Litigation can be expensive and can often deter an agent from bringing a claim against his principal.  In the event of an agent losing his claim, not only would he have to pay his own solicitor’s costs, but he would also normally have to pay the majority of his opponent’s costs as well.

However, there are ways to fund the litigation which can reduce the excessive financial burden which it can otherwise entail.

Are you a member of a trade body?

If an agent is a member of a trade body, it may be possible to arrange for the trade body to be responsible for the payment of his solicitor’s costs.  Some agents are members of the Professional Sales Association (“PSA”).  The PSA commonly provides free legal advice and representation to its members on a variety of legal matters and can help agents who wish to claim against their principal.

Do you have insurance?

Many people now have the benefit of a “before the event” insurance policy which might fund the litigation.  Many everyday insurance policies such as household or motor insurance now provide legal expenses cover and should be checked to see what types of claim are covered and the limitations on it.

An insurer is obliged to allow you to use your own solicitor when court proceedings have actually started.  Before that, the insurer might request that a solicitor of its own choice be used.  However, if you are unhappy with their choice, the insurer may be prepared to allow you to use your own solicitor.

Conditional Fee Arrangements

The use of Conditional Fee Arrangements (CFA) is a rapidly growing area.  CFAs are crucial because they allow access to the legal system for those who cannot pay their solicitors outright.

A CFA works where a solicitor agrees with his client that the client will be liable to pay his costs only if the claim is successful.  It is often known as “no win, no fee”.  If the client is successful with his claim, the solicitor will be entitled to charge his usual rate (the “base costs”) plus a “success fee” calculated as a percentage uplift on those usual costs.  The success fee cannot exceed 100% of the solicitor’s normal charges.

An agent who is successful will usually be awarded costs against the unsuccessful principal.  If the successful agent has the benefit of a CFA, the usual costs order includes not only the lawyer’s base costs, but also part of the success fee and any “before the event” insurance or “after the event” insurance (see below).  The part of the success fee that can be recovered is the uplift relating to the risks of the litigation.

There are strict requirements which must be complied with in order to create a valid CFA.  If these are not complied with, then it will be unenforceable.  One of the most important requirements is that the existence of the CFA must be notified to other potential parties to the dispute as soon as it is in place and at the commencement of the action.  If this information is not provided in this way and at that time, the client will not be able to claim the “success fee” element of his costs from his opponent if he wins the case.

“After the event” insurance

If the CFA funded agent loses the case, he will not only usually have to pay his own solicitor’s fees, but will nevertheless be liable for his opponent’s costs.  In addition, the agent will, during the course of the litigation, have to fund disbursements such as the fees of counsel and expert witnesses, as well as items such as travelling expenses.  Many CFA funded agents are not in the position to pay these disbursements and/or may be concerned by the fact that they will not know until the end of the litigation whether they are liable to their opponent for costs and, if so, for how much.

In such circumstances, the agent may benefit from the purchasing of “after the event” insurance which provides cover for the other side’s costs and his own disbursements in the event of losing the case.  The premium payable depends on the strength of the agent’s case and the level of cover required.  If the agent wins, the premium, like the success fee, is recoverable from his principal to the extent that it is reasonable.

Obtaining after the event insurance to cover the agent’s disbursements in the event that he loses, does not solve the problem of how those disbursements are to be paid for during the course of the litigation.  If necessary, many after the event insurers will arrange a loan to the agent or his solicitors to fund both the disbursements and the cost of the after the event insurance premium.  The loan may even be on terms that it is not repayable in the event that the client loses.  If he wins, the interest on the loan is not recoverable from his principal.  It is usually deducted from the damages recovered.

 


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Related FAQs

It depends. Your agency contract may for a fixed term (ie, ending on a definite date), in which case the contract can normally be expected to run for that entire period. The parties may, of course, agree to vary the term of the contract if the correct legal procedures are followed. A premature termination by one party of the contract is likely to have serious consequences and will, in most cases, allow the other party to sue for breach of contract, claiming damages for any losses suffered.

If the agency contract is for an indefinite period (or is a fixed-term agreement which has been converted to an ongoing contract), then either party may terminate it by notice in accordance with Regulation 15 of the Commercial Agents (Council Directive) Regulations 1993 (as amended). The minimum periods of notice are 1 month each year (or part year) of the contract up to a maximum of 3 months’ notice. Unless otherwise agreed, the contract must terminate at the end of a calendar month. The parties can agree that longer periods of notice will apply, but the period to be given by the principal must not be shorter than the notice to be given by the agent.

If the principal does not give the correct amount of notice under Regulation 15, then it will be liable to the agent for the commissions which would have been earned during that period, and must make a payment to the agent in lieu of giving notice.

The Regulations apply to all commercial agents undertaking activities within Great Britain unless the parties have agreed that the law of another member state of the European Union is to apply. Accordingly, most agents operating in the UK are protected by the Regulations, irrespective of whether or not the agency agreement is in writing.

Even though there is not a formal written agency agreement between you and your principal, there is still in place an agency agreement. It could be that there is a letter of appointment and other correspondence recording the terms of the agency. If there is no such documentation, there will be in place an oral agency, the terms of which will have been established by a course of dealing.

The Regulations operate so as to imply into the agency agreement certain terms. These include terms about:

  • the duties owed by you to your principal and by your principal to you;
  • when commission becomes due to you and when it should be paid to you; and
  • what your rights are on termination of the agency.

It is possible to exclude some of these terms by providing for this in the agency agreement. In an oral agency agreement, these terms are unlikely to have been excluded.

This will depend on how much time has elapsed since termination. If you are a ‘commercial agent’ as defined in the Regulations then the Regulations will apply to your agency relationship whether or not you were aware of them prior to termination. However, Regulation 17(9) contains an important limitation: it states that an agent “shall lose his entitlement to the indemnity or compensation….if within one year following termination of his agency contract he has not notified his principal that he intends pursuing his entitlement”.

This provision is strictly applied. Therefore, if one year has not elapsed since termination, you should notify your former principal in writing as soon as possible and request a written acknowledgement. You are not required to provide any details of the claim at this stage. Once notification has been given, you could have up to six years from the date of termination to bring your claim. However, I would strongly suggest that you pursue all claims without delay, otherwise you run the risk of, for example, your principal becoming insolvent or vital evidence being lost or destroyed.

Note that this one year limitation does not apply to other claims you may have against your former principal, whether under the Regulations (for example for pre-termination or post- termination commission) or at common law.

 

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