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Q’s and A’s on Agency Law - DOUBLE LENGTH combined for months of September 2014 and October 2014

© David Bentley, Bentley Agency Law Limited, Bentley and Co (Leeds)

Q. My principal has informed me that one of my largest accounts is to become a House Account, with effect from 1 January 2015. In this, it is being pointed out to me that I have been afforded three months’ notice of the change, and that, were this change not to be effected (and so that the cost of my commission entitlement was not then taken out of the equation), it would not be possible to offer the account in question the favourable trading terms which it is demanding, and so that my principal would then cease to have this customer’s business altogether.

As I am also being told that, for the reasons given, I have no right to object to this change, I am wanting to know what exactly are my legal rights and remedies in this scenario.

A. Unless you have an agreement with the principal (or there has been established a clear and unequivocal custom and practice) which agreement entitles the principal to do what you have described - or unless otherwise you now give your consent - the company absolutely cannot take this action. Indeed, if actioned, it would appear to be a fundamental variation of your legal rights (both contractually and pursuant to the Commercial Agents Regulations) which, if nevertheless persisted with, potentially may entitle you to declare a constructive termination of your agency, and claim compensation/an indemnity.

I would also add that, unless the principal were entitled to pursue its proposed course of action, you being afforded a reasonable period of notice is irrelevant - provision of a notice period presupposes that the principal has the right to act in this way in the first place. Moreover, you would ordinarily be under no obligation whatsoever to have to agree to accept a position detrimental to yourself in order that a customer may be offered better terms.

In the light of the above, you should be looking promptly to (take advice and) make your objections known, in writing, and in appropriate terms.

Q. I am looking to employ an assistant to cover a couple of my smaller agencies, and wanted to know whether you considered that either of the principals concerned might have any entitlement to object to this?

A. Potentially yes, particularly if you operate as a sole trader and if it was contractually agreed (or could be proven to be understood) that you personally would always be undertaking the agency functions, yourself - i.e.:- in those circumstances, the principal would perhaps have every right to make the point that it was you who it appointed as the agent, and that that was on the basis that (specifically: -) you would personally be carrying out the requisite functions and role.

Even if you operate through a limited company or as a partnership, it may still be the case that the principal can establish that it was agreed that one or particular individual(s) within your organisation would carry out the agency function and, on that basis, if the identity of any of those individuals is potentially to change, it is quite possible that prior agreement with the principal in question is required to be sought.

The above all said, agents are generally and otherwise entrusted to carry out their functions in the best interest of the principals broadly as they themselves see fit, as self-employed contractors, and so that, in other circumstances, it may be appropriate that the agent should be expected simply to take these sorts of decisions as to who is to carry out any particular agency function, off of his own bat.

Q. I represent a French fashion label in London and the South East and have done so, for five years. We entered into a letter of engagement at the outset of our relationship, and whereas I don’t have any real issues with this company the thought has occurred to me as to which Country’s laws am I/would I be subject to, in the event of any problems down the line.

A. To answer this, I need in the first instance to see a copy of the letter of engagement to which you refer, and also to establish that you did not subsequently enter into any more formal agency agreement.

Further to the above, the point is that, provided that (a) you have not agreed with this principal (i.e.:- a principal based in the EU other than in the UK) that the laws of its Country will apply over this Country’s, and provided also that (b) your agency and selling activities on behalf of the company in question are predominantly carried out in the UK, then the UK’s Commercial Agents (Council Directive) Regulations should ordinarily then govern the relationship.

Q. Whereas I do not have any written agreement with one of my principals, both of us at the outset of the relationship respectively produced to each other “rival” draft contracts, which were mutually rejected. On this basis therefore where neither party’s written contract was accepted, which - if any - would be regarded as being the relevant point of reference, in the future?

A. The point here would be to look at the history of the relationship, and to thereby establish what has been the relevant custom and practice - whereas it is inconceivable that you would not have agreed the rate of commission in respect to the agency, let us take as an example that your draft agreement proposed 5% as the commission rate and the principal’s draft version, by contrast, proposed 4%. In order then to establish what actually was ultimately agreed in relation to that aspect, the best evidence available is likely to be what, as a matter of custom and practice, you have actually been paid these past years. That “custom and practice” test - in the absence of any other specific evidence - would likely similarly be the relevant test in respect to all of the main issues appertaining to the agency relationship, and so you can see that it is not so much a matter of which party’s unsigned draft document prevailed but, instead, and in respect to each individual aspect, what the parties mutually established as being the basis of their agreement.

Q. One of my main principals regularly has a very significant stand at both of the major annual trade shows relevant to my industry, and where a lot of business with new customers is written. In relation to these trade exhibitions, I have this week received an email from the Sales Director informing me that, with effect from the next trade show (early 2015) and going forwards after that, all and any business written from new customers opened at any trade fair will generate commission at 3% rather than 5%, and that is in respect to both business taken at the trade show itself, as well as all business taken after the initial show from accounts who were “acquired” there as customers of the company.

