Q’s and A’s on Agency Law

This page brings together questions and answers on commercial agency law from specialist solicitors, drawn from columns published on Agentbase over a number of years. The questions come from real agents and principals, and the answers are grouped below by theme so you can find the point you need.

Please note: the law and its interpretation move on over time. Treat the older answers as a guide to the issues involved rather than a statement of the current position, and take advice on anything date-sensitive. Unless a question is marked otherwise, the answers are by David Bentley of Bentley Agency Law. The remaining answers are by Thom Vaughan of EAD Solicitors, as marked.

Compensation and indemnity on termination

Can the regulations governing principals and agents be derogated from by agreement?

The Commercial Agents (Council Directive) Regulations 1993 govern the relations between commercial agents and their principals, and apply in relation to the activities of commercial agents in Great Britain (subject, where appropriate, to the application instead of the laws of any Member State of the European Union).

The above Regulations prescribe a binding set of rules which must be applied in respect to all commercial agency relationships, and whereas some of these rules may not be mandatory, many of the most important provisions cannot be ‘derogated’ (deviated) from, including the rules with regard to the agent’s entitlement to an indemnity or compensation on termination. In this, Regulation 19 is relevant, and provides:-

‘The parties may not derogate from regulations 17 and 18 to the detriment of the commercial agent before the agency contact expires’.

The effect of Regulation 19 is therefore that any purported disapplication or exclusion in an agency agreement of what would otherwise be the agent’s rights to an indemnity or compensation on termination (or any watering down of such rights, to the agent’s detriment) is invalid.

The above made clear, agents should take note that Regulation 19 only applies to protect agents pre termination of an agency, and so that if an agent were to agree after termination to a settlement of their indemnity or compensation entitlements for an amount which was to their detriment (less than they would otherwise be entitled to) then that would likely be binding and irreversible.

Retirement — I will turn 65 years old in March. I’m in a position where I want to finish with my agency. If I do so, will I still be entitled to payment of compensation for the customer base I have developed?

The Regulations tell us that a commercial agent will still be entitled to compensation if he terminates the agency contract “on grounds of … age … in consequence of which he cannot reasonably be required to continue his activities. The next question is whether there is an age at which any agent can look in the mirror after many years of service and decide that he wants to bring his agency agreement to an end. There is no higher court decision to assist us on this point; however, the case of Abbot -v- Condici Limited and Another [2005] provides useful guidance and is generally understood to represent the present approach. The case concerns Mr Abbot who retired at 65 and sought compensation. The principal argued that he should not be entitled because he was physically able to continue. They argued that ‘age’ did not necessarily mean 65, especially since there is no compulsory UK retirement age and the typical retirement age varies. The judge disagreed and found that if the age in question is a reasonable retirement age then the agent should be entitled to compensation regardless of other factors. The judge found that the age of 65, which Mr Abbot chose, was “embedded as a retirement milestone” and it was therefore reasonable for him to end the agency when he did.

Contributed by Thom Vaughan, EAD Solicitors LLP.

How long do I have to pursue my claim to compensation or indemnity?

The Regulations specify that a commercial agent will 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 is a very simple but critical task. Fail to give notice and any future claim will be excluded. Assuming that notice is given then you have a period of 6 years from termination of the agreement to issue court proceedings. Once again, if you miss this deadline then your claim will be time barred. Once court proceedings are issued then the matter will progress in line with the court’s directions. Typically, agency claims can take anything from 1 week to 3 years to resolve. It all depends on the willingness of the parties to grasp the issues, take a reasonable view of the value, and any difficulties that may be faced, and negotiate settlement.

Contributed by Thom Vaughan, EAD Solicitors LLP.

In claiming an indemnity what is it that, most importantly, I need to show?

Regulation 17(3) of the Commercial Agents Regulations deals with indemnity claims.

In respect to any indemnity claim, the agent is required in the first instance to show that they have “brought the principal new customers or has significantly increased the volume of business with existing customers, and that the principal continues to derive substantial benefits from the business with such customers”.

As regards the agent establishing that they have brought the principal new customers, it is clear that it is crucial that they (the agent) can prove their “instrumentality” in the bringing of those customers. As to this, Mr J Mitting QC decided in the case of Moore v Piretta PTA Ltd (in 1998) that, as regards the meaning of “instrumentality”, and whereas the agent has to have played “an active role” in terms of the introduction of any such new customer, “a small level of involvement is sufficient and it is enough that the agent has merely contributed to bringing the new customer”.

There are in fact many considerations and factors in determining any indemnity entitlement, but the above is a fundamental one of them.

I am seeking compensation in respect to the recent termination of a sales agency and understand that the correct formula for calculating the amount to which I may be entitled is to take an average of my earnings from the agency over the past five years, and to then multiply that average amount by two. Is that correct?

No (with respect), your formula isn’t at all correct: —

The basis for calculating the amount of a sales agent’s compensation entitlement is as set down in the seminal decision of the House of Lords in July 2007, in the case of Graham Lonsdale -v- Howard & Hallam Limited. In that landmark case, the Lords ruled that the ‘damage’ which the sales agent is to be financially compensated for is the loss of the value or goodwill he can be said to have possessed in his sales agency, with the amount of compensation due being determined by establishing the hypothetical sales value of that agency as at the point of its termination (and making the assumption that the sales agency would have continued). Whereas, and over the subsequent fifteen or so years since the Lonsdale case, other important court case decisions have set down more detailed guidance as to the valuation process for compensation sums, none of those case decisions reflect the very basic (and fundamentally incorrect) premise as set out in your question.

Further to the above, I should also add that I am of course making the assumption that it is correct to say that your entitlement would be to ‘compensation’ as opposed to ‘an indemnity’. As to this, if you did not have any written sales agency agreement with this principal which agreement expressly provided that your prospective entitlement to any compensatory payment was in fact to ‘an indemnity’ then (and by default) that prospective entitlement would indeed be to ‘compensation’. (The basis for calculating ‘an indemnity’ entitlement is of course very different to the basis for calculating ‘compensation’).

Recording terms of an agency in writing.

Following the termination of a sales agency with a particular principal with whom I had a written agency agreement, I am entitled to (according to the terms of that contract) an indemnity payment?

However, a dispute has arisen as to the calculation of the amount of that indemnity entitlement, on the basis of the principal arguing that I didn’t introduce certain of the customers whose introduction I (on the other hand) am claiming the credit for.

Can you therefore advise as to what is, for the purposes of calculating the amount of an indemnity, the basis of assessing when a sales agent is deemed to have ‘introduced’ customers?

A. For the purposes of part of one of the steps to be taken in the process of calculating the amount of an indemnity entitlement, it is indeed necessary to assess which customers the sales agent introduced to the principal. As to this, the 1996 Commission Report on the application of article 17 of Council Directive 86/653 states that ‘the agent must have acquired the new client and in this respect the instrumentality of the agent is crucial’. Subsequently, Mr J Mitting QC decided in the case of Moore v Piretta PTA Ltd [1998] that, and reflective of the guidance as is set out in the Commission Report that (and as regards the meaning of ‘instrumentality’), whereas the agent has to have played ‘an active role’ in terms of the introduction of any such new customer, ‘a small level of involvement is sufficient and it is enough that the agent has merely contributed to bringing the new customer’.

In light of the above, and in the circumstances, you might realistically be hopeful of indeed establishing that you ‘contributed’ to bringing to the principal any particular customer under discussion. That would then make any commission earned from that customer in the relevant time period relevant in the calculation of the indemnity sum.

As a self-employed sales agent, is there any restriction on the number of agencies which I can hold, at any one time?

Subject to anything which you might otherwise have agreed with any of your principals, there is no legal restriction, as such — i.e.:- the Commercial Agents Regulations do not themselves stipulate that there is any maximum number of agencies which an agent can have, at any given point in time. The above said, however, and what is crystal clear (and what the Regulations do effectively provide) is that an agent (a) on behalf of two or more principals, cannot simultaneously sell products which are in competition with each other, and (b) [the agent] would potentially be in fundamental breach of his obligations towards his principal (and thus be at risk of losing his agency, without any entitlement to any notice, and consequently also without any entitlement to any form of compensation) where he has taken on too many agencies with the consequence that he is then unable to properly service them all. Moreover in these circumstances, the agent would additionally be running the risk that a principal could also sue him in respect to its lost profits, reflecting the opportunity lost to the principal by dint of the fact that the agent effectively did not properly represent its interests.

I have been representing one of my major principals for a dozen years or so, and a new Managing Director has just been appointed who (a) appears anti agent, and (b) is telling me that I have no contract with his company, and therefore would have no rights if the Company were to terminate my agency — what are your comments please, as regards this position which is being taken?

The attitude of the Managing Director in this instance, and as you have described it, is (thankfully) relatively unusual, and would reflect not only a degree of ignorance as regards the law and the status of commercial agents (- more as to which, see below), but also, and as some might regard it, a bullying sort of approach — how anyone can expect an agent to feel well regarded by his or her principal in the face of these sorts of comments is beyond me, but I suppose that there are some principals who might prefer to operate in this sort of way.

With regards to your actual question the position is, as follows:- There is nothing in the Commercial Agents Regulations (or as laid down in any Court case) which provides that the agent has to have a written agreement with the principal concerned, in order to then be able to enforce his, her or its rights pursuant to the law (e.g.:- upon termination, and in appropriate circumstances, to the relevant form of compensation) — indeed, as regards the majority of agents whom I have acted for over the years, they either have had no written agreement at all or, at best, a very basic or informal letter of appointment.This fact has not however — not to any degree — hampered our progress, in seeking compensation/an indemnity. It follows from the above that what this Managing Director has told you is completely wrong, and whereas a straightforward and simple written agreement can be of great benefit to both parties, you need always to be very careful about (and before you agree to it) having thoroughly and promptly checked and reviewed any draft agency agreement which is ever presented to you by your principal, either at the outset of the relationship, or at any time subsequently. As a PS to the above:- As regards any agreement which is presented to you at the outset of the agency relationship, you should not then commence any actual agency activities until you are happy with and are entirely in agreement with all of the terms which have been proposed; moreover, as regards any agreement which is presented to you part way through your agency, and again, you should promptly take our advice as soon as you receive the draft document, make the principal aware (in writing) that, to the extent that the contract proposes new terms, you do not intend to be bound by those varied terms unless and until you sign the contract, and (finally) be aware that you are not obliged to have to agree to anything which is not a reflection of the original terms of engagement

Whereas I don’t have any agreement in writing with my main principal, I am being required to carry out a significant number of roles which I would regard as being beyond the scope of what was agreed. Am I obligated to have to carry out these additional functions?

A “commercial agent” (as defined by the Commercial Agents Regulations) is required to comply with his or her principal’s “reasonable” instructions, and what is “reasonable” in all of the circumstances can sometimes be unclear. In other words, whether or not you may be obligated to have to comply with what you say you are being asked to do will depend on (for example) what was agreed at the outset as the extent of your role, what may have been agreed subsequently, what may have been indirectly agreed over time through “custom and practice”, and depend also on all of the other relevant circumstances such as whether it’s a one off request which you are being asked to fulfil. Obviously, if you are prepared to carry out additional functions on a one off basis, then you should promptly make that clear (in writing) to your principal (and so that your compliance in one off instances should not be misconstrued as an agreement to take on those duties on a long term basis). Also, keep in mind that if ever you are presented with a detailed written agency agreement (by this principal, or by any other) you need obviously to carefully check it to satisfy yourself that you are able to comply with all of the obligations stipulated. The reason for that is that any subsequent breach on your part may potentially be sufficient to entitle the principal to terminate your agency without any notice (i.e.: — on a forthwith basis) and, in so doing, to thereby prevent you from being able to bring a claim for any compensation/an indemnity. Also, if it is your current principal who presents you with a draft agency agreement then you particularly need to check that in order to ascertain that you are not being asked to undertake obligations which are any different to what you have already agreed to. In other words, whereas either party may require the other party to enter into a written agency agreement, that party being requested to sign the agreement would not be obligated to have to agree to the extent that what is set out in the document does not fairly and accurately reflect the basis of the current agreement, and/or otherwise whey they are prepared to accept as

Why do I read you sometimes referring to compensation and, in other instances, to an indemnity? It’s confusing. Why don’t you stick just to using one of the terms, or explain why the necessity for referring to both?

