold by the pursuer. In practice, the pursuer states, the amount to be paid by the pursuer was not always expressly agreed beforehand. Those averments, of course, related to sales, where it is relatively easy to predict and calculate the profit because the transaction is rapidly concluded. Where a contract is intended to last over a period of years, by contrast, it is obvious that it may be much more difficult to calculate the profit in advance; the costs in future years may not be easily predictable, and in any event the trading circumstances of the customer may change to such an extent that the contract requires renegotiation. In his averments, however, the pursuer goes on to describe FMCs, and states that he was in fact paid commission of 50% of the profit, including the profit arising from unused uplifts and from extra uplifts. He avers that, after the fourth defenders began to take the place of the first defenders in dealings with the pursuer and with customers, no alteration was made to the terms upon which he was to receive commission. He further avers that between 1997 and 2000 the third defender, who was a director of the fourth defenders, confirmed to the pursuer that commission at the rate of 50% would be payable on profits made by the fourth defenders, including those on FMCs, and in particular on unused and extra uplifts. At a later stage in the pursuer's pleadings, the method of calculating commission on FMCs is averred. The pursuer states that actual profit was computed by deducting from the gross profit certain costs and expenses, including the cost of purchase or finance of the equipment, delivery costs and installation costs. This provided a figure for the initial actual profit on the contract. The only additional feature was payment for unused and extra uplifts. Despite the use of the expression "actual profit" in these averments, it appears that the averments themselves relate to a calculation carried out at the start of the contractual period, before its actual outcome could be known. Moreover, the pursuer's calculations of the commission due to him are contained in the schedule to the summons, referred to as Schedule 2 and incorporated into the pursuer's pleadings. The calculations in Schedule 2, except for those relating to extra and unused uplifts, are not in fact based on the actual profit realised by the fourth defenders in the course of the performance of an FMC, but are rather based on the proposition that the contract was enforced in full, with all sums that are contractually due being collected from the customer, whether that actually happened or not. The calculations relating to extra and unused uplifts, by contrast, purport to be dependent on the actual outcome of the contract. The pursuer avers that, in those calculations, the profit for each unused uplift is the full amount paid by the customer, 50% of which was then due to the pursuer. The profit for each extra uplift is the difference between the charge made by the subcontractor who carried out the uplift and the price per uplift paid by the customer, 50% of which was then due to the pursuer. In response to the pursuer's calculations of loss, the defenders aver that certain of the contracts were renegotiated, with the result that, for example, extra uplifts were charged to the customer at cost. The pursuer's response to those averments is that they are not known and not admitted. The averments by the defender about the renegotiation of contracts were supported by a considerable volume of documentation. While much of this was secondary in nature, I was informed by counsel for the defenders that the primary documentation was very extensive and had been offered for examination by the pursuer's legal advisers. That offer had not been taken up, however.

[16] Counsel for the defenders attacked the pursuer's calculations on the ground that they were in large part based on the notional outcome of a contract, assuming that its terms were enforced in full, rather than on the actual outcome of a particular contract. The use of notional outcomes was apparent not only from the calculations contained in Schedule 2, but also from the fact that, in response to the averments by the defender about the actual financial outcome of particular contracts, the pursuer replied that he was unaware of such actual outcomes. Counsel for the defenders then went through the individual contracts contained in Schedule 2. In four cases (no 11, D McGhee; no 12, Arcol; no 13, Railtrack Procurement, Glasgow; and no 14, Jarvis Group), amount claimed by the pursuer was accepted by the fourth defenders. In every other case, however, the sum claimed did not address the actual financial outcome as disclosed in the defenders' documents. That was true even of the claims relating to extra and unused uplifts, where in certain cases the pursuer failed to have regard to clear indications in the documents that the contract had been renegotiated. Counsel submitted that in consequence the pursuer's claim did not address the issue that should have been addressed, namely the profits that were in fact made by the fourth defenders on contracts negotiated by the pursuer. In reply, counsel for the pursuer submitted that he was entitled to the sums claimed; his entitlement to commission was 50% of profits on the basis that the contracts negotiated were enforced according to their terms. In addition, the pursuer was entitled to commission of 50% on any additional uplifts and on the full profit made on unused uplifts.