Can the principal impose this on me? - It is saying that this is a fair way for the agents to contribute to the enormous cost of exhibiting, and from which we as agents benefit tremendously.

A. Unless you have previously agreed to this, then you are perfectly entitled to refuse to accept this. If in fact - and as you suggest - your principal is intending to impose this in any event, then you need to decide and communicate your response, promptly.

If you are going to maintain an objection, then you need to (as I say:-) promptly set that out in writing, in appropriate terms.

If, on the other hand (and for reasons which you need to be clear should NOT ordinarily include that you are in any way obligated to have to agree), you are going to accept this imposition, then you need to make clear (again, in writing) the fact that you are accepting this change as just a one-off and so that your acquiescence in this instance cannot be interpreted as an obligation on your part to have to agree to any other forced changes.

To be crystal clear and to reiterate: - Unless you ever agreed that the principal ever had the entitlement to make this sort of change, you do NOT have to agree.

Q. A customer of mine has gone into liquidation, owing one of my principals approximately £1,500, which amount the principal in question is requiring me to pay to it, on the basis that it is my account, I introduced it and also that I took the relevant order. Am I obliged to have to do this?

A. Unless you were a del-credere agent (i.e.:- a guarantor of customers’ debts) or you otherwise agreed to any of this crippling obligation, you absolutely do not have to agree to any of this, as it is a complete nonsense. No agent ordinarily “vouches” for a customer and it should ordinarily be the responsibility of the principal to take all due steps to check on any customer it intends offering credit terms to and to monitor the account and the customer’s status.

The above sort of agent trap is one of many reasons why I always advise to get agents to have their contracts thoroughly checked, in advance – you absolutely never necessarily know otherwise the full implications of what you are agreeing to.

Q. I operate a showroom for the benefit of all of my principals, and one of them, following a recent visit to London, is objecting to the amount of space I’ve allocated to its samples, and their positioning vis-a-vis other brands. Can it require (force) me to make pertinent changes to this layout I’ve decided upon?

A. Legally speaking and absent any agreement you may have previously reached with this principal, the answer is “no” - it is your entitlement to make the decision as to how best to present the various brands which you have agencies for, and no one principal should be able to dictate to you (unless – and as I say – it can be shown that you expressly agreed with that principal some particular showroom spacing or layout).

Following on from the above there are two main points here, just by way of expanding on the above initial comments:-

Firstly, and as already highlighted, as a self-employed entity, you are free to make your own decisions as to how to conduct your business, and are thus not under direction or instruction in the same way that an employee would be.

Secondly, your primary obligation towards each principal is to act dutifully and in good faith, and provided that you can demonstrate that, in the case of each agency, you are discharging that function, then that suggests your compliance with the agent’s main obligations pursuant to the Regulations (i.e.:- pursuant to Regulation 3).

Q. One of my more recently acquired agencies of a couple of years has in the last two Quarters very rapidly grown and developed to the point where (maintaining and reflecting a steadily increasing growth trend over the past 18 months) the principal has now produced a new draft agency agreement, which contract effectively caps my potential commission income, going forward. Can it do this or can I insist that the original agreement is adhered to?

A. In the commercial World, and of course, any principal may “present” new contractual terms to an agent (or vice versa) – the question (however) is as to whether the presenter of those proposed new terms has the entitlement to force the recipient to accept, and the point is this (and relating it to the facts set out in the above Question):-

Unless you at any time agreed either that this sort of commission cap arrangement would be triggered at some stage, or that the principal had the right to make (i.e.:- to impose) these sorts of contractual changes then, from a legal perspective, you are perfectly entitled to decline the proposed new terms. In response to that position being taken by you, you may well find (however) that the principal then exerts some further pressure on you and/or threatens your agency with termination (i.e.:- if you don’t agree to what is being asked of you). If the principal did then react by terminating your agency altogether, your refusal to accept the new terms in the circumstances which I have described would not of itself at all prevent you from bringing a compensation/indemnity claim in entirely the normal way, and so that it is a decision as to whether:-

To consider accepting the new contract (which involves you agreeing potentially GREATLY less favourable terms than you currently have) but which MAY at least offer you some sort of security and a decent commission (although capped); or (and on the other hand):-

To maintain that you are not prepared to consider any new terms along the lines proposed, accept the risk that your agency may be terminated fairly quickly after that, and to then potentially seek compensation/an indemnity in the normal way.

Further to the above, a further word of caution to anyone siding with the second of the above two options in the sort of scenario described in the Question:-

That cautionary advice is to remain very aware that, in these circumstances, what you may find is that the principal may not in fact terminate your agency straightaway - determined perhaps to terminate your agency (as a “punishment” for you not acceding to its demands), the principal may instead bide its time a while in plotting a disingenuous plan to try to trap you into breaching your contract (in the hope that that may then entitle it to terminate your appointment on a forthwith basis, and potentially thus with zero entitlement to any form of compensation).