A) The reason for referring to both compensation and an indemnity is because they are alternate entitlements, and are assessed as to their respective amounts quite differently, in that compensation is calculated on the basis of an assessment as to what would have been the hypothetical sales value of the agency as at the point of termination, whereas an indemnity is calculated (very broadly speaking, and taking account of what commissions were earned in the final twelve months of the agency) on the basis of assessing to what extent (and within guideline parameters) the agent would have continued to earn commission from business introduced by him to the principal, and from which business the principal would therefore continue to derive an ongoing benefit.

Also, the amount of an indemnity payment can never amount to more than (but need not be as much as) the equivalent of a year’s average earnings, and will only be the relevant compensatory basis where there has been an election to that effect by the parties (in, say, a formal written contract), with otherwise compensation being the prospective entitlement instead (and by default).

My principal is seeking to argue that I have no rights to any form of compensation following termination of my agency, and that being on the basis that I apparently accepted the Company’s decision to bring about the ending of the relationship by co-operating during the notice period, and so that therefore it was (apparently) a ‘mutual’ decision. Is it indeed correct that I would have no rights or entitlements to any form of compensation in these circumstances?

A) Whilst at all times being very vigilant not in the process to inadvertently compromise whatever rights you may have (e.g.:- to compensation) as a result of such termination, whenever a principal terminates an agency relationship, you must of course and in any event co-operate in an appropriately professional manner, but the fact of you doing so should not of itself prevent you from thereafter being able to pursue your entitlements.

Accordingly, I see no basis to prevent you from being entitled to pursue any valid claim for compensation/an indemnity in the circumstances which you describe, and being cooperative in response to a termination initiated by the principal ordinarily in no way debars you from pursuing a Regulation 17 claim.

I have been an Agent for my Principal for a number of years but do not have a written agency agreement. My Principal is now saying that he is not obliged to pay me compensation if he terminates the arrangement because our agreement is not in writing?

This is incorrect. A commercial agency does not have to be in writing for the Agent to be protected by the Commercial Agents Regulations, including having the right to receive compensation on termination, or for there to be a binding contract between the parties. Further, an Agent without a written agency agreement is entitled to demand their Principal supplies one setting out the terms of their agreement (Regulation 13(1)).

I am seeking compensation in respect to an agency which I had for a number of years, but which has now been terminated by my principal. In respect to this, I understand that I am entitled to at least a year’s average annual commission earnings (as compensation). Is this correct?

No — the Commercial Agents (Council Directive) Regulations 1993 do not stipulate any minimum levels of compensation.

Further to the above, and pursuant to the Commercial Agents Regulations, there are in fact two ways of (where of course there is an entitlement) compensating an agent on termination of an agency, one being the payment of actual ‘compensation’, and the alternative being the payment of ‘an indemnity’. If however you have no written agreement with your principal, or, if you do have a written agreement but it does not specify that the parties have agreed that any ‘compensation’ payable would be ‘an indemnity’ then, by default, any prospective entitlement on termination would instead and indeed be to actual ‘compensation’.

Whereas there are several important differences as between actual ‘compensation’ and ‘indemnities’, and in how they are calculated, they are however the same in one respect. That is that neither basis provides for (as a starting point) the payment of any minimum amount (although, and incidentally, ‘indemnities’ as to their maximum amount are however capped, and that being at the equivalent of one year’s earnings calculated as an average of the previous 5 years (or as an average of however many years the agency was ongoing if, at termination, the agency lasted for less than 5 years)).

The above explained, the respective bases for calculating actual ‘compensation’ and ‘indemnities’ are very detailed and, in each case, as to whatever amount may be payable will depend on the relevant individual facts. However, and to reiterate, there is nothing whatsoever in the Commercial Agents Regulations which entitles an agent to any minimum sum.

It should be pointed out in passing that, and as a consequence of your agency terminating, you may also have other rights and entitlements (i.e.:- possible rights which are in addition to a potential right to ‘compensation’ or to ‘an indemnity’).

It should also be made clear that, for the purposes of this Answer, various assumptions have been made, such as (for examples) that the background circumstances of the Question are that the principal did not have any valid grounds to terminate the agency on a forthwith basis, and/or that the requisite notification of intention to pursue the agent’s entitlement to ‘compensation’/an ‘indemnity’ has been (or will be) properly given, within the stipulated regulatory timeframe.

‘NOT A COMMERCIAL AGENT’

Following the termination of my agency, I am seeking payment of compensation from my principal. However, it is being argued that I am not in fact entitled to any compensation on the basis that the role which I carried out was outside the scope of the definition of a ‘commercial agent’. Specifically, it is being argued that I did not have any authority to ‘negotiate’ sales. Can this be correct?

The definition of a commercial agent is set out in Regulation 2(1) of the Commercial Agents Regulations, and provides that a ‘commercial agent is a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person (‘the ‘principal’), or the continuing authority to negotiate and conclude the sale or purchase of goods on behalf of and in the name of that principal’.

Following on from the above and whereas there may be other relevant considerations for determining whether or not an agent is a ‘commercial agent’ for the purposes of the Regulations, establishing whether the agent is someone who ‘negotiates’ ought not however ordinarily to be too difficult. This is because there have been various authoritative case decisions over the years which establish that the scope of the word ‘negotiates’ is in fact quite wide for the purposes of the Regulations. For example, the cases of Parks v Esso Petroleum (2000), PJ Pipe & Valve Co Ltd v Audco India Ltd (2005) and Nigel Fryer Joinery Services Limited v Ian Firth Hardware Ltd (2008) variously establish that a ‘commercial agent’ means any entity which is involved in the selling process on behalf of a principal (with ‘selling process’ sufficing to mean that the agent merely acquires or promotes business for and/or otherwise develops goodwill on behalf of its principal).

Essentially, therefore, the scope of what constitutes being a ‘commercial agent’ is potentially a lot wider than the definition as set out in Regulation 2(1) might otherwise suggest.

‘CONSEQUENCES OF AGREEING A PARTICULAR DISADVANTAGEOUS TERM’

I already agreed in my agency contract from several years back that no form of compensation is payable on termination. Am I now therefore prevented from pursuing any such claim?

No, not unless (as one example) you are otherwise in breach of some other contractual term, which breach might of itself now prevent you from pursuing a claim for (as the case may be:-) compensation or an indemnity.

Further to the above, Regulation 19 of the Commercial Agents Regulations makes clear that, if such a step being taken would be to the detriment of the agent, the parties to an agency may not ‘derogate from’ (i.e.: — may not artificially diminish the value of or otherwise exclude altogether) the regulatory provisions potentially entitling the agent to, in principle, either compensation or an indemnity, on termination.

The purpose therefore of Regulation 19 is that, if, prior to the termination of the agency, you agree a contractual term whereby, following termination, you will not pursue a claim for compensation or (as the case may be:-) an indemnity, such a provision would (fortunately for you) be unenforceable against you (as is plainly a ‘derogation’ to your disadvantage). The same applies if, prior to termination, you agreed to accept just £x or £y as compensation/or as an indemnity in circumstances where you might otherwise in fact have been entitled to more than £x or £y (i.e.:- were it not for the clause restricting the scope of your post termination compensatory entitlement).

Whereas therefore Regulation 19 seeks to protect agents from their own ‘error of judgment’ in agreeing, prior to termination, to the above described sort of disadvantageous provision, agents need however to be clear that there are no such regulatory safeguarding provisions in relation to where, after termination, the agent accepts, in full and final settlement of all of his claims, a sum in respect to compensation/an indemnity which sum is less than he might otherwise have been entitled to (including where, for example, the calculation of the relevant amount paid might be by reference to a clause which, pursuant to Regulation 19, was otherwise in principle unenforceable against the agent prior to termination).

‘NOTICE PERIOD’

I contacted you a few years ago with regards to my planned retirement at some stage in the future, and we discussed at what age, all other relevant factors being considered, I might realistically be able to retire and, in doing so, be eligible for compensation/an indemnity. You may recall that our conversation was for the time being shelved on the basis of your view at that stage that you did not consider that (and with all relevant things taken into account) my age was such that I would be able to resign on those grounds and to be able to claim my prospective statutory entitlement. Following on from the above, I am writing to let you know that my principal last week terminated my agency, on the basis that it considered that I was now “too old” to be able to continue doing my job effectively, and that therefore my contract will terminate as at the end of October 2012. Given your earlier view as to my age at that point being insufficiently old to enable me to resign and claim compensation, and in circumstances where it is my principal which has now terminated rather than my resigning, do you now consider that I could realistically make a claim?

The first point which you need to be clear about is that my concern about your resigning your own agency was that, ordinarily and save for c e rt a i n s p e c ifi e d e x c e p ti on a l circumstances, an agent who resigns his or her own agency is not then entitled to any form of compensation (i.e.:- including any indemnity). Pursuant to Regulation 18(b)(ii), however, one of those exceptional circumstances (where an agent may thus be entitled to resign and still be entitled to claim compensation/an indemnity) is where the age of the agent is deemed such that they cannot reasonably be required to continue their function on behalf of their principal. In the absence of being able to satisfactorily establish that their circumstances fit within the statutory exceptional grounds as set out in Regulation 18(b)(ii), an agent would likely not then receive anything at all by way of any form of compensatory payment, in these circumstances.

The above said, if your principal has now terminated your agency of its own volition, and without there being any basis for saying that you had breached your contract, then my view would be that you would seemingly definitely have the basis for now making a claim — i.e.:- no longer would we be dealing here with an assessment as to whether your circumstances brought you within the scope of the exceptional grounds set out in Regulation 18(b)(ii), as your principal’s actions in itself terminating your agency (and thus saving you the decision as to whether and when perhaps to resign) means that you would in principle have a claim, and you should definitely promptly pursue that.

My principal has recently terminated my agency after an 18 months period, and is claiming that I am not entitled to any form of compensation as I was only ever appointed on a trial basis — is this a valid argument?

In a word:- “no” — first of all, I would suggest that 18 months is a very long “trial period” but it isn’t about how long that initial period is supposed to be, in any event — all agencies potentially involve the obligation of the principal having to pay compensation/an indemnity and the fact that what the principal is saying to you doesn’t hold any water is that, upon expiry, all fixed term contracts (which is what a trial basis arrangement effectively is) potentially likewise involve an obligation to potentially have to pay compensation/an indemnity.

I am currently in negotiations with a former principal with regards to my claim for compensation, following termination, and the company in question (with which I did not have any written agency contract) is making a major issue as to the fact that (as it sees it) I did not open many new accounts, which (in its view) impacts on the value of my claim. Is this correct?

If I am to assume that your claim is to compensation as opposed to an indemnity (and I make this assumption on the basis that you say that you didn’t have any written agreement with this principal), then as to whether or not you opened x or y number of accounts is not necessarily at all relevant in assessing the quantum of your claim for compensation — the value or worth of the claim is reflective of the amount which a hypothetical purchaser would have paid to acquire the agency and, reflective of potentially a very high agency value, you may very well instead have sustained and maintained business for the principal which business might otherwise have gone to competitors, and/or you may have been very successful in increasing business from existing customers, and these (other) factors are potentially very important in terms of establishing the value of your agency. The above said, keep in mind that if the termination of your agency entitled you instead to an indemnity that the factors which would then determine the value of that claim would be distinctly different in terms of the relevant considerations, including the fact that the number of customers introduced would be much more of a front-line valid (although NOT the only important) consideration.

My principal is not paying my company’s commission entitlement in a timely manner, and I would like to know what rights we may have as a consequence of this?

