Commission lies at the heart of almost all agency agreements.
The idea that remuneration for the provision of services is performance driven (No sales? No commission!) – is attractive to many businesses throughout the supply chain.
Knowing how much commission is due
From an agent’s perspective, knowing how much commission is due is critical. But some principals may take the view that they do not have to account for all the commission which is due or dispute that commission is due in the first place.
Whilst payment of commission when due cannot overcome inflation, repeated delays in payment mean that the commission due to the agent is being eroded.
If court proceedings should start, the principal may further delay providing details of how much commission is due until the discovery stage in the litigation process in order to put pressure on the agent. However, this tactic does carry the risk of criticism by the court.
It is also the case that in respect of a commercial agent, knowing the commission which is due can affect the agent’s claims under the Commercial Agents Regulations for:
- compensation or indemnity following termination of the agency agreement; and
- post-termination commission.
Further, whether or not the agency agreement has been terminated, knowledge of the commission due to the commercial agent can determine whether there is a claim for back commission – that is, commission where an order accepted by the principal has not been fulfilled for a reason for which the principal is to blame.
There can be various reasons why a principal does not provide this information ranging from poor administration through to cashflow difficulties. However, a commercial agent does enjoy a statutory right to receive from the principal a quarterly commission statement.
What do the courts say?
Recent matters with which we have been involved have led to a re-reading of the only reported judgment in this area and about which we commented here.
The re-reading suggests that the agent’s tactics were wrong.
The agent applied for summary judgment based on an interpretation of a clause in the agency agreement which dealt with the provision of information in respect of commission.
But the principal was able to claim that the agent’s interpretation was wrong. As such, it was relatively easy for the judge hearing the application to say that given that there were arguments both ways, the issue was not suitable for a summary judgment hearing.
Ensuring an agent knows how much commission is due
To avoid the problem where the agent does not have information as to the commission due, the starting point is to look to include in the agency agreement before it is signed a contractual entitlement to this information. In the case of a commercial agent, this can be in addition to the statutory entitlements under the Regulations.
If the agency agreement has already been signed and does not contain a clause setting out the provision of information about commission due to the agent, a way forward may be for the agent to:
- seek to build up a pattern of requests for the principal to provide, for example, monthly commission statements. If the principal complies with these requests, it may (subject to the other terms of the agency agreement) be open to the agent to claim at a later point that the agreement has been varied by the conduct of the parties.
Whether or not a variation can be claimed, the habitual provision of commission statements which stops abruptly without good reason will likely be looked on critically by a court.
- seek to stay regularly involved with the relationship between principal and key customers and the fulfilment of such customer’s orders. This may enable the agent to make informed enquiries of the commission due.
The principal’s perspective
From the principal’s perspective, the starting point is to look not at the agent’s entitlement to information about commission but instead, at the clauses in the agency agreement dealing with:
- the extent of the agency granted to the agent. For example, can it be said that a customer was outside the territory granted to the agent? Did the customer’s order include products for which the agent is not entitled to commission? If either should be the case, the principal may claim that commission is not due.
- When commission falls due. Is it clear that the agent’s entitlement to commission has become due (although for a commercial agent this can be affected by the agent’s statutory entitlements under the Regulations)? If, for example, the principal is to supply goods to the customer on an instalment basis, it may be the case that commission only becomes due on fulfilment of all of the instalments.
In the case of a commercial agent, the principal may even seek to argue that the agent is not a commercial agent and so forgoes the entitlement to information under the Regulations! If the principal can successfully argue this point, then the agent will only have such rights to information as to the commission due, as may be set out in the agency contract itself.
Take home points
For both principal and agent, it is important to be clear as to what is set out in the agency agreement by way of the information to be provided as to commission due.
Further take home points can be found here.