[17] It is clear that there is a fundamental difference between the parties as to the basis on which the pursuer is entitled to commission on FMCs. Both are agreed that commission was due at 50% of net profits. They disagree, however, as to how net profits are to be calculated. The pursuer avers that his commission should be calculated on the basis that all contracts were enforced in full, regardless of the actual outcome, but that he should obtain commission on the profits of extra and unused uplifts according to the actual outcome. The defenders, by contrast, aver that commission should be based on actual outcomes in all cases. The pursuer's contention is, in effect, that actual outcomes should be ignored when they work against him and taken into account when they work in his favour. It also involves the proposition that, if a contract fails entirely at an early stage, he is entitled to his full commission even though the defenders make no or minimal profits. Likewise, if a contract requires to be renegotiated owing to factors outwith the defenders' control, that too must be ignored, even if the defenders' profit is materially affected or even wiped out. I do not think, however, that it is possible for me to exclude such a term without proof; parties are free to agree such terms as they think fit and it would not be appropriate for me to exclude any particular term before hearing evidence on the matter.

[18] Nevertheless, extensive documentation has been lodged in process, by both parties. This includes a number of documents prepared by the pursuer himself when he was still acting as an agent for the defenders. That documentation has not been challenged by the defenders as inaccurate or unreliable. Counsel for the pursuer commented that the documentation that had been lodged in process by the defenders was not, generally speaking, primary documentation, and that the pursuer wanted to put the defenders to proof that the documents lodged were accurate. It is clear, however, that the primary documentation is available, and could be recovered by means of a commission and diligence. I was informed by counsel for the defenders that the volume of such documents was extremely large; several hundred primary documents were available for each individual contract. As a result, the defenders' agents had offered to allow the pursuer to inspect the primary documentation, in effect to carry out an audit of it to ensure that the secondary documentation was accurate. That statement was not challenged by counsel for the pursuer. I understand that the offer has not been taken up. It is clear that, in one way or another, the primary documentation is available to the pursuer. Despite that, the pursuer's response to the defenders' detailed averments on the outcome of each of the contracts is that those averments are not known and not admitted. In my opinion that does not, at least in the context of a commercial action, amount to frank pleading. If reasonable means are available to a party to discover the true state of his financial relationship with the other party, I am of opinion that they must be taken. It is not acceptable for such a party simply to put his opponent to proof of his averments. That will usually be a protracted and expensive process, and unless there is a challenge to the accuracy of the financial records in question no useful purpose would be served by it.

[19] It is, moreover, clear that the pursuer's claim must ultimately be based on the defenders' documentation. Whatever method of calculation is appropriate, the quantification of the pursuer's claim to commission must inevitably depend on the defenders' financial records, at least in the absence of any comparable records kept by the pursuer himself; there was no suggestion in the present case that any such records existed. In my opinion it would be wholly unrealistic to ignore that fact. Consequently I do not regard the pursuer's averments on his entitlement to commission to be adequate to allow a proof before answer.

[20] This point can be seen by consideration of some of the individual contracts concerned. The first was an FMC with Initial Rail relating to Glasgow Central Station. The pursuer's claim for commission, which amounts to £2,755.59, relates to 22.75 extra uplifts. Based on the defender's productions, the pursuer takes an uplift price of £332.25 and an uplift cost of £90, deducts the latter from the former, and divides by two to produce the sum claimed. Thus it is assumed that all extra uplifts were charged at the full uplift price. The defenders aver in reply that, because of problems that arose in the contract, extra uplifts were charged at cost. That is supported by documentation, including an e-mail from the pursuer dated 20 June 2000 (no 7/45 of process) in which the proposal to charge at cost is made. If that is correct there would be no profit from extra uplifts, and hence no commission would be due. This point is not met by the pursuer's argument that the defenders should have enforced all contracts according to their terms, because extra uplifts strictly speaking involve further agreement between the fourth defenders and the customer, and thus the terms are subject to renegotiation. The second contract was an FMC, again with Initial Rail, relating to Edinburgh Waverley Station. The pursuer has claimed £8,717 as basic commission and £500.04 as commission in respect of 10.31 extra uplifts. In this case, a summary (no 7/55 of process) is available which indicates that there was a loss on the contract, and that no profit was made on extra uplifts. Moreover, the e-mail from the defenders dated 20 June 2000 once again recommends that extra uplifts should be charged at cost.