Settlement on time by a principal of commission payment obligations is one of the most sacrosanct obligations that the principal will have, and cannot be overlooked or compromised. In this, Regulation 10 of the Commercial Agents Regulations makes clear what are the “long stop” latest payment dates (if no earlier payment timescales have otherwise been agreed between the parties), and if a principal ignores its contractual obligations to you or otherwise the provisions of Regulation 10 then, and depending on all other relevant circumstances, the agent may very well then have the right to regard the principal’s actions as being tantamount to a “repudiatory” breach, potentially entitling him [the agent] to accept such breach as terminating the agency altogether, and to as a result claim compensation/an indemnity.

In the circumstances, you need to:-

Establish the dates by when, under the terms of your contract with your principal, payment ought to have been made to you, and/or otherwise (and if relevant) that the delays in the making of the payments fall foul of the statutory deadlines as set out in Regulation 10; and:-

Promptly send an appropriately worded e-mail to your principal, setting out your legal rights and entitlements, and making clear what you require to happen.

Finally, do not ever just allow any pattern of your principal making payment to you late, without you having appropriately protected your position.

I had an agency terminated in January 2014, and wrote a few weeks ago (after the relationship ended) to notify the company in question that I was intending to make a claim for compensation, and to establish what were their proposals in terms of what they would pay me. In response, the principal’s Managing Director has written back and stated that his company is electing the “indemnity” compensatory option, and that they are prepared to offer me the equivalent of six months average commissions, as the amount that they would pay me — is that correct?

No, this is not correct.

The Commercial Agents Regulations provide that the parties to the relationship may elect that, following termination, the agent may potentially be entitled to either “compensation” or to “an indemnity” but where that election has not been made — by agreement between the parties, prior to termination and in writing — then it is certainly not open to the principal to unilaterally nominate “its preference”; This is a nonsense, and you should respond to the Managing Director, making clear your position. The above is also topical on account of the recent decision of the High Court in the case of Charles Shearman v Hunter Boot Limited, which involved a determination by the Court as to the effectiveness of a clause in writing in an agreement which supposedly enabled the principal to only have to pay the lesser of compensation and an indemnity. The wording of that clause was — however — struck out as being not what was intended by the original EU Directive and the Regulations (and therefore void), and so that the agent’s prospective entitlement was (therefore, by default) to compensation instead (i.e.:- as no effective election to only pay an indemnity had been made by the parties).

One of my main principals has said to me that it considers that I am operating another agency in competition with the agency which I have with them, and that I therefore have to decide whether I wish to continue the relationship (or continue representing the alleged competitor). What is my position in respect to this situation?

This is an issue which sometimes has no substance in point of fact, but which generally is always very important, and thus needs to be addressed and constantly borne in mind by an agent:- An agent is obligated to do his or her very best for any principal, and if he is carrying two or more brands/or otherwise acting on behalf of two or more principals whose interests/products [significantly] compete, then it must follow that the agent may therefore have to make a decision (as to which agency may need to be resigned).

Often, the above is a matter of degree — i.e.:- some principals may be willing to accept some element of insignificant overlap, and sometimes (maybe being disingenuous) a principal may raise concerns which, in actuality, have no substance — however, and whereas it is recognized that most agents are specialist in their specific areas, an agent carrying on two or more agencies which involves selling two or more directly competitive ranges of products may entitle the principals concerned to terminate the agency “forthwith”, and thus with no obligation to have to thereafter pay the agent any form of compensation. The final point to make regarding this is that you should always take legal advice promptly and before you do anything in terms of ever considering resigning an agency — (as alluded to above). Some principals may actually be acting deviously in making their allegations as to you supposedly selling in competition, and in thereby getting you to resign your own agency — remember that any agent who resigns his own contract is ordinarily not then entitled to any form of compensation/an indemnity (and principals may have been made aware as to that, and may therefore be trying to deliberately allege and create a situation to avoid having to comply with what are generally otherwise their statutory compensatory payment obligations on termination).

I have read your previous comments with regards to sales targets, and am concerned that you do not appreciate that many pr incipals ef fect ively demand the achievement of stipulated sales goals. Whereas I understand your objection to targets as a matter of principle, what am I to do in practice, to overcome what, in reality, I have to contend with?

The key here, and very simply, is that you should only ever agree to do what you can control the achievement of — if therefore you are going to be agreeing that, no matter what, you will achieve £x or £y worth of sales in any given period and, moreover, you also agree that if those specific sales levels are not achieved that your agency may then be terminated by your principal on the basis of your effective admission that you have therefore fundamentally breached your contract (thereby disentitling you to any form of compensation), then what you are agreeing to is clearly not therefore within your control.

Certainly, you can agree that you will do all that you reasonably and realistically can do to achieve a specific sales goal, but what I come back to is that you should not go beyond that and thereby potentially lose out on your prospective entitlement to compensation or an indemnity, because — and despite your efforts to achieve whatever were the s t ipulated goal s — any number of circumstances beyond your control have conspired to ensure that, ultimately, the achievement of any particular magic sales number proved impossible. On the basis of what I have described above, you can see that if a principal does not accept that all that you can agree that you will definitely do is only what you can control the achievement of, you might conclude that that principal who is nevertheless seeking to make it a contractual obligation that, no matter what else transpires, you will definitely achieve a particular sales target, is in reality seeking to get for itself a potential defence against ultimately having to pay you any compensation/an indemnity on termination, on the basis that you will have breached your contractual obligations. In answering your question, therefore, and as to how to go about this in practice, my advice is that (a) you should never agree to any provision in any written contract, which provision entitles the principal to terminate your agency on the basis of your breach if any specific sales level is not achieved, and (b) you should otherwise (constructively, promptly and in appropriate terms) respond in writing to any communication from your principal with regards to your supposedly having to achieve a particular sales level no matter what circumstances materialize, as you also want to make sure that the principal cannot get your agreement to such an obligation by effectively securing your consensus, even though you do not have a contract in writing or otherwise have never agreed to such an obligation in any written agreement.

My principal has always engaged my services on the basis of a series of fixed one year term agreements, and I am concerned that this would mean that when one day my agency is eventually terminated, that the amount of any entitlement which I would then have to compensation would be assessed on the basis of just the final year — would that be correct?

No, this would not be correct — this issue has already been looked at by the Courts (albeit some years ago, now) in the case of an agent called Duncan Moore versus his principal called Piretta (in 1999), where it was held that it was not just the history of the most recent contract period which was to be considered in assessing the amount of (in that case:-) the agent’s indemnity entitlement, but, instead, the entire history of the relationship, thereby treating all of the expired fixed term contracts as an amalgamation of one overall agency relationship. The above point of law as established by the Courts in the Moore -v- Piretta case holds good irrespective as to whether the agent’s entitlement is to compensation or an indemnity, and whereas it does not necessarily mean that the agent will recover more by way of compensation/ indemnity on termination (i.e.:- the case of Ingmar GB Limited -v- Eaton Leonard Technologies Inc (in 1999 and 2001) demonstrated that even short lived agency relationships can trigger substantial claims for compensation), it is nevertheless likely very much in the agent’s favour that the principal will not be able to have the Court restricted in the scope of what it is allowed to consider following termination and in terms to what the agent’s compensatory entitlement may then be, to merely what was achieved or happened in the final fixed term period of the relationship.

For a number of years, I have been selling on behalf of various principals to one particular customer which customer has now become the most dominant force in its industry. This being the position, and the fact also of the strength of the relationship which I have had with this customer, it has now approached me to give up my various agencies, and to work on its behalf as its exclusive buying agent, and to be paid a commission based on my success in doing that, and in achieving certain goals. My question is, as a buying agent, would I still be covered by the Commercial Agents Regulations?

(All other things being equal:-) yes, as the definition of “commercial agent” for the purposes of the 1993 Regulations is:- “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”, and so that it is clear from this that a buying as opposed to a selling function by an agent is an activity which is properly covered by the legislation, and so that (for example), in the event of any termination of his agency down the line, a “buying” agent has the possibility of seeking compensation/an indemnity in the same way that a “selling” agent does. This all said, I have not frequently come across an agent who buys on behalf of another party, as opposed to selling, but based on what I have stated above, there is clearly the possibility that such agents have the same protections as selling agents.

An agency which I had with a Danish company has recently terminated, and I am wanting to pursue a claim for compensation. I signed a contract with this company some years ago, and the principal has said to me that Danish law would govern the outcome of my claim — what is your advice, please?

As you say that you had a written contract with this principal, I would need to see a copy of that, and to establish what it provided for — for example, if it validly provides that Danish law governed your relationship with the principal then (with Denmark being an EU State, and the contract apparently validly specifying a binding choice of law) then that would ordinarily be the position (i.e.:- that Danish law would apply in this case) and it would not matter that (and as I am assuming might be the factual position here:-) you carried out your agency functions on behalf of this particular principal in the UK.

In the event of my death, am I correct in understanding that my personal representatives, on behalf of my Estate, would potentially be entitled to pursue a claim for compensation, against all of my various principals? I have written agreements with some of the companies I act as agent for, and have always operated as a sole trader?

Potentially, and assuming that you continue operating on the same basis as you currently are, the answer is “yes” — i.e.:- in the event of your death as a sole trader, your executors (or “personal representatives”) would indeed be entitled to pursue a claim, for (as appropriate, and depending on (a) whether you had any written agreement with any principal, and (b), if so, what any such agreement provided for:-), either an indemnity or compensation. Following on from the above, some points to bear in mind are, as follows:- Firstly, in order to preserve any such claim to an indemnity/compensation, your personal representatives would have to effectively notify the former principals concerned that your Estate intended pursuing its statutory entitlement to recover the relevant compensatory amount, and do so within the relevant strict time period following your death [- and any failure to notify in this way would then mean that no claim could then be pursued, no matter for how much money it could have been for]; Secondly, the tests and processes which would be applied for assessing how much by way of an indemnity/compensation you may be entitled to would generally be the same as would have applied had you lost the relevant agency, and had been making a claim in your lifetime; and Thirdly, it must be obvious that unless agents m a k e t h e i r fa m i l y a n d i n t e n d e d representatives aware of their Estate’s potential rights on their death, no claims will ever be pursued (as they won’t be known about). Finally, be aware that, depending on who is deemed as having been the agent, possibly no claim may arise.

The industry I am in is currently experiencing a marked downturn due to the recession, and that is significantly affecting my level of earnings. As a consequence of that, I am looking to take on an employee role, to supplement my income. Can I do this without first of all getting my various principals’ permission?

Setting aside all other relevant considerations, I have to say that, if I was one of your principals, and you were only going to be representing me on a part time basis [and it isn’t clear to me from your question as to how much time you will be spending working as an employee], I would feel extremely uneasy and dissatisfied. Whereas of course principals appreciate that you will have other companies which you sell on behalf of and that therefore you cannot give 100% of your time to selling just their products, it is (as I say) quite another thing to accept that your agent is not engaged the overwhelming majority of his time in terms of his business functions, in selling as a sales agent. It may be that the time you will be spending as an employee effectively has no or minimal impact on your function as an agent (in which case no adverse issues may then arise). Subject to and following on from the above, a further consideration is that, pursuant to the Regulations, it is implicit and very important that an agent will seek always to look after the interests of his principal, and if the agent is not devoting substantially the whole of his time to sales agency activities, then it must follow that the agent is not then fulfilling one of his core functions, and so lays himself open to potentially even being sued by the principal on account of foregone sales and the lost profit in respect to those sales. Finally, if it is correct that times are unfortunately sufficiently tough for you that you have to contemplate the actions highlighted in your question, then the most advisable step would likely be to speak to all of your principals, and to establish with them as to whether they would be accepting of your proposed course of action (and, if so, all of any new arrangements going forward, absolutely must be recorded in writing, for the avoidance of any misunderstandings down the line). Also, bear in mind that if you are going to have to resign any agency in the circumstances which you have set out, you would NOT then be entitled to any form of statutory compensation, as a consequence of you doing that.

Termination, notice and fixed-term contracts

My principal terminated my agency on 14 February. How much notice am I entitled to?

