Commercial Agency

A Commercial Agent is a person, partnership or company instructed by another person, partnership or company to negotiate or enter into legal relationships with third parties, usually customers, on the instructing party's behalf. The person, partnership or company giving the instruction is called the Principal. Provided an Agent acts in accordance with their Principal's instructions, the Agent will not be responsible to third parties with whom they negotiate or conclude contracts. The third party will have no legal relationship with the Agent, for they are merely acting on behalf of their Principal. Agents are usually paid by receipt of commission, and are commonly found in a diverse range of industries including the textiles and chemicals sectors.

There are two common forms of Agency. Under a Sales Agency, the Agent can sell the Principal's goods and has authority to negotiate and enter into contacts on the Principal's behalf. Under a Marketing Agency, the Agent has authority to market the Principal's goods and can search for new business, but cannot enter into a contract of sale acting on the Principal's behalf.

The relationship between a Principal and their Agent can be complex and uncertain, and at Franklins Solicitors LLP we can provide the clarity required. Our Business Services Solicitors have extensive experience in dealing with Commercial Agency issues, on behalf of both Principals and Agents.

The Commercial Agents (Council Directive) Regulations 1993 provide protection for Principals and Commercial Agents and set out the rights and obligations of both Principals and their Agents where the Agency is on a Sales Agency basis. The Regulations do not apply to Agents engaged under a Marketing Agency because the Regulations define 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"), or to negotiate and conclude the sale or purchase of goods on behalf of and in the name of that Principal". In general terms, the Regulations are little understood by the parties to such relationships who often do not even know of their existence much less the effect that they have. However, the Regulations can have a far reaching impact on both Principals and Agents.

The Regulations state that an Agent is entitled to:-

• A written agreement.
• Reasonable commission in the absence of a fee or percentage agreed in advance.
• Notice on the termination of their Agency. The Regulations impose certain notice periods - one month for the first year, two months for the second year and three months for three years and all following years.
• Commission on all work in progress, as well as on transactions concluded after their appointment ceases where a transaction is mainly attributable to their efforts and entered into within a reasonable time after their appointment ceased.
• Damages on termination of their Agency by way of an indemnity or compensation payment.

In addition, the Regulations provide protection for a Principal where the Agent, for example, acts in bad faith or is at fault.

Assistance to Principals

The appointment of Commercial Agents can offer a number of advantages to a Principal, including taking advantage of an Agent's local knowledge and established trade connections, as well as saving the cost of establishing its own selling operation.

It is, however, vital for a Principal to protect their position before entering an Agency relationship. We can assist in drafting individually tailored Agency Agreements to protect a Principal's position and to assist in avoiding and mitigating future problems and claims. Our expertise has seen our Business Services Solicitors drafting Agency Agreements where all parties are in the United Kingdom as well as where there is an international element. For example, we can ensure that the following areas are dealt with:-

Appointment and Authority

It is important that an Agency Agreement outlines carefully what an Agent has authority to do, and especially that it specifies whether they are a Sales or Marketing Agent.

Customers, Territory and Exclusivity

Generally an Agency Agreement should set out a geographic territory in which the Agent is appointed to operate or it should specify that the Agent is only allowed to do business with a particular type of customer. An Agent can have exclusive, non-exclusive or sole rights to a territory. These are terms which are commonly misunderstood and not correctly used, and hence it is important to understand their meaning within our legal system.

Exclusive rights prohibit the Principal from selling in the Agent's territory and from employing other Agents there.

Non-exclusive rights allow the Principal to employ other Agents or to look for new sales in the territory itself.

Sole rights prohibit the Principal from appointing a different Agent to the territory, although they do not ban the Principal from looking for contracts in the territory itself.

Products

Generally a schedule should be incorporated to outline the goods that the Principal is offering which can be altered from time to time to take account of new product launches and the withdrawal of deleted product lines.

Restrictions

A Principal can place limitations on an Agent, such as precluding them from being interested in the production of rival goods in their allocated territory.

Duration

The Agreement should outline the duration of the appointment for this governs the length of notice required to terminate it.

Agent's Duties

The Agent should be contractually obligated to diligently and faithfully serve their Principal's interests and to use their best endeavours to negotiate and conclude transactions.

Commission

The Agreement should provide for the mechanism by which the Agent's entitlement to commission is calculated.

Intellectual Property

If the Principal has Intellectual Property which they wish to protect (such as Trade Marks, logos or confidential information), then adequate protection should be provided for within the Agreement.

Damages on Termination of the Agency

The Regulations have introduced rights to damages for Agents when their Agreement is terminated. Damages can be by way of a compensation or indemnity payment.

Compensation - the Regulations state that an Agent must be compensated for any damage suffered due to the termination of the relationship between the Agent and their Principal. The Regulations do not specify how the compensation is to be calculated or if there is a maximum limit that can be imposed on the amount of compensation received, and as such the case law decisions of the Courts must be looked to for guidance. The most pertinent present authority is the 2007 decision of the House of Lords in Lonsdale -v- Howard and Hallam Limited. In this case it was held that it is a future income stream which is lost by an Agent when their Agency is terminated, and that their compensation should compensate for this loss and be calculated with reference to what a hypothetical purchaser would pay for the right to continue with the Agency built up by the Agent.

Indemnity - if an indemnity payment is desired by a Principal instead of compensation then the Agreement must make this clear for, in the absence of written agreement, the Regulations state that an Agent is entitled to compensation in favour of an indemnity. Often Principals prefer being obligated to make an indemnity payment because the Regulations set the maximum amount payable for the indemnity as to the value of a year's commission, which is often preferred over the vagaries of the compensation payment and the risk of having to engage forensic valuation expertise to determine the amount of compensation payable.

Restrictive Covenants

It is often wise to include restrictive covenants in an Agreement in order to protect the Principal's interests following termination of the Agreement.

In addition to assisting Principals with formalising their relationship with their Agents, if a Principal becomes entangled in a dispute with an Agent we can negotiate or mediate a satisfactory solution or, where required, offer a full litigation service to assist a Principal in making or defending a claim.

Assistance to Commercial Agents

The Regulations are designed to offer a level of protection to Agents, particularly as to what is to happen on termination of their Agency.

Are you or have you been within the last year a Commercial Agent?

Have you had your Agency terminated or needed to resign on the grounds of ill health?

If the answer is "Yes" to the above you may be able to claim compensation under the Regulations regardless of what provisions are made in any written or unwritten contract because an Agent's right to damages under the Regulations cannot be deviated from to the detriment of an Agent.

If you feel you may have a claim under the Regulations then contact us as soon as possible for an Agent must notify their Principal of their claim within 1 year of their Agency terminating.

Give us a call on 01908 660966 or 01604 828282. Alternatively you can fill out our online contact form.