[21] The third contract was an FMC, again with Initial Rail, relating to London Victoria Station. In this case credit notes were produced (nos 7/57 and 7/58 of process) which indicated that 28 extra uplifts had been charged at cost. Moreover, one of the pursuer's own productions (no 6/8 of process) referred to the decision to charge for extra uplifts at cost. In Schedule 2, the pursuer has claimed commission on all extra uplifts on the basis that the full contract price was charged in each case. On the basis of the documentation produced, this is clearly inaccurate. The fourth contract was an FMC, once again with Initial Rail, relating to London Waterloo Station. In this case the pursuer has claimed commission of £22,889.23 on the basis of one of the defenders' productions, no 7/61 of process. That production in fact discloses that the fourth defenders sustained a loss on the contract owing to a change of contractor. The change of contractor is specifically referred to in the pursuer's fax dated 20 June 2000; that fax also mentions that the price per uplift had risen from £200 to £310 in consequence. The defenders in a detailed response to an earlier version of the pursuer's claim (no 48 of process) specifically aver that the Waterloo contract had made a loss owing to, among other reasons, a change in contractor. The pursuer does not provide any response to that, however. That in my opinion does not amount to fair pleading. In this case it is clear that there were material alterations to the contract, and that the pursuer was himself a party to those alterations. In these circumstances the pursuer is obliged to provide some response to the defenders' averments.

[22] The fifth contract was a further FMC, on this occasion with Railtrack, relating to Leeds City Station. In this case the pursuer claims £2908.98 in respect of an alleged 20.615 extra uplifts. The relative document, however, found as no 7/63 of process, states that there were no extra uplifts. Once again, the pursuer does not address this discrepancy. The eighth contract was an FMC relating to Safeway in Swindon. In this case, according to Schedule 2, the pursuer has charged for 29 unused uplifts. It is clear from the documentation, however, that commission had already been paid to the pursuer in respect of nine of those; the relative paid invoice is part of no 7/33 of process. This matter is not taken into account by the pursuer. The ninth contract relates to Geest Group. In this case, £756.88 is claimed by the pursuer in Schedule 2 as commission in respect of 10 extra uplifts. Reference is made to two productions lodged by the defenders, nos 7/70 and 7/72 of process. No reference is made, however, to a third production, no 7/71 of process, which discloses that no profit was made from the extra uplifts, and that the contract ultimately resulted in a loss. In my opinion it is not proper pleading to rely on two productions but to ignore, without response, a third document produced with them. If, of course, there was no profit on extra uplifts, no commission could be due to the pursuer.

[23] I do think that is necessary for me to go through the remaining contracts in detail. In some cases there is no dispute; in others there is a claim for commission on extra uplifts but a failure to respond in any way to documentation that indicates that no profit was made on the uplifts. As I have indicated, I do not regard this as frank pleading. The pursuer must in my opinion respond adequately to the documentation that has been lodged. It is, of course, open to him to challenge the accuracy of that documentation, but he has not done that in the present case. In these circumstances I consider that the appropriate course is to dismiss the action so far as it relates to arrears of commission except in relation to the contracts numbered 11, 12, 13 and 14 in Schedule 2, namely those with D McGhee, Arcol, Railtrack Procurement and

Jarvis Group; the claims in respect of those four contracts were not disputed by the defenders. The pursuer's claim to retention monies is not affected.

The Commercial Agents (Council Directive) Regulations 1993
[24] The second part of the pursuer's claim is for compensation under the Commercial Agents (Council Directive) Regulations 1993. Those regulations were passed in order to implement Council Directive 86/653 of 18 December 1986, on the co-ordination of the laws of Member States relating to self-employed commercial agents. That Directive makes detailed provisions regulating the relationships of certain types of agent, referred to as "commercial agents", with their principals. It is confined, however, to agents who have authority to negotiate the sale and purchase of goods. It does not apply to agents who have authority to negotiate other types of transaction, such as the provision of services or the sale of incorporeal property. Thus the Directive does not apply to financial intermediaries, such as insurance brokers or stockbrokers; nor does it apply to travel agents or the numerous other categories of agents who arrange for the provision of services. It is not entirely clear why the Directive should be so limited. Historically, the motivation for the Directive appears to have come from German law; the background is discussed in a report of the English Law Commission (Law Com. No 84) on the proposed Directive, published in October 1977. It appears that in Germany and certain other continental countries commercial agents were regarded, economically and socially, as an exploited class, and detailed provisions were incorporated into the law to give them some measure of protection. These included the payment of compensation in the event that the agency relationship was terminated. That was designed to reflect the fact that a commercial agent might build up considerable goodwill in the course of his work, but that goodwill attached to the goods sold rather than the agent himself and thus inevitably accrued to the principal who supplied the goods. That meant that the agent was unable to realise the goodwill that was built up through his efforts, and that in turn was seen as placing him in a vulnerable position. The Law Commission noted that the economic and social conditions that underlay the German legislation did not appear to exist in the United Kingdom; indeed, it was difficult in the United Kingdom to identify a distinct category of commercial agents of the sort defined in the proposed Directive. As a result of representations made by the United Kingdom government and others, the final version of the Directive was significantly modified. That historical background may explain why agents who buy and sell goods are separated from other forms of agent, but it hardly provides a rational justification for the distinction. A possible justification could be that principals who provide services are more likely to come into direct contact with the customers than principals who simply sell goods; thus the goodwill can more readily be accepted as belonging morally to the principal rather than the agent. Moreover, in the case of financial intermediaries, it will normally be the reputation of the principal, for example a life assurance company, that is relied on by the customer rather than the reputation of the intermediary. Whatever the justification may be, however, the distinction has now been incorporated into Scots law through the 1993 Regulations.