The Regulations specify that the period of notice shall be- (a)1 month for the first year of the contract; (b)2 months for the second year commenced; (c)3 months for the third year commenced and for the subsequent years; and the parties may not agree on any shorter periods of notice. Therefore, assuming that you have acted as agent for more than 2 years then lawful notice will expire on 31 May. This is subject to the following points: 1. If you have contracted for a greater period of notice, say, for instance, 6 months, then the period of notice will expire on 31 August; and 2. If the parties have agreed that the period of notice need not coincide with the end of a calendar month, then notice would expire on 14 May and 14 August respectively.

It is important to remember that you are lawfully entitled to “work your notice” rather than being unceremoniously dumped at a moment’s notice, unless, of course, you reach an accommodation with the principal and are content to cease acting with immediate effect. Equally, you are obliged to continue acting dutifully and in good faith for the entire notice term — right until the very last day. You may wish to agree a form of wording with your principal for an announcement to be sent to the trade; typically something courteous and upbeat — “Inky Pens Ltd wish to thank Mr Quill for all of his hard work over the last 5 years. We will shortly announce his successor and you can be assured of our commitment to the same excellent levels of service”. Unless those sentiments simply don’t exist!

Contributed by Thom Vaughan, EAD Solicitors LLP.

Fixed term period expired but agency contract continuing — I have a written contract, which refers to a fixed 24 month term. Things are going well and that term has now expired. What is the contractual position now?

Regulation 14 deals with this point and provides that “an agency contract for a fixed period which continues to be performed by both parties after that period has expired shall be deemed to be converted into an agency contract for an indefinite period.” Therefore your contract will simply continue to run until either party serves notice to terminate. The standard periods referred to in Regulation 15 will apply (up to 3 months) or conversely if you have committed to a greater period in the contract (i.e. 6 months) then this will apply. All of the other contractual terms will continue to apply, for instance payment at 10% of invoiced price (or whatever the rate is), and exclusivity in relation to the Midlands (or some other) territory.

Contributed by Thom Vaughan, EAD Solicitors LLP.

I have a contract with one particular principal, which is for a fixed term period. Will that fact of the agency being for a fixed term disentitle me to compensation (or, and if relevant instead, an indemnity) when the period expires (and assuming that the term is not then renewed, or the relationship just continues)?

No, not at all. The fact of your agency contract being for a fixed term does not affect your entitlement to bring a claim for compensation (or, and as may be applicable instead, an indemnity).

As a separate point to note (and which doesn’t affect the answer given above), Regulation 14 of the Commercial Agents (Council Directive) Regulations 1993 provides that any agency contract agreed to be for a fixed term but which continues to be performed by both parties after the relevant period has expired, is deemed to be converted into an agency for an indefinite period (meaning then a non-fixed term contract, going forward).

I recently had an agency terminated and am consequently wanting to recover compensation under the Commercial Agents Regulations. The agency in question commenced in 2007 when I entered into a one-year fixed term. The principal is arguing that I have no entitlement to any compensation. This is on the basis that, because the fixed term expired many years ago (in 2008) and was not subsequently then renewed in writing, there was no actual agreement in place as at the date of termination (and notwithstanding that I actually continued as the agent up until October 2021)?

Is the principal correct in what it is arguing, and have I therefore no prospect of recovering any compensation?

A. No, the principal is not correct: —

Firstly, by Regulation 14 (of the Commercial Agents Regulations), any sales agency which is entered into for a fixed period but which then continues to be performed by both of the parties after that fixed term period has expired, shall be deemed to be converted into a sales agency contract for an indefinite period. What this effectively therefore means is that, after the expiry of the fixed term, the sales agency is then subject to the minimum notice requirements (in respect to any subsequent termination) as set out in Regulation 15 (with Regulation 15(4) expressly providing: — ‘The provisions of this Regulation shall also apply to a sales agency contract for a fixed period where it is converted under Regulation 14 into an agency contract for an indefinite period subject to the proviso that the earlier fixed period must be taken into account in the calculation of the period of notice’).

Secondly, confirmation of the existence of any sales agency does not require that there also exists an actual written agency agreement.

Thirdly, and as to whether you are actually entitled to any compensation under Regulation 17, that depends on various factors. However, and as a starting point, (and to reiterate: -) that prospective entitlement certainly does not depend on any initial fixed term having to have been expressly renewed in writing in circumstances where the sales agency has simply continued, and nor does it depend on there having been any agency agreement in writing at all.

Formula for calculating compensation

My principal has recently taken on (as an employee) a “Sales Manager”, which person is visiting my accounts on a fairly regular basis, and this is a source of concern for me. Can I object to this, and what should I do?

Unless it is a completely different scenario whereby, without your agreement, your principal has (a) appointed this “sales manager”, and (b) is now not paying you in respect to sales to your customers (assuming that your territory area is exclusive to you), or is otherwise allowing this new manager to approach your customers and negotiate sales with them before you yourself get the opportunity to do so (and without then paying you your normal commissions in respect to all such resultant sales), I doubt very much that you could object to this situation, although I understand that this may nevertheless be unsettling for you and seemingly undermining of your efforts — there are various reasons for my point of view:- Firstly, and (I would reiterate that) as long as this is not the completely different scenario which I have briefly outlined above, and whereby your rights are potentially being fundamentally undermined to the point where, after certain steps are promptly taken by you, you may then be entitled to treat your agency as having been “constructively” terminated, your principal is generally perfectly entitled to operate its business as it sees fit — in other words, if it regarded a sales manager as being potentially business enhancing then it would be entitled to make such an appointment; Secondly, and whereas a sales manager can appear to be undermining of your position (and as I have already pointed out), it could potentially be helpful to you in some ways, and (in the most important of ways) enabling you to achieve more sales. At the end of the day, and in reality, the appointment of sales managers can often be the precursor to a negative situation from an agent’s point of view — however, what I am wishing to highlight is that that need not necessarily always be the case, and (also), unless a burgeoning constructive termination situation is the result, there is in any event not a lot that you can do by way of validly objecting to any such appointment (although you should monitor how the situation progresses, and feed back to the principal — always in a constructive and positive way — any problematic issues which you perceive as arising).

I had acted as an agent for one particular principal for a number of years, and have had that agency terminated. In response to the claim which I have initiated for compensation, I am being told that I have in fact no such entitlement as I would not be regarded as a “commercial agent” within the meaning of the Commercial Agents Regulations, as my role did not involve me in actually concluding sales, but only in marketing the company’s products and negotiating orders (with the orders taken by me then being passed to the principal to conclude). What is your view, please?

As the definition of a “commercial agent” [by Regulation 2(1)] is “a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person, or [continuing authority] to negotiate and conclude the sale or purchase of goods on behalf and in the name of that principal”, and as you say that you had authority to negotiate, I do not see that you would not have the clear basis for establishing that (and all other relevant factors considered, such as the provisions of the Schedule to the Regulations) you were not a “commercial agent”. In other words, and on the wording of the definition in Regulation 2(1)) alone, it is quite clear that having the authority just to “negotiate” sales (and subject to any other relevant considerations) would suffice to bring an agent within the scope of the legalisation. Moreover and in any event, the scope of what constitutes an agent in terms of whether what he does constitutes “negotiation” is now interpreted relatively widely pursuant to a series of court cases, and so that (subject, as I say, to consideration of any other relevant criteria) I would not ordinarily expect the function which you describe to be an issue as regards being entitled to bring a claim. Obviously, there may or may not be other aspects to your case in considering as to whether you have claims arising from the termination, but your entitlement to bring a claim based on whether or not you were a “commercial agent” would not appear to be one such issue.

After 7 years as an agent on behalf of a particular principal, my agency has been terminated on just a month’s notice. My understanding however is that I am entitled to at least three months’ notice of termination. Am I correct in this, and what action should I accordingly take?

Generally speaking, what you are saying as to the length of the notice period (in respect to an agency which has lasted continuously for longer than two years) is correct. However, it may be as one possibility that your principal was entitled to terminate your agency on a ‘forthwith’ basis on account of some relevant breach of obligation on your part (but has nevertheless opted to at least afford you one month’s notice, notwithstanding), or, and as another possibility, it may be that there is a (favourable) provision in your agency contract which entitles you to perhaps a longer period of notice than just one of the basic minimum periods as provided for in Regulation 15 of the Commercial Agents Regulations.

There is also the point that, unless otherwise agreed, the end of the notice period should ordinarily have to coincide with the calendar end of the month.

The above all explained, and even if the period of notice which you are being afforded is (for whatever reason) less than it otherwise should be, if your principal is not wanting you to continue in your agency function beyond a certain date, then you absolutely must respect that and cease those activities when requested. Following termination, you may then look to bring (in addition to whatever other claims you may have) a claim for ‘damages in lieu of notice’ (i.e.: — a sum reflecting what you would have earned over the notice period) after termination.

My agency has recently been terminated, and I am consequently now working a three months notice period. As part of this, my principal is asking that I liaise with my replacement in the final month, in terms of taking him around the area, showing him the ropes and introducing him to my customers. As however I will find this very difficult to do (- many of my customers are personal friends, who will wonder what is happening), I am wanting to know whether I have to comply with what I am being asked to do?

The answer to this is that, in order to preserve y o u r p o t e n t i a l e n t i t l e m e n t t o c omp e n s a ti o n / a n i n d emn it y u p o n termination, you absolutely must comply with all ongoing contractual and statutory obligations and, in this, you need to be clear that any failure on your part to co-operate could entitle your principal to terminate your agency for a second time, during the actual notice period itself — in other words, even though at that point when your agency was initially terminated it may not have been on account of any breaches or defaults on your part (and so that therefore you should potenti a l l y be entitled to recei ve compensation/an indemnity on the basis of that), that does not at all prevent your principal from terminating the notice period early on the basis of your subsequent breach, thereby losing you all and any rights which you might otherwise have had to any form of compensation, on termination.

An agency which we had was terminated on 18 September 2013, and whereas we were entitled to three months’ notice (as acknowledged by our principal), we were in fact asked to cease working on their behalf immediately, and informed that they’d pay us in lieu. In terms of us making a claim for compensation, we understand that we have to notify our former principal of our intention to bring such a claim before the first anniversary date of termination, but wanted to check as to whether that point of reference date was the date when we actually ceased representing the principal in question, or instead the date which was the end of the three months’ notice period?

My answer to this is that you should most definitely regard the earlier of the two dates as being the relevant date as, following that date, you were no longer actually acting as a commercial agent for this principal. This said, if anyone else reading this answer to your question is now concerned that, in their individual instance, they may be out of time (i.e.:- too late to pursue a claim for compensation/an indemnity, on the basis of not having notified before the above referred to earlier date), I would say that you should nevertheless still at the very least serve notice of your intention to bring a claim before the first anniversary date of the expiry of the notice period, although you may find some very strong (and potentially irresistible) objection in terms of anyone acting for your principal, taking the point, and arguing that you had missed the boat.

I have recently had an agency terminated and the company in question has promptly approached one of subagents and offered them the opportunity to cover the territory, in place of me. Can the principal do this, and what rights might I have to protect my position?

The answer to this is that, unless you agreed with either or both of the other parties (i.e.:- the principal and the sub agent) that, for an agreed period following any termination of your agency, that they would not work together, then you cannot prevent this happening — i.e.:- there is nothing in the Commercial Agents Regulations which bars their relationship, and so that it was always going to have been a matter of commercially tying this down (in a written agreement), so as to have prevented it potentially coming about in the first place.

I had an agency terminated several weeks ago, but I am still to receive the written confirmation which I was told would be sent to me. I don’t think that the Christmas holiday post has anything to do with this, as termination was in November 2012, and I would at the very least have expected an e-mail by now. As this principal has a bit of a reputation for not confirming anything important in writing, how should I go about this?

My advice is that you should write to the principal, in appropriate terms, yourself — by “appropriate terms” what I mean is that you should write to the principal (a) referring to the meeting which you had where you understood that your agency was terminated, (b) seeking clarification that what was your understanding of what was communicated to you (i.e.:- that your agency was terminated) was indeed correct, and (c) making clear that if your understanding is in fact incorrect (and so that your agency has not after all been terminated) that you are happy to continue as the principal’s agent, and that you yourself have not terminated the relationship, nor are you seeking any such ending of the relationship.