Q. An agency I previously had was recently terminated, and I have subsequently reached an agreement with my former principal as to how much compensation (and other amounts in respect to other aspects of my entitlement), I am to receive. In this, my former principal’s lawyers have now sent me a draft “Settlement Agreement” which includes a paragraph headed “Full and final compromise”, which paragraph then goes on to record how I would be agreeing to accept the various amounts I’m being paid by the former principal “in full and final settlement” of all of my claims and entitlements against it. Is it appropriate that I agree to this?

A. If you are yourself agreeing a full and final compromise, I would say that it was essential that you got the principal to similarly acknowledge that the deal being agreed was in full and final settlement of all of its claims (none admitted) against you. In other words, and for your peace of mind, and in the same way that you are being asked to accept that what is being paid to you is on the basis that you will not thereafter be entitled to bring any further claims against the former principal, the principal should likewise be required at the same time (and as part of the quid pro quo) to agree that it will pay the compromise sum (and accept the compromise which you are thereby making) on the basis that it will not bring any claims against you in the future, in relation to your previous dealings. I would also add that I would regard the above as very important, as you might otherwise accept your settlement money and one day be faced with an historical claim brought against you by the principal on account – supposedly – of losses caused to it by your alleged failing during the period of the agency to do something which you ought to have done, or (alternatively) not having done something which you should have done.

Q. I have asked my principal to provide me with clarification as to how the last several months’ commissions have been calculated, as I have no relevant information and I don’t accept that my commission statements are correct or complete. How can I pursue this?

A. Pursuant to Regulation 12 of the Commercial Agents Regulations, you are entitled to be provided with all relevant information which is “available to the principal” and which you as the agent need “in order to check the amount of commission due”. Regulation 12 also entitles the agent to be provided with an extract from the principal’s sales books and records, as part of that provision of information exercise.

In the light of the above and in answer to your Question, you should write to your principal, directly requiring the relevant information, on the basis that you are entitled to receive that pursuant to the statutory legislation which is in force in the UK.

Q. For a number of years, I have acted as a purchasing agent for a number of companies, one of which has recently terminated our arrangements. Would I in these circumstances have any compensatory rights similar to those rights enjoyed by sales agents?

A. Potentially yes, very much so, in that Regulation 2(1) [in part] defines a “commercial agent” as: - “a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person (“the principal”) and so that, on that basis, you may very well therefore be regarded as falling within this definition, and thus being entitled to bring claims [on termination] pursuant to (for example: -)

Regulation 8 (post termination “pipeline transaction” commissions);

Regulation 15 – damages in lieu of a proper notice period having been afforded; and:-

Regulation 17 (i.e.:- an entitlement to – depending on the circumstances – either compensation or an indemnity).

Q. One of my main principals has recently devised a Staff Handbook which it is also sending out to all of its self-employed sales agents, in requesting them to abide by the terms which are set out. Whereas I’ve read through this, I’m not sure how to react to it given that I’m clearly not “staff” in instead being self-employed. Your advice, please? Do I have to abide by this document?

A. No, you should not have to abide by this, save to the extent that it may have any information relating to your role as an agent – even then, however, and very importantly, you need to be very careful that if the Handbook did have a section affecting you as one of the principal’s agents that that does not effectively amount to an attempt to impose new terms of engagement, via the “back door” (i.e.:- without your overt consensus). In that scenario, and unless you had ever agreed that you would be bound by the terms of your principal’s Handbook (but, hopefully, you’ve never fallen into that trap), you should promptly react by writing to the principal, setting out that whereas you of course agree to abide by all of its reasonable instructions (as required of you by Regulation 3 of the 1993 Regulations) and to otherwise abide by your contractual obligations, you do not – however - agree to any terms as set out in the Handbook, and which may otherwise detrimentally vary your established terms of engagement.

© David Bentley, Bentley Agency Law Limited, Bentley & Co Solicitors 7 Littlemoor Road, Pudsey, Leeds, LS28 8AF

T: - 0113 236 0550 e-mail:- db@bentleyandco-.

The ONLY law which we practice is the law as it relates to commercial agents.

Please note that, as far as we can, we take cases on on a “success related fee”.

Please ensure that you obtain legal advice before acting in reliance upon anything in this article, particularly since each individual’s circumstances may necessitate a unique approach, and also on account of the fact that the law may of course at any time change. Furthermore, please be very clear that the answers given in this column may not cover or otherwise refer to all possible angles, aspects, relevant information and/or points of law and so that all or any information which is given above needs in every instance to be referred for legal advice for clarification and amplification, before being relied upon.

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