[25] Like the Directive, the Commercial Agents (Council Directive) Regulations 1993 are confined to agents who engage in the sale or purchase of goods. It is obvious that, under both the Directive and the Regulations, a problem arises in the case of agents who conclude both transactions of sale and other types of transaction on behalf of their principals. That is, of course, the position of the pursuer in the present case. He had authority to sell waste compaction equipment on behalf of the fourth defenders, but it is clear that many, if not most, of the contracts that he negotiated on their behalf were FMCs; FMCs are, as discussed above, contracts for the provision of services, with an element of commodate, or loan for use. Counsel for the defenders argued that the pursuer had not in his pleadings properly addressed the fact that two different forms of contract were involved. He accordingly submitted that the pursuer's averments on this part of his claim were irrelevant. In order to consider this argument, it is necessary to examine in some detail the provisions of the Directive and Regulations that deal with the definition of a commercial agent.

[26] The Directive begins, in article 1.1, by stating that the harmonisation measures prescribed in it shall apply to the laws of member states governing the relations between commercial agents and their principals. "Commercial agent" is defined in article 1.2 in the following terms:

"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 that principal".

That is the basic provision that restricts the definition of a commercial agent to agents who sell or purchase goods on behalf of their principals. Article 1.3 excludes corporate officers, partners and insolvency practitioners from the definition. Article 2.2 provides as follows:

"Each of the Member States shall have the right to provide that the Directive shall not apply to those persons whose activities as commercial agents are considered secondary by the law of that Member State".

The word "secondary" is not explained further. One situation that article 2.2 appears to contemplate is where an agent's activities involving the buying and selling of goods is of lesser importance than his other activities on behalf of the principal, or perhaps his other activities generally. That follows from perhaps the most fundamental meaning of the word "secondary"; if something is secondary, it logically entails that some other thing is primary. In the present context it seems clear that, where an agent's activities other than the sale of and purchase of goods can be regarded as primary, member states are authorised when incorporating the Directive into their domestic law to exclude such an agent from the category of commercial agents. It is only where the buying and selling of goods on behalf of an agent's principal can be regarded as his primary activity that the member state is obliged to apply the Directive in full. Consequently article 2.2 appears to contemplate that member states may exclude from the application of the Directive any agent where it appears that the major part of his work does not fall within the definition in article 1.2. The word "secondary" may, however, have a wider signification than a mere numerical comparison of the agent's activities as a commercial agent and his other activities. The underlying mischief at which the Directive is aimed is the situation where an agent builds up goodwill through his own efforts but cannot realise that goodwill for his own benefit, with the result that his business activities are in a vulnerable position and require protection. The expression "activities as commercial agents", as used in article 2.2, seems to point to activities that involve this underlying mischief. Where, accordingly, the mischief is absent or of relatively limited significance, it is open to the legal system of a member state to deem the agent's activities as a commercial agent to be secondary and thus to exclude him from the protection of the Directive.

[27] The 1993 Regulations appear to adopt the latter approach to the meaning of "secondary". Regulation 2(1) contains the basic definition of a commercial agent. It is in the following terms:

"In these Regulations --

'commercial agent' means 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".

Thus the definition echoes article 1.2 of the Directive. Company officers, partners and insolvency practitioners are excluded. Regulation 2 then provides:

"(3) The provisions of the Schedule to these Regulations have effect for the purpose of determining the persons whose activities as commercial agents are to be considered secondary.

(4) These Regulations shall not apply to the persons referred to in paragraph (3) above".