You should be aware that principals who tend not to put anything important in writing may also be looking — in a termination situation such as this — to either store up a potential argument for down the line that you yourself somehow terminated the contract (which very likely would then prevent you from being able to bring any claim for any form of compensation), or otherwise to delay you in bringing a compensation claim, to potentially a point in time when it may be too late for you to do so.

From your point of view, however, and quite apart from anything else, you need to know if you are still required to be selling on behalf of this principal and acting as its agent, as if your agency has not after all been terminated, then it would then of course be your continuing obligation to carry out your agency function as normal, or otherwise potentially be in breach of contract.

My main principal has terminated my agency, and is demanding that I promptly send back to the Company’s head office all items belonging to it which I have in my possession, such as samples and catalogues. As however the principal owes me a substantial amount by way of unpaid commission, and as also I am wanting to put pressure on it to quickly negotiate with me a satisfactory compensation settlement, I am intending to hold on to these various items — do you agree with that?

No, absolutely not:- First of all, you cannot hold property as your “hostage” which property belongs to your principal, in order to lever (as you hope) a satisfactory commercial solution to another issue — the two matters are entirely different and, quite apart from anything else, you may ultimately be breaking a criminal law, by — without your principal’s permission — holding on to property which belongs to it, and not you.

Secondly, please be aware that it may be the case, and despite a notice of termination having been served, that your agency contract is still ongoing (i.e.:- the notice terminating the agency may have stipulated an actual finish date some way off, several weeks down the line (and notwithstanding that you may not actually be required to be doing anything, in that interim period)).

That potentially being the case, by your improperly refusing to return items of property belonging to your principal, you may thereby place yourself in repudiatory breach of contract, thereby removing what might otherwise have been a perfectly good and u n d e n i a b l e c l a im for a p p rop r i a t e compensation, as a consequence of the termination.

Thirdly, there are various legitimate means to place huge pressure on a defaulting principal to promptly pay you commissions which are owed and, ultimately, and depending on the circumstances, it may be appropriate to — for example — threaten the commencement of winding up proceedings, by initiating a statutory demand process. As I say, you will have sufficient lawful potential remedies in your armory, to not have to worry about potentially breaking the law, instead.

I have recently lost my driving licence for nine months (due to e x c e s s i ve s p e e d i n g ) , a n d a m concerned as to whether this will affect my standing with any of my principals. What is your advice, please? I am confident that I can make s a t i s fa c t o r y a l t e r n a t i ve t r ave l arrangements in respect to the various agencies which I have, but am concerned as to how any of my principals may nevertheless react — would any of them be entitled to (for example) terminate my agency, forthwith, for example?

Unless you have an agreement with any of your principals to the effect that, in this scenario, your agency would be terminated forthwith, and irrespective as to whether you were able to make any alternative arrangements, then — provided always that you can indeed make viable alternative arrangements to enable you to properly and effectively cover your territory area, and to service the reasonable requirements of your principals and the needs of your customers — I would not expect your principals to (a) be entitled (without affording you proper notice) to terminate your agency, nor (b) to do so. As a rider to the above, I would just add that I would expect my advice to potentially be quite different if the circumstances of your driving ban involved something more than just low level excessive speeding — i.e.:- if it could be viewed that what you had been banned for was (e.g.) drink related or otherwise reflected an offence which wouldn’t generally be regarded as relatively minor.

Commission, pipeline and house accounts

As an agent, and very basically, what are my rights as regards being paid commission in respect to sales concluded during the period of the agency, and how can I check that I am being paid the correct amount?

First and foremost (and in order to answer your Question), I would need to consider whatever are the relevant provisions of any written agreement which you may have with your principal (which contract document ought thus to set out your agreed commission entitlements), and also the details of any relevant custom and practice which may have been established with the principal in question. I would additionally need to consider any such contractual terms in the context of Regulation 7 of the Commercial Agents (Council Directive) Regulations 1993, which provides that: —

1. ‘A commercial agent shall be entitled to commission on commercial transactions concluded during the period covered by the agency contract —
2.  Where the transaction has been concluded as a result of his action; or
3. Where the transaction is concluded with a third party whom he has previously acquired as a customer for transactions of the same kind’.
4.  A commercial agent shall also be entitled to commission on transactions concluded during the period covered by the agency contract where he has an exclusive right to a specific geographical area or to a specific group of customers and where the transaction has been entered into with a customer belonging to that area or group’.

Whereas Regulation 7 is clearly a provision which benefits agents, it is also though one of those provisions of the Regulations which it is thought can be excluded or otherwise varied by agreement between the parties, the fact of which is therefore an example of a very good reason why agents should always very carefully check any agreements which they are sent by their principal. This of course includes any draft agreements which are sent during the course of an ongoing agency (and which draft document may therefore be seeking to vary already existing terms).

By considering the terms of any written agreement that you have with your principal (and also understanding any relevant custom and practice), I can determine what is your entitlement to be paid commission, and also as to whether what would otherwise be your rights under Reg 7 have been excluded or varied.

Also, Regulation 7(2) gives rise to consideration as to what constitutes an agent having ‘an exclusive right to a specific geographical area or to a specific group of customers’, with reference again therefore being necessary to any written agreement which you may have with your principal and/or otherwise to relevant custom and practice.

As regards checking that you have been duly paid all of your contractual entitlement to commission, Reg. 12 entitles you to be provided with (if necessary) relevant extracted information from the principal’s sales books and records, and assuming that the principal has not otherwise provided you with that detail of its own accord.

We have an agreement which states that we are the exclusive agents in a specific territory area (North West of England), and a customer from that area has recently placed an order directly with the principal. It is a significant order in terms of its monetary value and the principal is proposing to pay us only half of what would be our commission entitlement (because the customer placed the order directly). What are our legal rights as regards the stance being taken by the principal?

A. The answer is that if you are (and as you say you are) exclusive agents for this principal (in the sense that you are entitled to be paid commission in respect to all and any sales made in relation to a specific geographical area, and/or in respect to a specific group of customers), then Regulation 7(2) of the Commercial Agents Regulations makes clear that you are entitled to the same amount of commission as would have been payable had you actually taken the order yourselves. As to this, Regulation 7(2) states that a commercial agent is entitled to commission on “transactions concluded during the period covered by the agency contract where he has an exclusive right to a specific geographical area or to a specific group of customers and where the transaction has been entered into with a customer belonging to that area or group”.You should therefore make clear your position to your principal, and moreover do so promptly.

Our principal has proposed to us changes to our commission rates that we are unwilling to agree to. We are furthermore concerned that the principal will try just to impose the changes on us. What should we do?

A. The key point is that you must make clear to the principal that you do not accept what is being proposed, and communicate that promptly (and, most ideally, in writing also). You ‘making clear’ involves both what you say and what you do, such as (for example) not invoicing at the proposed lower commission rate or just accepting commission payments which are calculated at the reduced rate. As how exactly you respond is both very important and dependent on whatever are the specific facts, the best advice overall is that you should promptly seek specialist legal advice (and we ourselves would be happy to assist you).

I have a sales agency with a principal who appears to be unwilling to record the terms and basis of our agreement in writing. What should I do?

Having the terms of any sales agency recorded clearly in writing is always far preferable to not doing so. If however your principal is unwilling to cooperate with you then, by Reg 13(1), you are entitled to require it to enter into a written agreement with you. What therefore I advise that you do in the first instance is to proactively set out the terms of the agency as you understand them to be, and to send those to the principal, and see how it responds. I would also continue to press for the principal’s cooperation in either informing you where it considers what you have set out to be inaccurate, or otherwise to sign and return the relevant agreement to you.

Non-payment of commission

I negotiated for my principal a relatively significant sale, which sale would have generated for me a commission payment in excess of £10,000. The principal however is refusing to pay me the relevant commission amount, and that being on the basis that the customer’s order was never fulfilled because there was a stock shortage. Am I nevertheless still entitled to the commission payment?

In answering your question, it is necessary to consider the relevant point of reference, which is Regulation 11, which provides that: —

’11(1) The right to commission can be extinguished only if and to the extent that: —

1. it is established that the contract between the third party and the principal will not be executed; and
2. that fact is due to a reason for which the principal is not to blame’.

In respect therefore to as to whether you are entitled to your commission entitlement, this evidently depends on whether it can be said the stock shortage (and the failure to deliver the customer’s order) was due to the principal’s actual fault. As to this, stock shortages could of course have materialised on account of many different circumstances. Consequently, establishing that the situation was definitely something for which the principal is ‘to blame’, and so that your commission entitlement should be honoured, may be difficult. However, the relevant circumstances need in the first instance to be clearly established.

Another agent’s different contract terms

Another sales agent of my principal is being paid commission at the rate of 10%, whereas the rate I am paid is 7.5%. Can I insist on parity?

No, a principal is perfectly entitled to enter into different terms of engagement with different sales agents, and there is nothing in the Regulations which obliges it to have to do otherwise.

Introduction of customers

My agency recently terminated and I am concerned to get paid my commission entitlement in respect to orders which I had lined up to take on behalf of my principal within a relatively short window after the time when my agency ended. Have I the right to pursue that?

Whether you would have the right to pursue any entitlement to (so-called) “pipeline transaction” commissions depends on several factors:- Firstly, whereas [but subject to Regulation 9] Regulation 8 of the Commercial Agents (Council Directive) Regulations 1993 entitles agents to be paid “commission on commercial transactions concluded after the agency contract has terminated if … the transaction was mainly attributable to his [the agent’s] efforts during the period covered by the agency contract and if the transaction was entered into within a reasonable period after that contract terminated”, what would otherwise be that statutory entitlement may however be validly excluded (or limited) by agreement between the parties, and so that it would therefore be a matter of reviewing any agreements which you may have entered into with the principal in question, and thereby determining as to whether the right to pipeline transaction commission was validly excluded in the way I have explained (and keeping in mind that such an exclusion may not be as clearly or obviously set out as a simple stipulation that:- “the application of Regulation 8 is hereby excluded”). Secondly, and assuming that the right to commissions in the pipeline was not excluded by agreement, it is a matter then of determining as to whether any relevant transactions (entered into post termination of the agency) were concluded substantially as a result of [“attributable to”] the efforts of the agent, and (thirdly) ascertaining as to whether any (and, if so, which) of such relevant transactions were concluded within a reasonable period following termination. As is clear from the above, the first step is to have regard to any agency agreement in place, and keeping in mind that (and as another factor to consider) if that contract (directly or indirectly) does refer to Regulation 8 it may not exclude the agent’s entitlement altogether but instead limit it to a specific post termination period.

I am concerned that I am not being paid all commissions which are due to me — in particular, there have been a number of orders placed by a customer who is based in my territory area and who the principal is claiming is now a house account, and where I am therefore not receiving all commissions which I expect — can the principal do this?

In order to answer your question, it would be necessary to first of all determine as to whether you have any written agreement with the principal concerned (and, if so, to establish what that agreement provides for in terms of potentially entitling the principal to unilaterally nominate any accounts into hose accounts). If in fact (and on the other hand) there is no agreement in writing, it would be necessary primarily otherwise to determine whether there had been any previous custom and practice established whereby (by such custom and practice) you may potentially have effectively agreed that the principal could unilaterally nominate accounts as house accounts (and without thereafter having to pay you any commission). The above aside and if it can be shown that you did not ever agree that the principal could unilaterally nominate/ convert any accounts into house accounts and if it can also be shown that you have in fact an “exclusive” agency (in the sense that you are entitled to receive commission in respect to all sales from a particular group of customers or from a specific geographical area, irrespective as to whether or not you may necessarily have taken the orders in question yourself) then Regulation 7 would ordinarily provide you with a basis for establishing an entitlement to receive the commissions from all such sales.

