An agent who cannot see the sales figures cannot check they are being paid correctly, or work out what they are owed when the agency ends. The Commercial Agents (Council Directive) Regulations 1993 give agents a statutory right to commission statements and to the information needed to verify the commission due, and that right cannot be contracted away.
The contributions below, from specialist commercial agency solicitors, explain those rights during and after the agency, and show how they interact with what the agency agreement itself says. Each is reproduced in full and attributed to its author.
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Short answers to common questions
What information must a principal give an agent about commission?
Under Regulation 12, a quarterly commission statement setting out the main components used to calculate the commission, by the last day of the month following the quarter. On demand, the principal must also provide the information (including an extract from the books) the agent needs to check the commission due.
Can this right be excluded by the agency agreement?
No. Any agreement to derogate from Regulation 12(1) and (2) is void.
What can an agent do if the principal refuses to provide the information?
A refusal is a breach of Regulation 12 and of the duty to act in good faith. The formal recourse is an application to court, although this is rarely used in practice because the costs are often disproportionate. A refusal also tends to signal a breakdown in the trust the relationship depends on.
Is a written statement of terms the same as an agency agreement?
No. Regulation 13 lets each party demand a signed written document recording the terms of the agency contract. It records what the terms are, but is not itself a full written agency agreement.
What about information after termination?
It is needed to calculate pipeline commission under Regulation 8. The usual first step is to ask the principal for a schedule of sales made in the territory since termination. Principals are expected to cooperate early, and in litigation must disclose relevant sales documents.
Should the agreement include a contractual right to information?
From the agent’s side, yes, in addition to the statutory Regulation 12 right, to avoid disputes over interpretation. Principals may prefer to rely on Regulation 12 alone rather than add a contractual right of inspection.
Commercial Agents: Right of access to information and documents
A full overview of the statutory rights: what a principal must supply during the agency, and what an agent can obtain after termination.
This article focuses on an agent’s right to information and documents, with a particular focus on entitlements to information and documents following termination of the agency.
Introduction
Accessing sales information and equality of arms is of paramount importance particularly when it comes to calculating a sales agent’s entitlements following termination, especially for the purpose of calculating pipeline commission pursuant to Regulation 8 of the Commercial Agents (Council Directive) Regulations 1993. However a sales agent also has rights to information during the agency, which is a right which may need to be exercised by an agent if a principal is suspected of “hiding” sales.
What right does an agent have to information during the agency?
It is fair to say the most important consideration for a sales agent is to make sales and earn commission. It is assumed most sales agents will know what sales they have made, particularly if the orders are placed via the sales agent. However, in agencies that have multiple order management systems, cross jurisdictional offices / customers, and / or arrangements where customers place orders directly with the principal, it is not always easy for a sales agent to keep track of every sale made. The sales agent must trust that the principal is giving them full disclosure of sales upon which they are entitled to commission, and that they are being paid commission on all qualifying sales. But what happens if a sales agent suspects his principal is hiding sales to avoid commission being paid? How can the sales agent check on sales made or verify commissions?
As you might have guessed, the answer lies in the Regulations.
Regulation 12 provides an agent with a right of access to information from the principal:
Periodic supply of information as to commission due and right of inspection of principal’s books
12.(1) The principal shall supply his commercial agent with a statement of the commission due, not later than the last day of the month following the quarter in which the commission has become due, and such statement shall set out the main components used in calculating the amount of the commission.
(2) A commercial agent shall be entitled to demand that he be provided with all the information (and in particular an extract from the books) which is available to his principal and which he needs in order to check the amount of the commission due to him.
(3) Any agreement to derogate from paragraphs (1) and (2) above shall be void.
(4) Nothing in this regulation shall remove or restrict the effect of, or prevent reliance upon, any enactment or rule of law which recognises the right of an agent to inspect the books of a principal.
So, pursuant Regulation 12:
- A principal must provide the sales agent with a commission statement together with an explanation of how it has calculated commission due; and
- A principal must give the sales agent the information he needs to check commission due.