The Schedule is designed in my opinion to give effect to the second meaning of the word "secondary" discussed in the last paragraph; it seems to be intended to exclude agents where the basic mischief that underlies the Directive is absent. It follows that the exclusion of persons whose activities as commercial agents are to be considered secondary is of fundamental importance to the applicability of the Regulations. I will return to this point when I examine the parties' pleadings on the matter.

[28] Paragraph 1 of the Schedule is as follows:

"The activities of a person as a commercial agent are to be considered secondary where it may reasonably be taken that the primary purpose of the arrangement with his principal is other than as set out in paragraph 2 below".

Paragraph 2 is 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".

Paragraphs 3 and 4 then give a number of indications that an arrangement either falls within paragraph 2 or does not fall within paragraph 2. These provisions were considered, obiter, by the Court of Appeal in AMB Imballagi Plastici SRL v Pacflex Limited, [1999] 2 All ER (Comm) 249. In that case, Waller LJ commented as follows (at 254d-g):

"1. Article 2(3) of the directive seems to allow a member state to disapply the directive where the activities of the agent as agent are secondary, as compared with the rest of the agent's business.

2. The schedule then seems to contemplate an assessment not of the activities of the agent as 'a commercial agent' as compared with his other business, but an assessment of the agent's arrangement with a principal. That this was probably unintentional is confirmed by the guidance notes issued by the Department of Trade and Industry which include this paragraph in relation to the schedule:

'The comparison to be made is between the agent's activities as a commercial agent and his other activities and not the relationship with the principal.'

3. Paragraph 1 of the schedule refers to a primary purpose 'other than as set out in paragraph 2'. But para 2 does not set out a purpose; it describes aspects of the arrangement with a particular principal.

4. Paragraphs 3 and 4 suggest pointers are being supplied as to whether an arrangement is within para 2, but provide no assistance as to what is being compared with what for the purpose of deciding what might be secondary as compared with what might be primary, nor any assistance as to whether other factors are excluded".

These criticisms of the Regulations appear to be based on the view that article 2.3 of the Directive used the word "secondary" to denote a straightforward numerical comparison of the agent's activities as a commercial agent and his other activities. As I have already sought to explain, however, I do not think that this is the only possible meaning of article 2.3, and in my opinion the 1993 Regulations have chosen to give a different, but permissible, significance to the word "secondary". If that is done, I think that the Schedule becomes reasonably intelligible. In particular, a rational basis is provided for applying the pointers in paragraphs 3 and 4 to the question of whether an arrangement falls within paragraph 2; thus much of the force is taken out of these criticisms. There does appear to be some force in the third criticism, but it can easily be met by reading into paragraph 1, between "is" and "other", the words "to achieve an arrangement".

[29] In AMB Imballagi Plastici SRL v Pacflex Limited, supra, Waller LJ stated that there was much force in the argument that, if an agent has an arrangement with a principal that falls within paragraph 2, then it must be taken that the business is not secondary. That view is supported by the opinion of Morison J. in Tamarind International Limited v Eastern Natural Gas (Retail) Limited, [2000] Eu LR 708, at paragraph 21; Morison J. there states:

"Because there is no easily recognisable way of measuring whether or not activities are secondary, it is, I think, unnecessary, and perhaps misleading, to seek to find an antithesis to the word 'secondary'. All I can say is that the activities of this agent are, for the purposes of the Regulations, to be regarded as secondary, and he is an agent to whom the Regulations do not apply; whereas an agent whose activities are not regarded as secondary is covered by the Regulations. The contrast is simply between the agents who are covered and the agents who are not. It is not necessary to say, for example, that the activities of an agent who is covered by the Regulations are 'primary'; they are, simply, not secondary".

I agree that it is necessary to examine the provisions of the Schedule in order to determine whether an agent's activities as a commercial agent are to be considered secondary as a matter of Scots or English law. Nevertheless, it seems to me that there is a clear policy underlying the Schedule, and a mischief against which the Regulations are directed; the Schedule should be interpreted in the light of that mischief.

[30] At this point I should mention one further principle that applies where United Kingdom legislation is enacted in order to implement a European Council directive. In interpreting such legislation, the court should so far as possible construe it in such a way as to further the objectives of the European directive: Marleasing SA v La Comercial Internacional de Alimentación SA, [1990] ECR 1-4135; Tamarind, supra, at paragraph 21. This point can be put in another way; in such a case, the European directive is part of the total legislative context in the light of which the United Kingdom legislation must be interpreted, and must indeed be regarded as the most fundamental part of that context. In the present case, however, the provisions of the Schedule to the 1993 Regulations are enacted by virtue of article 2.3 of the Directive. Article 2.3 is permissive in nature; it merely empowers a member state to exempt from its legislation persons whose activities as commercial agent are considered secondary by domestic law. In such a case, unless the exemption accorded by domestic legislation goes beyond the scope of article 2.3, it is difficult to see how the European provision can be used to construe the domestic exemption. All that the article does is to confer a power, and provided that the power is not exceeded member states have a complete discretion as to how they define what is secondary.