I am informed by my principal that it is experiencing cash flow difficulties, and that that is the reason why I have not been paid my outstanding commission entitlement (which is already significantly overdue). What are my rights in this situation under the Commercial Agents Regulations, and what do you advise? As I further understand the position, my principal’s main suppliers have been paid what they are owed, and I am not aware of any employees who haven’t been paid their salaries?

My advice is that the Regulations contain “latest date” provisions as to when an agent should be paid his commission, and your agreement with your principal might moreover entitle you to receive your commission even sooner than those long stop dates, in any event. A persisting failure by a principal to pay its agent his commission on time may be tantamount to a repudiatory breach of contract, which, in turn, may then entitle the agent to resign his agency, and claim compensation/an indemnity. Clearly, if all other trading “partners” are being paid what they are owed, then it may be the case that your principal is regarding its obligation to have to pay you your commission, too lightly. You need to seek specialist legal advice, without delay, and before you take any action.

One of my main principals recently sent me a commission statement which appears to me to be inaccurate, in that no reference is made to a sale which I am fairly clear was concluded in the relevant period and which, if that is so, will have generated commission for me. What can I do in terms of verifying this information, and is my principal correct that I am not entitled to have access to its confidential sales data?

No, Regulation 12 provides that you are entitled to be supplied with all relevant information which [in the words of sub- Regulation 12(b)]:- “is available to [the] principal and which [the agent] needs to check the amount of commission which is due to him”. That being so, and in appropriate terms, you should make clear your position in the matter and what therefore you require, to your principal.

I am being ‘requested’ by one of the principals I represent to vouch for the financial viability of all customers whom I introduce, and otherwise on an ongoing basis, to confirm that the customers I take orders from are able to settle their financial commitments (to the principal). This is being put to me as supposedly a ‘reasonable’ request (which I therefore have to comply with), but is that correct?

A) Whereas (yes) it is correct that you have to comply with all ‘reasonable’ requests made of you by a principal, it is very much a judgment call as to whether or not something asked of you is a reasonable request (and this ought not to be something which is determined solely by the principal). In any event, and my foregoing general explanation aside, I would anyway ordinarily say, save for any relevant exceptional circumstances which you would need to let me know about, that you should not agree to what is being asked of you in this instance, as:-

Firstly, carrying out checks and enquiries as to prospective customers’ viability should never be the responsibility of an agent — as a principal generally always reserves to itself the right ultimately to either accept or not accept any order, one of the factors which undoubtedly influences its [the principal’s] decision in that regard is how confidently it regards the financial position of the customer, and that should be nothing to do with the agent.

Secondly, and in any event, I would be concerned as to the potential implications of an agent (for example:-) implicitly vouching for the financial health of any customer as, in the event that the customer in question doesn’t then pay the principal (and absent very clear and very necessary contractual protection), it might be possible that there is a case for the principal to bring an action against the agent (to recover monies not paid by the third party customer).

In answering this Question, I am making the assumption that you have not actually agreed to carry out the obligation which you describe, in some form of contract document with your principal.

I have information that one of my principals is deliberately providing me with inaccurate sales detail information so as to thereby be able not to have to pay me all commission due to me. Is there anything I can do about that?

A) Yes, you should insist on exercising your rights (pursuant to Regulation 12(2)) to be provided with all relevant information from the Company’s sales books and records, in order to establish what sales have been made and, to the extent that you are able to prove that any number of such sales should have generated a commission entitlement in your favour, you should promptly pursue that.

My agency was terminated last September just after I’d shown the principal’s extensive latest range of products to the main core of my customers. Whereas no orders had been placed by that point in time when the agency terminated, I am certain that a substantial amount of orders will have been placed soon thereafter. Is there anything I can do to claim the commissions in respect to such sales?

A) Potentially, yes, provided that:-

Firstly, you did not previously agree that, following termination, you would not be entitled to (so-called) pipeline transaction commissions — you would have agreed this disentitlement if you had agreed that the provisions of Regulation 8 (of the Commercial Agents Regulations) would not apply to the agency (or otherwise words to that effect).

Secondly, [you also need to establish] that the pipeline sales in question will have materialised within a reasonable period post termination.

Thirdly, [you furthermore need to be able to prove] that the relevant transactions were ‘mainly attributable’ to your efforts during the period of the agency, as opposed to anyone else’s (including as opposed predominantly to the principal’s efforts).

I am an Agent and am worried that I am not receiving the correct level of c o m m i s s i o n f r o m m y Principal. How can I check whether my commission payments are correct?

For many Agents, checking they are receiving the correct commission is straightforward as they will know how much they have sold and the rate of commission they are entitled to receive. This is not always the case, however, and some Agents won’t have all the information they need. A common example is where the final price for the goods is negotiated by the Principal rather than the Agent. Under the Regulations, Principals are required to provide their Agents with a statement of commission due, including the details they used to calculate the commission owing, by no later than the last day of the month following the quarter w h e n t h e c ommi s s i o n i s p a y a b l e (Regulation 12(1)). Agents also have a right to demand their Principal provides all information available that is needed to check the figures (Regulations 12(2)). Both these rights can, if necessary, be enforced through the Courts, but Agents are advised first to make a written request for this information, quoting the Regulations if necessary, and most Principals should comply.

Where an agency is terminated and, shortly afterwards, a significant sale is concluded that you as the agent was instrumental in procuring, can the significance and impact of that (in terms of any entitlement to “pipeline transaction” commission, what would have been potential future commission, and otherwise what the transaction infers as to the hypothetical sales value of the agency) be taken into account in assessing the entitlement to compensation or an indemnity?

Yes, absolutely. I would major on it if I thought it could or might enhance value. First of all, and as you refer to it in your question, there is certainly the potential for being entitled to pipeline transaction commission in relation to the deal, with the usual assessment criteria as to entitlement applying. Secondly, and although (beyond any potential entitlement to pipeline transaction commission) you would not ordinarily be entitled to future commission on the relevant deal, the fact that there would be that income stream could potentially be very significant for the purposes of assessing the extent of any indemnity claim which you may have, and also, if appropriate instead, establishing the worth of a compensation claim.

We recently (18 months ago) took on a new agency, with our company representing this principal in an agreed territory area of the UK. In our first year, we introduced a dozen or so key accounts, and, at the same time, established a significant level of turnover, from a standing start?

Further to the above, the principal has now stated to us that two of the customers whom we have introduced should become house accounts, on the basis that, as a consequence of that happening, the customers could be offered better terms and would likely then purchase more. Can our principal require us to cooperate in this?

Assuming that (a) you’ve not entered into any past agreement with this principal the effect of which would entitle it to “cherry pick” worthwhile accounts in this way (i.e.:- to become house accounts), or (b) there hasn’t in the past been any relevant “custom and practice” (creating any sort of precedent), the principal cannot unilaterally convert any account of yours into a house account without your agreement, with the quid pro quo for your consensus being the payment to you of appropriate compensation. As with my answer to the previous question, if the principal proceeds to make this change nevertheless and notwithstanding, the key from your point of view is in promptly addressing the issue in writing, registering your objection and setting out your legal reasoning for that, and stipulating a very short (but reasonable) timescale for the principal to confirm that it will not after all proceed with its actions, in fundamental breach of the terms of your contract.

Further to the above, it may also be that (in your written objection) you should refer to Regulation 7(1)(b), which entitles an agent to be paid commission where (absent any agreement to the contrary) the relevant transaction was “concluded with a third party whom the agent previously acquired as a customer for transactions of the same kind”.

Finally, the comment from your principal that it needs to make the accounts in question “House Accounts” in order then to be able to offer them better terms should be a complete irrelevance from your point of view.

I am currently working a two months notice period, and have a number of deals in the pipeline for this particular principal, which deals will only come to fruition after my agency agreement actually terminates. I suspect that this may in fact be the reason why my agency was abruptly terminated after just 18 months, in that my principal has managed within that time frame to secure a number of contacts through myself, and probably now wants to seek to avoid having to pay me any commission in respect to these pipeline deals, and going forward beyond that. How do I go about ensuring that this does not happen?

First of all, I am assuming that you don’t have any agreement with your current principal, which contains any provision which excludes your entitlement to these so called “pipeline transaction” commissions (or which otherwise excludes the application of Regulation 8). I also assume that you are not at this point also wanting my advice as to your potential additional claim for compensation or an indemnity. On the basis of my above assumptions being correct, I would then answer your Question, as follows:- Basically, establishing an entitlement to post termination “pipeline transaction” commissions can sometimes be quite difficult, as, following your no longer being connected with the relevant company, the principal concerned will ordinarily try very hard to muddy the waters and so to be able to subsequently claim that whereas you may have had some involvement with a particular deal having taken place, that deal happening was supposedly instead substantially due to the efforts of others, after you were no longer the agent — in this, I have seen all manner of things argued, such as that the deal wasn’t actually going ever to happen until the new agent became involved (who, like Superman, heroically rescued the transaction after you supposedly almost lost it for the company) and/or until one of the Directors personally became involved, and/or a series of communications may be produced to supposedly demonstrate that there was still a lot of negotiating that had to be done following the termination of your agency, to actually secure the relevant contract.

The above said, if you can show that the deal in question ultimately taking place at all was “mainly attributable” to your efforts (and disregarding that your input was, obviously, pre-termination of your agency), and that the transaction was concluded within (and given the normal sorts of timescales which prevail in your industry) a reasonable period following termination, then, potentially, you may well be entitled to the commission, and it is a matter therefore of your (for example) keeping all relevant paper communications and being able to thereby prove that, by the time you ceased being the agent, the deal was substantially already struck (or, in the language used by the Regulations, was “mainly attributable” to your efforts). In some instances, I have known Regulation 8 claims to be financially very substantial of themselves, so definitely very worthwhile being thorough with — for example — your paper trailing.

On account of the economic climate, and in an attempt to secure better terms, one of my largest customers has begun to trade directly with one of my principals, thereby squeezing me out of the picture, and my losing out on a substantial sum of commission, each month. My principal has been quite open in informing me about this, but has also communicated the position to me very matter of factly, suggesting that I really can do very little about it — what is your advice?

First of all, I would need to establish with you as to whether you have a written agreement with this particular principal and, if so, whether that contract provides for this specific occurrence — i.e.:- does its wording entitle the principal to effectively convert an or any account into a house account and, (again) if so, what may then be any consequential entitlements written into the agreement, if the principal were indeed to do that.

If there isn’t in fact any written contract with this principal, the next fundamental point to establish with you is as to whether or not the principal has taken this sort of action in the past and, if it has done so, whether you effectively reserved your position in that previous instance as regards any future attempts to act in a similar way, and how overall that previous situation resolved itself. Ultimately, if there is no entitlement on the part of a principal (whether on the basis of terms in a contract, or otherwise established by custom and practice) to act in the way in which you have described, then (a) (without your agreement) the principal simply cannot do what you have described (and you giving your agreement can effectively take the form of you not doing anything or not doing enough (and/or quickly enough) in response to what’s happened), (b) you need therefore to object effectively and (as I say) very quickly, and (c) ensure that, whatever else happens, and very obviously, that the issue is resolved satisfactorily from your point of view (which broad statement on my part covers a very wide

range of possibilities, such as — and depending on the circumstances — you continuing as the agent but receiving a significant sum by way of compensation for the loss of this account to (as another example of what may transpire:-) your agency constructively terminating, by dint of the principal’s actions).

My main principal currently owes me approaching £4,000 in terms of unpaid commissions, which amount it is disputing paying to me owing to the potential for a part refund from the customer concerned, which is on account of certain problems which affected the supply. As far as I am concerned, however, I don’t regard there as being any risk of the feared refund and that, in any event, I took this order and am therefore entitled to be paid for it, no matter what. Bearing this in mind, I have recently collected £3,000 from a customer as an amount due to my principal, and intend keeping hold of that sum as part settlement of the commission due to me — do you see any issues in my doing this?

