A fundamental principle of agency law is that an agent must not put itself in a position where it prefers its own interests or the interests of a third party to the interests of its principal.
However, conflicts can easily arise for agents when they build their portfolio of principals, as is invariably required in order to grow the agency and to be profitable. Often conflicts arise by virtue of either the products that are put on to the market by two or more principals or the position of competing principals in the market.
When two products directly compete, it can be easy to see that a conflict arises for an agent. However, an agent can also find itself in hot water where a conflict arises because of the fact that a customer’s requirements are broad enough to cover products put on to the market by two or more principals which compete in this broader market or customer group but where the products themselves are not clashing on category, quality or price or in terms of their traditional markets or customer groups.
Agents need to be alive to the potential for conflicts to arise, as without being in receipt of informed consent from each of the relevant principals, the carefully curated portfolio can quickly and painfully be reduced in size and the agent could face a claim for damages from the principals concerned. So what should an agent be thinking about when taking on principals?
- As mentioned, the most obvious conflicts will arise where products put on to the market by two or more of the agent’s principals compete in terms of category, quality, price, market position or target customer.
However, be aware that a conflict can arise where the products themselves do not directly compete, or “clash”, but where the agent is in a position in which it can only put forward the products of one in order to either meet a customer’s criteria or terms agreed with its principals. In such situations, the agent will, by necessity, need to prefer one of its principals over another (and, in turn, prefer its own interests over those of one of its principals).
- If a position of conflict arises, it is not a defence for the agent to rely on the fact that the principals were aware of the dual or multi-representation.
Just because a principal knew that its agent represented a brand that put on to the market certain products that were in the same category as those of the principal, it does not necessarily mean that each of the principals concerned are in receipt of all of the facts to enable them to have given their informed consent to the dual or multi representation.
The agent should not rely on silence, as generally silence does not amount to informed consent.
- For agents operating multiple agencies, it is likely to be necessary that informed consent will need to be sought from its principals throughout the lifetime of those agencies – in other words, consent should be sought, obtained and maintained. This is relevant where:
a. the agent first agrees to become the agent for a particular principal;
b. a new principal approaches the agency for representation where there is a risk that taking on that agency could cause a conflict or potential conflict to arise in respect of the agent’s other principals; and
c. when an existing principal brings out a new product range that causes a conflict or potential conflict to arise with the range of another of the agent’s principals.
- The informed consent needs to be sought from each of the principals and the agent should ensure that such consent is well documented, and as mentioned above, kept up to date. If an agent does not provide the necessary information required for the principals to be in a position to give informed consent, the agent will only have itself to blame!
When seeking the consent, an agent needs to be as open as commercially possible in terms of its representation for its other principal(s) and so far as the duty of confidentiality permits, an agent should share with those principals any conflicts or potential for conflicts that may arise. If a principal does not provide the agent with informed consent, the agent cannot act where to do so would cause a conflict to arise between the interests of the agent and the duty owed to that principal.
If you have any questions about these issues please get in touch with a member of the team or speak with your usual Fox Williams contact.