Clowns to the left of me, Jokers to the right - Part 1

Should be easy.  What can go wrong?  Become appointed as exclusive distributor for the territory.  Appoint agents in those parts of the territory which it does not make sense to have a sales office or sales representative.  Agents take orders.  The commission they receive is success based.  Oh, and no employment tax to pay.

Should be easy.  But it isn’t when orders placed with the supplier fail to arrive.  Or if the goods do arrive, they are defective.  Or of the wrong quantities.  Or…and the list goes on.

It is at this point that customers complain and look to their contractual remedies.  Best to make sure that your standard terms and conditions:

  1. are properly incorporated into your sales contracts; and
  2. include appropriate limitation and exclusion of liability provisions.

If that was all, the situation might be tolerable.  But your agents will also be feeling aggrieved and many consider their own claims against you.

It is the case that you will be liable to pay commission to an agent where you fail to fulfil a confirmed order if the reason for non-fulfilment is a reason for which you are to blame.  So the immediate issue will be to determine whether the non-supply of the customer’s order is your fault or not.

But even if it is not, the agent may still have a claim for damages against you.  This can arise is one of three ways.

First, EU agency law requires you to give your agent reasonable notice if you anticipate that the volume of transactions will be less than the agent could normally have expected.

Second, EU agency law provides that your agent will not be prevented from seeking damages on termination of the agency for loss suffered as a result of the termination in addition to a claim for an indemnity.

Third, your agent may claim that you have an implied duty of good faith to your agent which extends to doing your utmost to deliver goods in respect of orders which the agent has obtained.  Irrespective of your pointing to the supplier’s shortcomings, the agent may well be able to recover damages for breach of this implied duty.

What, therefore, is to be done?  Ensuring that your agency agreement:

  • excludes non-statutory liability; and
  • provides a time period in which claims are to be brought,

are two good starting points.

For otherwise it will be…stuck in the middle.

For further information in relation to this case or the issues raised by it please contact Steve Sidkin at slsidkin@foxwilliams.com

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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