[31] It is accordingly necessary to examine the specific requirements of the Schedule. In the first place, paragraph 1 requires that the activities of a person as a commercial agent are to be considered secondary where it may reasonably be taken that the primary purpose of the arrangement with his principal is other than as set out in paragraph 2. That means that it is necessary to consider what the primary purpose of the arrangement is, and then to discover whether it accords with paragraph 2. In the present case, on the basis of the pursuer's pleadings, I am of opinion that the purpose of the arrangement between the pursuer and the fourth defenders can best be described as a relationship of agency in terms of which the pursuer approaches prospective customers on behalf of the fourth defenders and, if he can, negotiates contracts with those customers on behalf of the fourth defenders. The contracts in question fall into two main categories, sales of waste compaction and handling equipment and FMCs involving the loan of similar equipment and the provision of services for the uplifting of waste. The critical question is accordingly whether the foregoing purpose falls within paragraph 2.

[32] In the second place, it is necessary to consider the various requirements of paragraph 2. The first of these, stated in sub-paragraph (a), is that the business of the principal should be the sale, or alternatively the purchase, of goods of a particular kind. In determining whether this requirement is satisfied, it is necessary in my opinion to start by considering how the principal's business can fairly be described. In the present case, on the pursuer's averments, the business of the principal, the fourth defenders, does include the sale of goods of a particular kind, namely waste compaction and handling equipment. A further important part of the business, however, is the supply of waste compaction and handling equipment through FMCs and the uplifting of waste in accordance with such contracts. That activity does not involve the sale of goods. In conducting both of the foregoing activities, the fourth defenders obviously require to purchase waste compaction and handling equipment, but that does not fall within paragraph 2(a) because it cannot be described as their "business"; the purchase of the equipment is merely the way in which the fourth defenders obtain their trading stock, and the business is the sale of that stock, or the use of that stock in implementing FMCs. It follows that the fourth defenders' activities are averred to fall partly within and partly outside paragraph 2(a).

[33] The second requirement of paragraph 2, or rather pair of requirements, is found in sub-paragraph (b)(i); this is that the goods sold are such that transactions should normally be individually negotiated and concluded on a commercial basis. Although neither side has made any specific averments about the matter, I did not understand it to be disputed by the defenders that those requirements were satisfied. In any event, the individual transactions that are referred to in the pleadings all appear to have been individually negotiated, and all were obviously concluded on a commercial basis. The third requirement, found in sub-paragraph (b)(ii), is that the goods sold are such that procuring a transaction on one occasion is likely to lead to further transactions in those goods with the same 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. In effect, this is a requirement that goodwill should attach to the sale of the particular goods in question. Once again, no averments have been made by either side about this matter. The market in waste compaction and handling equipment is obviously a specialised one, and without evidence I do not think that a court could properly assume that 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. As I have already sought to explain, I consider the notion of goodwill to be fundamental to the structure of the Schedule and hence to the applicability of the Regulations. The failure to address the question is accordingly significant.

[34] The fourth requirement of paragraph 2, found in the last part of the paragraph, is that it should be in the commercial interests of the principal in developing the market in the goods in question to appoint a representative to such customers with a view to his devoting effort, skill and expenditure from his own resources to that end. The crucial point here seems to be that appointing an agent to negotiate sales and thereby develop the market should operate in the commercial interests of the principal. In other words, goodwill is built up by the agent's effort and skill and the use of the agent's resources but enures to the principal because it is identified with his goods. Thus the agent is in a vulnerable position because the capital asset that he builds up, goodwill in the goods, is something that he cannot realise for his own benefit. That, it may be supposed, is why such an agent requires protection by legislation. In other cases, however, no such protection is needed. It appears that this is the rationale underlying the Schedule, and in particular its exclusion of agents whose activities as commercial agents are considered secondary. In essence, the Schedule attempts to distinguish agents who build up the goodwill of their principals' businesses from those who do not. In every case, however, it is essential that the principal's business should be the sale of goods. (In relation to this requirement, the word "accordingly" might suggest that it is intended as a conclusion from the preceding requirements. I do not think that that can be correct, however; the concluding part of paragraph 2 in my opinion imposes an independent substantive requirement, and one of great significance).

