Written by Steve Sidkin
11 April 98

The issue

The Regulations give agents many rights.  Some during the continuance of the agency agreement; others when it has come to an end.  In either case the issue is what can the agent do when his principal is behaving badly.

The agency agreement

The Regulations apply whether the agreement is written or oral, formal or informal.  The fact that the agent is appointed on a temporary or probationary basis will not stop the Regulations operating.

If the agency agreement is not in writing, the agent can request the principal under the Regulations to provide a signed written document setting out the terms of the agency agreement.

Performing the agency agreement

The Regulations require the agent to look after the principal’s interests and act dutifully and in good faith.  This will necessitate fulfilling his obligations to the best of his ability.  Equally important is being seen to do so.  This means doing more than providing the reports which the agreement may require.  The agent’s efforts should be communicated to his principal.  Notes should be made of telephone conversations and meetings, faxes kept and copies taken of letters sent.  These should be filed.  If the principal behaves badly, they are likely to provide a useful paper trail of how the agent has performed his activities.

It is axiomatic that an agent will know his customers.  But it is important that the future plans of major customers are known by the agent and communicated to the principal.  Under the Regulations, an agent will be entitled in certain situations to commission on transactions concluded within a reasonable period after the agency has terminated.  The agent may also claim commission which might otherwise have been paid to his replacement.

Where the agent has communicated information about future plans it will be more difficult for the principal to disregard important transactions in assessing what is to be taken into account.

Commission

The Regulations provide for commission in respect of active and passive sales.  The distinction is where the order comes to the principal directly from the agent as opposed to the agent having brought in a customer’s first order and subsequent orders coming direct from the customer.  Commission on a generic basis arises where the agent has an exclusive right to a territory or group of customers.  In each case, these rights can be overridden by the terms of the agreement.

This is not the case in determining when commission becomes due.  A key point of the Regulations is the time at which the transaction with the customer is executed.  Ultimately, an agent does not lose his right to commission simply because the principal has decided not to fulfil a previously accepted order or delivers defective goods which are rejected and which results in the principal not being paid by the customer.  Therefore the agent should be aware of the commission due.  He is entitled to have a commission statement and information to assess the amount of commission due.  This will cover an extract from the principal’s books; it can extend to a right to inspect the principal’s books.

Termination of the agency agreement

Where the agency agreement is for an indefinite term or a fixed term agreement has continued beyond its expiry date, an agent will be entitled to up to three months’ notice.  The principal’s failure to give proper notice will trigger a right to damages.

The Regulations provide for an agent to have an indemnity or compensation on termination of the agreement.  For an agent to receive an indemnity, there must be a provision to this effect.  Accordingly it is more usual for an agent to have a right to compensation for the damage suffered as a result of termination.

The Regulations do not state how compensation is to be quantified.  But the agent will have a particular right to compensation where deprived of commission which he would otherwise have received had he continued to properly perform the agency agreement whilst, at the same time, the principal has been provided with substantial benefits owing to the agent’s activities.  The issue, therefore, is showing what has been achieved for the principal and how he will continue to benefit.  Similarly, if the agent has been unable to depreciate costs and expenses incurred in the performance of the agreement on the principal’s advice.

Even where these particular circumstances do not arise, it appears that an agent will continue to have a right to compensation.

The agent can also terminate the agreement and claim an indemnity or compensation if termination is justified by circumstances attributable to the principal.  Alternatively, compensation will arise where termination of the agreement results from the agent’s age, infirmity, illness or death.

It is not possible to contract out from the agent’s right to an indemnity or compensation during the continuance of the agreement.  But it is possible after the agreement has ended.

Post-termination

An intention to claim an indemnity or compensation must be notified to the principal within one year of termination.

The agent may be subject to certain post-termination non-compete restrictions under the agreement.  Their validity depends on the Regulations.  Accordingly, the restrictions must be in writing and relate to the territory or customers in the territory handled by the agent and to the goods covered by his agency.  If they do not or if the restrictions are to last more than two years after termination, they are unenforceable.  Even if enforceable under the Regulations, the restrictions will be unenforceable if the agreement has been wrongly terminated by the principal.  They will also be unenforceable under common law if in unreasonable restraint of trade.

Taking account of these issues should assist agents in obtaining the benefits of the Regulations when dealing with principals behaving badly.

This briefing note is for general information. For advice in applying this general information to your specific circumstances, please contact Stephen Sidkin or any member of the Fox Williams’ agentlaw team.(www.agentlaw.co.uk)

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