Irrespective as to whatever rights to the relevant amount of commission you consider that you may have, as a matter of law you absolutely cannot do what you are contemplating doing — there are various reasons for this, such as:-

First of all, if your principal had financial difficulties which may ultimately lead to it going out of business and you were aware of that fact, by you taking the sum of money you have referred to in your question, you would effectively be getting yourself preferred as a creditor, and thus inappropriately prioritizing your claim over and above other parties’ legitimate claims. Secondly, by you taking this money in the way in which you are describing, and quite apart from all other relevant considerations, you would likely thereby be acting illegally in handling money belonging to your principal and without your principal’s authority (which would potentially give your principal grounds to terminate your agency, forthwith). Thirdly, and again, by you taking the money, you would effectively be taking the law into your own hands in the sense of unilaterally taking the decision that the principal had no legitimate defence to not paying you the relevant sum which you claimed was due to you, and so that you were thereby acting as your own Judge in respect to the dispute. Following on from the above, and for at least the reasons which I have given, you most certainly should not act in the way which you are contemplating.

I was given notice by one of the companies I (until recently) had as a principal, and have recently completed the three months’ notice period. During that notice period, I was negotiating a potentially very lucrative contract with a new customer, which deal I suspect will come to fruition in about a month’s time — in addition to whatever other rights I may have to any form of compensation on termination, can I therefore claim commission in respect to this relevant prospective transaction, which, as I say, I believe to be in the offing?

As ever, the answer to this question is:- It depends. In any situation such as this — i.e.:- as to whether the agent may be entitled to receive commission in respect to transactions “in the pipeline” as at the date of termination — it depends on at least the following factors:- Firstly, I would need to know as to whether you had any written agreement with your principal and, if you did have any such written agency contract, I would need to see a copy of it, in order then to determine whether it contained any provision which effectively excluded your potential rights pursuant to [as far as the UK legislation is concerned:-] Regulation 8; Assuming then that you either didn’t have any sort of relevant agency agreement in this instance or, if you did, that that contract didn’t contain any clause which effectively excluded your rights under Regulation 8 (always assuming that the UK Regulations are the relevant frame of reference, in this case), the other two primary factors which would need to be considered are, as follows:- Firstly, can it be said that the transaction under the spotlight, when it is concluded, and notwithstanding that it will have been concluded after you are no longer the agent for the company, will have been “mainly attributable” to your efforts whilst you were acting as agent [i.e.:- as opposed to anybody else’s efforts]; and:- Secondly, can it also be said that the transaction in question was entered into within “a reasonable period” after the agency with your principal terminated [and what amounts to a “reasonable period” will vary from industry to industry, and will depend in part on what is the normal sort of period for a transaction to materialise from the roots of an enquiry]. Following on from the above, it is clear that being aware of what you have and haven’t agreed to in a written agency agreement is as important as ever, and that whereas there are a number of hurdles which require to be overcome in order to be able to establish an entitlement to pipeline transaction commission in any given situation, it is (a) quite possible that the agent would be entitled, and (b) quite possible also that the sum involved (as to what the agent may be entitled to receive) could be a significant amount.

The written agreement, exclusivity and changing terms

Whereas we do not have any written agreement with one of our principals, having key contractual points recorded in writing is very important to us. Can we therefore insist that our principal signs a contract which records these relevant terms ?

A. Yes. This is pursuant to Regulation 13(1) of the Commercial Agents Regulations, which provides that:- “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”. On the basis therefore of Regulation 13(1), you are (as I say) entitled to receive from your principal a written record of the agency terms agreed.

One of my principals has been experiencing a lot of late payers, and has requested my assistance in, in effect, being its debt collector. Am I obliged to have to do this?

This is another issue which, as to its logical and sensible answer, is in the first instance rooted in Regulation 3(2)(c) (i.e.:- as quoted above, and relating to what is a “reasonable” instruction which an agent would have to comply with), but there must also be some consideration given to (in advising you) as to whether you have a written agreement with this principal, which agreement might provide that this task (of assisting in collecting debts) is an agreed obligation on your part or, if you don’t have any written agreement, whether there is a custom and practice established whereby you have always carried out this sort of function on behalf of your principal. In either of these two scenarios, the answer to your question may very well then be that you would be contractually obliged to assist the principal in the debt collecting function which you have described. Following on from the above, if you are not (on the other hand) subject to any relevant contractual provision, I have to say that I personally take the view that an agent is not at all obliged to have to act as a quasi debt collector — certainly, and in some [exceptional] instances, it may well be appropriate to assist your principal (at its reasonable request) but, by and large, and for most instances, my personal view is that this sort of task is asking too much of the agent.

My main principal (which I have been representing for approximately ten years) has recently written to me, “informing” me that, with effect from 1 August 2011, I am to lose a couple of Counties off of my territory area. I calculate that this will involve a loss of commission income to me of approximately 25%. I do not have any agreement in writing with this particular company, and this situation has not ever arisen before. In fact, no changes to the (unwritten) terms of my engagement with this principal have ever previously been made, without my agreeing to them. What do you advise that I do, and what are my rights?

Again, you need to seek specialist legal advice, straightaway, and before you take any action — time would appear very much to be of the essence here. Reason for the urgency is that what your principal appears to be intent on doing is coercing you into accepting a fundamental and very significant change to the terms of your agency, and, unless you are very careful, you may be deemed to have accepted the change, which ultimately may cost you dearly whenever (for example) an assessment is required to be made as to whatever may be your rights to receive compensation, on termination. As with the previous question, if the principal does not promptly reverse its intentions, and thus back away from its attempt to make unilateral changes to the terms of your agency, then, depending on how (and how quickly) you respond, it may very well be deemed to be in repudiatory breach of contract.

Whereas one of my main principals has recently started requiring me to complete its newly introduced “standard” call reports, I am concerned that the format of these reports makes them impractical, and that I would not be able to adequately comply with this request. I have held this agency for many years, and do not have any written contract — what is my legal position?

In the absence of there being any [relevant provision in any] written agreement nor any previous relevant “custom and practice”, consideration of your position focuses on Regulation 3(c), which obliges you to “comply with all reasonable instructions” given by your principal. Clearly, however, as to what is a reasonable request in any particular situation depends on the relevant facts and circumstances and, that being so, I would need to establish with you factors such as what your principal is asking that you do, with what sort of regularity you would be required to comply, and the nature of your agency (i.e.:- what your function involves you having to do on the principal’s behalf).

What is the process you would currently advise me to follow if I am presented with a draft contract by my principal, which does not reflect the terms of my agency, and which I do not wish to agree to?

What you absolutely should do is to promptly respond to your principal in writing, making very clear which clauses (which would otherwise vary the terms of your agency) you do not accept and so that at no point down the line can it ever be said that, by your silence, and even though you never actually signed the agreement, you nevertheless effectively accepted the terms by reason of the fact that you did nothing in response and continued as the principal’s agent. There is potentially a significant danger in not appropriately responding (and doing so promptly), as many principals may seek to argue that any agreement which was sent to you and which you did nothing about in terms of any response will be deemed to have been binding on you (even though and as I say, you didn’t actually sign the contract document).

My principal is saying to myself and to my fellow agents that it wishes to reorganise our respective territory areas (i.e.:- make them smaller) as it is wanting part of those areas to be covered by sales representatives. It is also saying that it is entitled to do this as the Commercial Agents Regulations contain provisions entitling it to make “reasonable” amendments to the terms of the contract, provided that we are afforded proper notice. Is this correct?

On the basis of my assumption that you do not have any agreement with this principal which contains provisions entitling it just to make these sorts of unilateral changes at its discretion, my answer to your question is a simple “no”. If your principal wishes to make changes to any fundamental aspect of its relationship with you then, whereas that is its prerogative, it has also to face the potential consequences of its actions, including paying appropriate compensation to you. In this instance, therefore, you need to quickly take further advice which advice would likely be that you should very promptly make clear in writing your objections to what is being proposed, and setting out what the principal needs to do in terms of withdrawing these proposals. You would also need to effectively reserve your rights.

I work on behalf of a principal which also employs reps. In this regard, the company recently introduced a “Salesman’s Handbook” which I am told equally applies to me (and the two other self employed sales agents) in the same way that it applies to the company’s employees. As I already have a written agreement with this principal, I don’t know what to make of this proposed new set of rules and, specifically, as to whether I am indeed bound by them — can you please advise?

The position is, as follows:-

You need first of all to look carefully at what are the terms of your written agency agreement with this company, in order thereby to establish whether that contract makes any reference to your subsequently being obliged also to be bound by what is contained in any sort of “handbook” which the principal might decide down the line to introduce at any point in time, and which additional set of provisions may then apply on a par with the terms of your original contract.

If (however) there is no mention in your written agreement of any “handbook” (or of any similar external or additional contractual document, irrespective as to whatever is the exact word used to describe it) then, and unless you have ever agreed to be bound by any such newly introduced set of rules, you should not be bound to accept these additional obligations now, and you should therefore make your position appropriately clear in terms of your objection, promptly and in writing. To be clear, the reason why it is potentially exceptionally bad that you agree to the principal being entitled to unilaterally introduce any new “rules” (whether to sit with any current written agreement which you have, or otherwise to stand alone) is that whereas whatever is set out in your original written agreement will bind you and will be familiar from your point of view, what you cannot afford to do is agree that the principal can at any time in the future, and as and when it may elect to do so, introduce an additional set of obligations for you to be bound by, none of which additional obligations you have expressly agreed to previously (nor which would you ever ordinarily agree to). Finally, as the principal would (presumably) reserve to itself the right to additionally update or otherwise vary its “handbook” further from time to time, you can clearly see that what you would effectively be agreeing to is an unknown set of contractual obligations, the fact of which is potentially so catastrophically adverse from your point of view that (and quite apart from any other possible negative consequences from your perspective) you may in practice ultimately unlikely ever be entitled to any form of compensation/an indemnity, on termination.

I noticed that in several of the Answers in last month’s Q’s and A’s, you mention a written agreement. I however understood that, in some cases, we as agents are better off without a written agreement?

I understood the EU law covering agents actually makes a written agreement an unnecessary thing and, in a lot of cases, gives us more protection than a written agreement. Do I have a misunderstanding?

A. I can answer this reasonably succinctly:- The best position always is that you do have a written contract, but that that contract contains provisions which are (obviously) in your own interests — a contract in writing is thus always the best option, but the problem with any contract which an agent may be asked to sign by his principal (and which document has likely been drafted on its behalf by the principal’s own lawyer) is that that contract might very well be heavily weighted in the principal’s favour, and would thereby water down certain of the rights which you would otherwise have, pursuant to the Commercial Agents Regulations.

You are correct when you say that the Commercial Agents Regulations do afford agents a good deal of protection, and also that that protection exists notwithstanding that the agent does not have any written contract. A detailed written contract therefore, and depending on what it contains, can either (a) (and as I say) deplete (or even take away completely) certain of the rights which the Regulations would otherwise provide for you, (b) enhance your s tatutory r ight s , considerably, or (c) be “neutral” in terms of neither enhancing nor diminishing your rights, but at least accurately record the terms of your appointment.

Following on from the above, and in summary, all that certain of my Q’s and A’s last month were highlighting is that where an agent does have a written agreement, that document has to be considered in assessing any situation, as any one or more of its provisions may be relevant in determining my answer.

I am concerned as my longest standing principal has recently changed its company name — its letterhead and references on the web site have all been altered to reflect the name change accordingly, and the reason for my concern is that the company in question engages a dozen or so agents and my (and my colleagues’) worry is that the change of name might be a scheme to try to get rid of us at some point, without having any liability to have to pay any compensation — what should we do about this?

The first issue to establish is as to whether your principal is a limited company or not:- i.e.:- if your principal is not a limited company and the name change does not reflect any change in the ownership of the business, there is then no need to have any concerns with this — the name change would appear to have no effect whatsoever vis-à-vis your own position

Secondly (and assuming that we are in fact dealing here with a limited company), we need to establish whether the change in name is in respect to that limited corporate entity which is already your principal (i.e.:- that company merely changing its name at Companies House), or whether instead we are concerned here with an entirely new company having been established, and that your principal is attempting to assign your agency across from the old company to the new one. Following on from the above, the points to note (with regards to a change of name in respect to a limited company) include, as follows:- (And to reiterate:-) a limited company merely changing its name (and whether that be slightly or drastically) should be of zero effect from an agent’s point of view — i.e.:- if his agency before the name change was with that limited company which is registered at Companies House with company registration number 12345678 and, after the name change has been effected, is still with that limited company registered with registration number 12345678, then the change of name would appear not at all to be a point of issue or concern, from the agent’s point of view.

