Written by John Greager
20 March 03
How can you deal with disputes concerning your commercial agency, or avoid them altogether? John Greager of City law firm Fox Williams gives some practical guidance when it all starts to go wrong.
We have all seen the effect of disputes on personal and business relationships. If left unresolved, they can harm the relationship or end it altogether. Commercial agency relationships are no different in this respect. However, there are some differences that make protecting your position—either as an agent or a principal—especially important.
Commercial agency agreements are different from ordinary business relationships because of the particular provisions of the Commercial Agents (Council Directive) Regulations 1993. When the agency agreement comes to an end, the principal will in most cases have to pay the agent compensation or indemnity, as well as post-termination commission; all in addition to the normal payments for commissions due and giving proper notice. The typical benchmark for compensation in the United Kingdom is two years’ worth of commissions; and the period for which post-termination commission may be payable could run for anything up to 2 years.
The price of getting it wrong can be huge. At worst for the agent, the principal may be able to terminate the agreement immediately without having to pay either for notice or compensation. On the other hand, the principal may end up paying over the odds for ending an agency, even when the agent didn’t perform in the way hoped or expected, and did little or nothing to promote the principal’s business.
By following the top 10 practical tips, you will be able to spot the “orange” lights (before they turn red), and to set yourself up for success in most commercial agency disputes.
1. Know your obligations and your rights
The best way to identify danger points is to know both your obligations and your rights in the agency relationship.
If you have a written agreement, you should make sure you understand all the terms in it and exactly how the agreement works. Good legal advice when negotiating an agreement is one of the best investments a principal or agent can make. A court will not be interested to hear that you thought that a particular clause meant something different, or that you had actually agreed something other than was written in the contract.
The Regulations require each party to “act dutifully and in good faith” and impose obligations of performance, communication and compliance on the agent, as well as requiring the principal to provide certain documentation and to pay the agent’s remuneration when it become due. The general law of agency imposes further obligations on the agent, such as always to act in the principal’s best interests.
Serious or persistent breaches by either the agent or the principal of any of their obligations could lead either to termination of the agency by the principal (without payment of compensation to the agent) or the agent (with a claim for damages).
2. Keep good business records
Whether you are a principal or an agent, you should keep good, up-to-date records of sales and deliveries, and make a special note of goods returned, the reasons why. Claims for compensation, pre-termination, post-termination and back commission will all depend on the agent’s being able to show how much commission was earned during the agency based on sales achieved.
Apart from the obvious benefits, if you keep your records in a well laid out and logical order this will reinforce the impression that your business (whether as agent or principal) is well run and ordered.
3. Record significant matters
Make a note (to keep in your file) of significant matters relating to the agency, such as agreed changes to commission rates, new customers obtained (and how they were introduced), marketing efforts and events, trade shows attended and so on. Why? Most people have difficulty remembering things that happened last week, let alone things which occurred 6 months or 2 years ago. Good notes will prove invaluable if you get into a dispute later.
4. Report your efforts and successes
This applies particularly to agents, although it may also be applicable to principals.
As an agent, you should tell the principal of your efforts in marketing and promoting the products in you charge, and accentuate your successes (sales increases, new customers). Once you start keeping a file (see Tip 3) it will be easy to recount and report these matters.
Regular reporting to your principal not only sends a message that you care about the agency and the principal’s products, but also will be valuable in countering any suggestions in the future—such as when a dispute arises—that you have not been performing properly.
5. Deal with problems—and communications—without delay
If there is a complaint about your performance under the contract (either as an agent or principal), work quickly to resolve it. Acting ostrich-like and ignoring letters, faxes, emails and phone calls, may result in the complaint being forgotten—but the chances are it won’t be forgotten, and will only erupt at a later point. Not only that, but you will almost certainly be accused of failing to address the other party’s concerns and communications, which will only reflect badly on you.
You need to put yourself in the best position to be able, if necessary, to argue each point raised against you, making it much more difficult for the other side to succeed if the matter goes further.
6. Keep a file and lay a paper trail
Once a dispute starts, make up a separate paper file and call it something like, “Agency Dispute (re [etc])”. Keep all notes, correspondence and agreements about the dispute on this file. This allows you to keep an accurate record of events and will help you manage the dispute in a more controlled way.
Begin by making a note setting out the facts of the dispute (the allegation, your position, and who said what to whom), including the dates and times, and amounts involved. Make each note on a separate piece of paper.
Next you need to lay a paper trail so that, if the dispute becomes serious, you will have a record of the events presented in the way which is most favourable to your case. Make a note of all telephone conversations with the other party, as well as meetings. Follow up calls and meetings with a letter, fax or email, setting out (in a way which supports your case, but does not overstate it) your understanding of the discussion, and any agreements reached as to the way the matter should go forward.
Remember that the aim is to reinforce your own account while showing how the other side’s version of events is incorrect. This will make it much more difficult for the other side to succeed against you later.
Be courteous in all communications with the other party. State the effects of the other party’s actions (disappointed customers, lost business), but do not lose your temper or become abusive. You will only cause the dispute to escalate and such behaviour will reflect badly on you in the cold light of the courtroom. As a general rule, never put in anything in writing that you wouldn’t want a judge to see!
7. Record the other party’s behaviour
If you receive an abusive call or letter, record it in writing and respond pointing out that you do you regard such behaviour as being either appropriate or constructive in resolving matters.
If your phone calls and letters are not answered, record this as well and send further letters, faxes or emails pointing out (for example) that you have left “5 phone messages on 12 January 2003, 16 January 2003, 21 January 2003, 27 January 2003 and 1 February 2003, all of which remain unreturned.” Emphasise that you are working to resolve matters, but that is being made difficult through the other party’s lack of communication.
8. Record complaints by customers
Investigate and record complaints by customers. Remember, if they disappear, so does your business.
Notify the other party of the matter and seek their side of the story. There might simply be a misunderstanding, or the complaint may be a symptom of a much greater problem.
Point out the difficulties the problems cause you, and that you are now working even harder (if you are) to keep the customer happy or to prevent from losing them altogether.
9. Remember that not everything is confidential
Under the English court rules either party in court proceedings may inspect documents which are in the other side’s possession relating to the case—including private notes—except for documents which are “privileged”. They do not need to be disclosed either to the other side or the Court.
Documents will be privileged if they were made “after proceedings were in contemplation” and to help progress the case. If you keep a separate file for each dispute (as suggested in Tip 6) then you are more likely to succeed in claiming that your own notes will be “privileged” from disclosure. You should still be very careful about what you write: remember the rule that you should not write anything that you don’t want a judge to see!
10. Seek legal advice
When should you seek legal advice? This will depend on the type of dispute, and whether it is likely to escalate into something which will cause harm to your business. It is very much a question of judgment. Something which starts small can soon turn into a serious dispute. Don’t provide the other side with an excuse to terminate the agency.
If you have any concerns then a phone call to a commercial agency lawyer should tell you whether you have cause to be concerned or not. A good commercial agency lawyer will be able to guide you through the processes for best dealing with disputes or terminations, and give you practical advice and guidance.
This briefing note is for general information. For advice in applying this general information to your specific circumstances, please contact Stephen Sidkin or any members of the Fox Williams’ agentlaw team. (www.agentlaw.co.uk).