[35] In the third place, it is necessary to consider the various criteria set out in paragraphs 3 and 4, and to decide whether those criteria affect the conclusion that the court reaches about the applicability of paragraph 2. In the present case it was not contended that paragraph 4 had any application, and it is accordingly possible to concentrate on paragraph 3. Paragraph 3 states that the presence of an enumerated factor is an indication that an arrangement falls within paragraph 2, and that the absence of any such factor is an indication to the contrary. Sub-paragraph (a) refers to the principal's being the manufacturer, importer or distributor of the goods. That is important because it is the way in which the principal benefits from the goodwill that attaches to the goods. In the present case, it was accepted that the fourth defenders import waste compaction and handling equipment from Germany, and that they are responsible for distributing that equipment. Thus the first factor exists.

[36] Sub-paragraph (b) refers to the goods' being specifically identified with the principal in the market in question rather than, or to a greater extent than, with any other person. If the rationale underlying the Schedule is as suggested in paragraphs [26] and [27] above the fact that the goods are identified in the market with the principal is clearly of critical importance, because it is only in that event that the goodwill attaching to the goods will pass to the principal. If, for example, the goods are a widely sold brand distributed through a large number of outlets, and one of those outlets negotiates sales through agents, the goodwill built up by those agents is likely to accrue to the manufacturer rather than the distributor. Consequently, as between the agent and the distributor, there is no particular reason for making the distributor compensate the agent for that goodwill. If this factor is absent, there is a strong likelihood that the last of the requirements in paragraph 2 of the Schedule, that discussed in paragraph [34] above, does not exist. This factor was not founded on by the pursuer, and it must accordingly be assumed that it is absent; the goods are presumably identified with their manufacturer. Because this factor goes to the critical area of the principal's goodwill, I am of opinion that its presence or absence is of considerable significance.

[37] Sub-paragraph (c) was founded on. This refers to the agent's devoting substantially the whole of his time to representative activities; this is obviously related to the last part of paragraph 2, which refers to the commercial interests of the principal in appointing a representative who devotes effort, skill and expenditure in promoting a market in the principal's goods. Clearly, if the agent works full-time, the moral case for his sharing in the value of the goodwill is stronger. I did not understand the defenders to dispute that this factor existed, although they obviously contended that a very substantial part of the pursuer's time was devoted to FMCs rather than contracts of sale. The factors mentioned in sub-paragraphs (d) and (e) were not founded on by the pursuer; these are that the goods are not normally available in the market in question other than by means of the agent and that the arrangement is described as one of commercial agency. The first of these seems to be related to the last part of paragraph 2; if customers can readily obtain the principal's goods from sources other than the agent, the moral case for his sharing in the value of the goodwill is less. The factor in sub-paragraph (e) appears merely to be a matter of nomenclature. Once again, if a factor is absent, that is an indication that the arrangement does not fall within paragraph 2.

[38] Thus the position of the parties in relation to the Schedule may be summed up as follows. The requirement in paragraph 2(a) is only satisfied in part; it is clear from the pursuer's pleadings and that a substantial part of the fourth defenders' business does not involve the sale of goods at all, but no averments are made about the proportion that consists of sales. The requirements in paragraph 2(b)(i) are satisfied; those in paragraph 2(b)(ii), on the other hand, are not the subject of averment by the pursuer. The final, critical, part of paragraph 2 is not directly addressed in the pursuer's pleadings. There are averments to support the factor mentioned in paragraph 3(a) and (c), and counsel for the pursuer stated that he did not rely on the factors mentioned in paragraph 3(b) and (d). As I have indicated, I regard sub-paragraph (b) of paragraph 3 to be of considerable importance in relation to the last part of paragraph 2. In the circumstances there is, at the very least, a serious doubt as to whether the relationship falls within the last part of paragraph 2. It seems quite likely that, because such goods as are sold by the fourth defenders are not identified with them in the market but are rather identified with their German manufacturer, such goodwill as has been built up by the pursuer's efforts in selling goods has not accrued to the fourth defenders but to their supplier. If that is an accurate description of the relationship between the pursuer and the fourth defenders, it cannot be said that the primary purpose of the arrangement between the pursuer and the fourth defenders is to achieve an arrangement as set out in paragraph 2. In that event the pursuer's activities would be considered secondary under the 1993 Regulations.

