Appointing an exclusive agent: what are the issues to look out for?

There is an urban myth that if a company appoints an agent on an exclusive basis, the agent can act only for that company and for no other company.

The fact that this is an urban myth is shown by replacing:

We appoint you as our exclusive agent” with “We grant you exclusivity”.

In other words, by granting an agent exclusivity, the company is restricting itself from what it can do.

This self-restriction requires that consideration is given as to the extent of the exclusivity. All too often agency agreements provide simply for the agent to be an exclusive agent for the sale of the company’s products in the territory.

The issues of uncertainty

However, granting exclusivity still leads to uncertainty in a number of respects.

Without further detail, what is to be the situation if the company:

  • Extends the range of its existing product line?
  • Puts onto the market replacement products for its existing product lines?
  • Stops offering certain products for sale?
  • Develops or acquires new product lines?

If the agency agreement is not clear about the target customers for the products, difficulties can arise. For example, will the agent be suitable for all target customers? Does the company wish to reserve certain customers to itself? Is it intended that the agent will be able to seek orders from the online channel?

Geographical consideration is the final issue of uncertainty. Countries and areas do change – for example, in terms of an agent whose territory is the European Union after Brexit. But what of the situation where:

  • an order is obtained by an agent from a customer in one area;
  • but the head office of the customer is in the territory of a different agent; and
  • the goods are to be delivered to an address in the area of a third agent?

Exclusive v sole v non-exclusive

It would be reasonable for non-lawyers to hope that what is meant by “exclusive” would be clear in law. For example, as a result of having been defined in an Act of Parliament or judgment given by a court. The reality is that this is largely a false hope.

There is no Act of Parliament which defines “exclusive” in the context of agents. Further, such judgments as exist are old judgments concerned with the entitlement of estate agents to commission.

As such, it is normally considered that in the absence of other words in the agency agreement, the appointment of an agent on an exclusive basis means that the company appointing the agent cannot compete with the agent in the obtaining of orders. Nor can the company appoint other agents who compete with the first agent.

In contrast, if the agent is appointed on a sole basis (and again in the absence of other words in the agency agreement) the company appointing the agent can compete with the agent in the obtaining of orders for the company’s products. But, the company cannot appoint other agents to do so.

The third – and least common – type of appointment is where the agent is appointed on a non-exclusive basis. In this situation, the company appointing the agent is able to meet with the agent and appoint other agents to compete with the first agent in the obtaining of orders for the company’s products.

But, in respect of each type of appointment the overriding points are:

  • whether or not there are other words in the agency agreement which may affect the extent of the agent’s appointment; and
  • the need to specify clearly the products, customers, and territory which are the subjects of the appointment of the agent.

Why does all this matter?

The relationship between the principal and the agent should be a symbiotic relationship. The better the agent does, the better the principal does, and vice versa. But agents are protected significantly by law.

Accordingly, this all matters because, unless the agency agreement is drafted so as to maximise the agent’s performance and minimise the principal’s exposure, the principal can be left exposed when dealing with an agent’s claims:

  • for commission; and
  • in respect of the statutory rights to which a terminated agent is entitled.

We will look at some of these matters in more detail in a forthcoming issue of agentlaw news.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.
Stephen Sidkin
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