Regulation 12 is handy for a sales agent to deploy during the agency, especially where (as alluded earlier) he is sceptical about being paid all commission due or where a principal does not send out regular commission statements. But what if a principal refuses to provide the information? Notwithstanding the fact that a principal refusing to give this information freely would serve only to confirm suspicions that something isn’t quite right, if a principal does refuse to supply the requested information, it would be in breach of Regulation 12 and also the duty to act in good faith. In those circumstances the only recourse for a sales agent is to apply to court. However, this is a weapon rarely used in practice since the costs of applying to court are generally disproportionate.
A principal’s refusal to provide information in breach of the Regulations is likely to lead to a breakdown of the relationship of trust which is fundamental to the successful operation of a sales agency relationship, and a termination of the sales agency relationship may be inevitable.
Another right a sales agent or principal can invoke is the right to a written statement of terms. Regulation 13 states:
13.(1) The commercial agent and principal shall each be entitled to receive from the other, on request, a signed written document setting out the terms of the agency contract including any terms subsequently agreed.
A written statement of terms merely records what the terms of the sales agency contract are and is not the same as a written sales agency agreement.
Rights to access to information post-termination
As readers are probably already aware, termination of a sales agency, through no fault of the sales agent, triggers the sales agent’s right to claim compensation or an indemnity pursuant to Regulation 17, and post-termination commission, commonly referred to as “pipeline” commission, pursuant to Regulation 8.
One of the main challenges for a sales agent in calculating pipeline commission is establishing precisely what sales the principal has made following termination. More often than not, a sales agent’s access to sales information is cut off when the sales agency is terminated. The first step in calculating pipeline commission is usually for the sales agent to ask the principal for a schedule of sales made in his territory since the date of termination.
The principal should cooperate and agree to provide this information promptly, especially if there is no dispute about a sales agent’s entitlement to claim pipeline commission. The court expects parties to a potential dispute to cooperate in providing an early exchange of information, and a party who refuses to do so puts themselves at risk on costs if court proceedings are issued further down the line. However, in the event of a dispute, in the context of litigation, the principal would be required to provide all relevant sales documentation as part of disclosure. The information required to be able to calculate pipeline commission will therefore be disclosed at some stage, and in most cases that will be prior to any court proceedings being issued.
A principal is of course only able to provide post sales information to the extent it exists, and in the case of pipeline commission, the amount of such a claim may have to be estimated in part until such time as the post termination sales information becomes available.
How we can help
Our team of experts are ready to assist on all aspects of commercial sales agency law. We are always happy to have an initial no-obligation chat to help guide you in the right direction. Please do not hesitate to contact us on 0161 941 4000 or via email.
Suzanne Carr is a Senior Associate at Myerson Solicitors LLP
Grosvenor House, 20 Barrington Road, Altrincham, WA14 1HB
Tel: 0161 941 4000
www.myerson.co.uk
Suzanne.Carr@myerson.co.uk
Disclaimer: This article does not contain legal advice and is for general guidance only. AgentBase, the firm of solicitors and the writer accept no liability in connection with the general guidance given. Please ensure that you obtain legal advice before acting in reliance upon anything in the article. For example please be clear that the information and views given in this column may not cover all possible angles, aspects, relevant considerations 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
Information as to commission
Why knowing the commission due matters, and how to strengthen the statutory right with a contractual one.
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 supply chain.
From an agent’s perspective, knowing how much commission is due is critical. 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 the provision of information in respect of commission 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.
In the only reported judgment in this area, it would seem 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.
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.
The agent should also 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.
From the principal’s perspective, the starting point is to look not at the agent’s entitlement to information but instead, at the clauses in the agency agreement dealing with:
- the extent of the agent 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?
- 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)?
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 entitlements of the Regulations!
Take home point
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.
Stephen Sidkin is a partner at Fox Williams LLP (www.agentlaw.co.uk; www.foxwilliams.com)
© Fox Williams LLP 2022
Further Reading
The right to information exists so you can check the commission you are owed. For when that commission is earned and when it must be paid, see when a commercial agent is entitled to commission.
After termination, the sums still in the pipeline are often the hardest to verify. For what you can claim on deals that close later, see pipeline commission after termination.
The statement and inspection rights under Regulation 12 cannot be excluded by agreement. For how they fit alongside an agent’s other commission rights on termination, see additional rights on termination on Salesagents.uk.