[39] The same would in my opinion be true if the major part of the fourth defenders' business consisted of transactions other than the sale of goods. It is clear both from the 1993 Regulations and from the Council Directive that the legislation is concerned with the sale of goods only, and not with transactions involving the provision of services. I am accordingly of opinion that, unless the major part of the business of the principal consists of the sale of goods of a particular kind, the requirement in paragraph 2(a) will not be satisfied. Otherwise the fact that a small part of the principal's business consisted of the sale of goods would bring the Regulations into operation with their full rigour, on the assumption that the other requirements of paragraph 2 were satisfied. Indeed, because paragraph 2(a) refers to the business of the principal, even an agent who never sold any goods could claim the benefit of the Regulations. The fact that paragraph 2(a) refers to the business of the principal rather than the agent is perhaps not surprising in view of what appears to be the underlying rationale of the Schedule. The main criterion that is applied in determining whether an agent's activities are secondary is whether goodwill built up by the agent accrues to the principal. Whether that occurs depends on the nature of the principal's business rather than the agent's activities. Moreover, all of the agents who work for the principal are likely to be in the same position. Thus it is the nature of the principal's business that should determine whether agents' activities are primary or secondary. If that business is not predominantly one involving the sale of goods, I am of opinion that the agents' activities are necessarily secondary.

[40] It is clear that any agent who seeks to found on the 1993 Regulations must establish that he is a commercial agent in terms of regulation 2. It is equally clear in my opinion that he must establish that the Regulations apply to him; that is an obvious precondition for any claim under the Regulations. These two matters are not the same, however, because regulation 2 makes it clear that not every commercial agent can claim the benefit of the Regulations. If an agent satisfies the requirements of paragraph (1) of regulation 2, he will meet the definition of a commercial agent. Paragraphs (2), (3) and (4), however, exclude certain persons who would otherwise be considered commercial agents from the benefit of the Regulations. The exclusion in paragraph (2) relate to certain specialised and rather limited cases, and it will normally be obvious whether or not they apply. The exclusion in paragraphs (3) and (4) for persons whose activities as commercial agents are to be considered secondary, by contrast, is capable of wide application. In the light of the foregoing analysis of the provisions of the Schedule, I am of opinion that the concept of activities as a commercial agent which are considered secondary is fundamental to the scheme of the legislation; it distinguishes commercial agents who are affected by the mischief at which the Council Directive of 18 December 1986 is aimed from those who are not. For this reason I am of opinion that an agent who seeks to found on the Regulations must aver and prove both sufficient to bring himself within paragraph 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 the 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. Counsel for the pursuer sought to argue that it was for the defenders to aver and prove that the activities of the pursuer as a commercial agent were to be considered secondary. In doing so, he sought to rely on William Teacher & Sons Ltd v Bell Lines Ltd, 1991 SLT 876. In my opinion that case is readily distinguishable; the statutory context was obviously quite different, and in addition the decision proceeds on the very basic principle that a party to a contract is entitled to found on its terms unless they are challenged. In a claim under the 1993 Regulations, by contrast, an agent is attempting to claim special rights in addition to, or even despite, his contractual rights. In such cases it is for him to establish that the Regulations apply to him.

[41] In the present case, I am of opinion that the pursuer's pleadings do not sufficiently address the requirements of the Schedule. So far as the business of the principal is concerned, no attempt is made to deal with the problem presented by paragraph 2 (a) of the Schedule. In his pleadings the pursuer accepts that a substantial number of the contracts concluded by him were FMCs, and indeed a substantial majority of the contracts referred to in Schedule 2, which forms part of the pursuer's pleadings, seem to have been FMCs; consequently it is clear that at least a significant part of the fourth defenders' business must have involved contracts other than the sale of goods. In the circumstances it is necessary in my opinion for the pursuer to address the nature of the fourth defenders' business, but he fails to do so. The fact that the necessary information is in the hands of the fourth defenders is in my view irrelevant; it can obviously be recovered. The pursuer also fails in my opinion to make sufficient averments to establish that the last part of paragraph 2 of the Schedule is satisfied. His counsel did not seek to found on the factor mentioned in paragraph (b) of paragraph 3 of the Schedule, and I have already indicated that I consider that to be of considerable importance in determining whether paragraph 2 describes the arrangement between the pursuer and the fourth defenders. The basic requirement contained in the last part of paragraph 2 is not addressed in the pursuer's pleadings.

[42] For these reasons I am of opinion that the pursuer's claim for compensation under the 1992 Regulations is irrelevant. I will accordingly dismiss that part of the pursuer's claim.