Secondly (however) if the principal has actually and instead undergone some sort of corporate re-structuring, and, in doing so, has created a new limited company altogether and, as part of the restructuring process, has sought to unilaterally assign (without the agent’s knowledge or consent) the agent’s contract to a new company, that is another matter, and definitely something which requires urgent investigation and clarification. In part depending then on whether or not you had a written agreement with the principal and, if so, whether that agreement contained a provision enabling the principal to make such an assignment without your consent, your principal cannot transfer your agency to another entity, without you being a consenting party to that process.

Restrictive covenants and post-termination restraints

I have recently had an agency terminated and it was an agency where there was actually a written agreement in place, incorporating a post termination restrictive covenant. What I want to know is as to whether such a contractual provision is actually however potentially binding?

In order for a post termination ‘restraint of trade’ clause or a restrictive covenant (i.e.: — a clause restricting an agent’s commercial activities post termination of an agency) to be binding, Regulation 20 of the Commercial Agents (Council Directive) Regulations provides that the covenant in question must be in writing, and must also satisfy the following further requirements: —

• It must relate to the geographical area or to the group of customers and the geographical area which the agent covered on behalf of the principal
• It must relate to the kind of goods covered by the agency contract; and: —
• It must also stipulate the scope of the restriction as being valid for a period of not more than two years after termination of the agency contract.

In addition, restrictive covenants must also be reasonable and otherwise satisfy the common law, which also sets down requirements for the legality of such clauses.

In respect to the above, agents need to be aware that there is nothing whatsoever in the Regulations which in any way obligates them to have to agree to any post termination restraint of trade clause in a written agency contract, and also that there is nothing whatsoever which ties in the right to seek a post termination payment of compensation or an indemnity with the agent having to agree to any restraint of trade clause.

Obviously, valid post termination restrictive clauses can be very bad news for an agent, and, if they have agreed to any such clause, they should neither make their own assessment as to the possible favourable application of any aspect of Regulation 20 or the common law (see above), nor make any assumption that, in their judgment, the clause isn’t binding. Instead, the agent should promptly take professional legal advice before considering taking any steps which may amount to any form or level of contravention — the consequences of breaching any valid restraint of trade clause may be very punishing.

I am coming up to retirement age and had been expecting a compensation payment under the Regulations but the Principal for whom I have worked for many years has gone out of business. Is there anything I can do?

In the current economic climate, many Principals are facing financial difficulties and some are ceasing to trade. If your Principal is a company and does enter insolvent liquidation, then you, as a commercial agent, will rank alongside the other unsecured creditors of the business and will only be paid if the company has funds remaining once the company’s preferred creditors, including secured bank loans and amounts owing to HMRC, are paid off. You will be given an opportunity to notify the liquidator of your claim but, in practice, once a company has gone into liquidation, generally unsecured creditors don’t recover anything and, if they do, it is only a small proportion of their claim.

Chris is a dispute resolution lawyer working out of the firm’s Reading and London offices. ISSUE 165 Chris has particular expertise in the Commercial Agents Regulations (acting for both principals and agents), advertising law and restrictive covenants in employment contracts. He also advises on IT and software related claim, and is a member of the Society for Computers and Law.

I have been representing a particular principal for approximately ten years, and have recently been presented with a draft agency agreement which contains provisions that I find unacceptable (such as a post termination restrictive covenant, and a sales target obligation which is described as a “fundamental” obligation). Whereas I have read your frequent comments that I would not necessarily at all have to sign any such agreement, the position however is that I am being threatened with termination of the relationship unless I do so — what, please, is your advice?

The first thing to understand is as to whether what you are being asked to sign reflects terms in respect to your agency which are already agreed — if the draft contract does merely contain terms which are already agreed then, since you are simply being asked to sign an accurate written record of those terms, you would be obliged to do so.

On the other hand, if the draft agreement does not reflect terms already understood and agreed as between you and the principal, you would be entirely at liberty to refuse to sign. Obviously, the difficulty here is that you have said that the principal has threatened to terminate your agency if you do not accept the terms of the proposed agreement. It is very important that you understand that, if you refused to sign a written agreement which never reflected the current terms of your agency then the fact of that does not preclude you from being entitled to claim compensation/an indemnity, in the normal way, if the principal did ultimately go ahead and terminate you because you did not sign. At the end of the day, it is going to be a question therefore as to whether you are better taking your chances that the principal will not after all terminate if you do not sign the document (but, if it does, that you potentially at least will be perfectly entitled to as a consequence of that claim compensation). Or, on the other hand, you entering into the agreement, potentially then falling foul of one of the nasty fundamental obligation provisions and having the agency terminated on a forthwith basis with then no entitlement to any compensation.

I had an agency which has now terminated, and in respect to which I’d agreed a restrictive covenant which was stipulated to apply for a period of 18 months post termination, thereby preventing me from competing with my principal. As however I have now moved from the UK to live in France (but am continuing as an agent, albeit in obviously different territory areas) will the restrictive covenant still apply?

First of all, the terms of the restrictive covenant would need to be looked at to establish that it was worded and structured in such a way so as to comply with the requirements of the Commercial Agents Regulations (Regulation 20), and thus capable of binding you at all.

Secondly, and assuming that the covenant was worded appropriately so as to be potentially valid, the main point here must be that if you never actually operated in France on behalf of the relevant former principal, then the covenant could not restrict you from now operating there (in France) (i.e.:- in whatever business and in whatever capacity you decided, and on behalf of whatever other company) as one of the fundamental tenets of the rules regarding the enforceability of post termination restrictive covenants is that, in order to be valid, they have to relate to the territory area that the agent had previously represented the former principal concerned in.

I have read in previous columns that there are very particular rules about how to notify a principal that you intend pursuing a claim for compensation, following a termination — are these rules very complicated, as I did write what I consider to have been an appropriate “notification” but am now concerned that it may have been insufficient. Can you please advise?

What the law requires is that, within 12 months of the date of termination of your agency, and in order to preserve your entitlement to pursue a claim for compensation/an indemnity, you have to have notified the former principal concerned that you (as the agent) actually intend pursuing your entitlement element of your compensation claim, for a reduced amount of restrictive covenant period.

Following on from the above, best practice is to state your intention in writing (although there is nothing in the Regulations themselves, as to that being an actual requirement), and what you set out in your notification also needs to be worded sufficiently clearly so as to leave the recipient in no doubt as to your intentions (i.e. — there is also nothing in the legislation setting out a specific format of required wording). To answer your question, therefore, and whereas (“no”) the process of notifying of your intention to bring a claim should not (in theory) be too complicated, the fact is however that there are so many issues which need to be properly and punctually addressed that giving and achieving effective notification can potentially be a problem in certain circumstances — such as (as a few examples):-

Giving due consideration as to which Country’s legislation applied to the relationship, and how to word the notification where there may potentially be more than one Country’s laws involved. How should the notification be sent (and who should it be addressed to)? When is termination deemed to have taken place and when should the statutory notification actually be sent? Who would be deemed as actually being the agent for the purposes of giving the notification, effectively? What to do when there may be any doubt about who might be deemed as having been the agent?

Are principals required to provide notice in writing, when terminating an agency? — I have recently had an agency terminated only verbally, with an assurance that that decision would also be communicated to me, in writing. Three weeks on, however, and I haven’t received anything, and I am beginning to wonder what is my position?

The answer is that a decision to terminate an agency is neither required to be given nor confirmed in writing, although it is clearly much better (in the sense of at least the agent knowing then where he stands) if it is.

You do need therefore to chase this up (and, if still unsuccessful in prompting anything forthcoming in writing from the principal, and at the same time being very careful not to in any way thereby suggest that you are yourself terminating the relationship, to thus send an appropriately worded communication to your principal, seeking clarification). The reasons for all of this include the following:-

If your agency hasn’t been terminated for certain (i.e.- in clear terms, in writing), you won’t then know whether you are supposed still — as normal (and perhaps until the end of any notice period) — to be operating on the principal’s behalf. This confusion potentially then leads to the crucial further problem which is that you wrongly take the decision just to down tools with immediate effect (based on your forced misunderstanding that you were not required to be doing anything further, on the principal’s behalf), and so that you may then lay yourself open (assuming that your agency hadn’t after all been terminated) to your contract subsequently indeed being terminated and on ironical account of your now fundamental breach of your obligations in that you had wrongly ceased acting as the agent altogether when — but for your confusion — you would most definitely instead have been continuing, as normal. Secondly, if you don’t know for sure the date when your agency supposedly terminated, you won’t then know what is the relevant first anniversary date of termination for the purposes of within a year of that termination date notifying of your intention to pursue a claim for compensation/an indemnity, pursuant to Regulation 17(9).

If applicable to your circumstances, you also won’t then know what is the date when time starts running down with regards to any post termination restrictive covenant, and nor (on the other hand) will you know when you will be able to take on an agency with any competitive principal or with any other agency which your taking on might otherwise have constituted a breach of your obligations, pursuant to the terms of your contract.

Finally, if within a reasonable period of time you still haven’t heard from your principal in respect to confirmation of what you had understood to be the termination of your agency then (and as I have already pointed out) at the same time as being very careful not to use any language which fatally suggests that you are yourself terminating (rather than the principal), you should write to the company in question (sending the relevant communication by e-mail, fax and by signed for post):- (1) asking what is the position as regards your status, (2) setting out what you had understood was the position (and making clear that you are happy to remain as agent if your understanding is incorrect, but that you obviously need to know the situation), and (3) stipulating a reasonable period within which you require the clarity response. If still — however — no reply (or any satisfactory reply), you ought promptly to take further legal advice.

I recently had an agency terminated but have been fortunate enough to land on my feet in the sense that I have secured a replacement agency to take effect with a competitor, at the end of my three months notice period. In respect to this, I am however in fact having difficulty in properly continuing my role on behalf of my current principal, in that the nature of what I sell are “slow burning” projects which, although they may invariably take some time to come to fruition, are potentially very lucrative when they do materialize . Specifically, what I want to know is to what extent I can hold back leads during the notice period (i.e.:- for ultimately passing on for the benefit of my new principal), and/or to what extent can I effectively look to source new business for my new principal, during what is only in any event just obviously a token notice period on behalf of my current principal?

The answer to your Question is that — and very simply — you must remain loyal to your current principal, until the contract terminates (with your potentially also owing obligations post termination, depending on what was agreed). You have in fact to be very careful about being professional in this, in that if your current principal later discoverers that, during your notice period, you have effectively been diverting or squirreling away business for the benefit of a new (and competitive) principal, you may lay yourself open to potentially being sued by the current principal in respect to its loss of profit for the business which you have prevented it from getting, and also for any other longer term adverse consequences.

A couple of additional points to make:- Firstly, I assume that, in your agency agreement with your current principal (assuming there to be one in writing), you don’t have any valid post termination “restrictive covenant”, the effect of which may be to validly prevent you from taking up this new competitive agency appointment straightaway, after the expiry of the notice period. Secondly, in the event that you may have any entitlement to any form of compensation/or an indemnity on termination of the current agency (which may or may not prove difficult to establish, given that you propose going to work on behalf of a competitive company), if the current principal becomes aware of your taking business away from it, it may very likely be entitled to then immediately curtail the notice period, thereby losing you whatever entitlement you may have had to appropriate compensation, in any event.

I have recently been offered an agency by a competitor to one of my main principals, and would like to know as to whether, if I resigned my agency with the current principal, I would be able to then represent this new company; Also, how much notice would I be required to give?

In order to be able to answer your question, I would first of all need to know if you had any written agreement with your current principal and, if you did, to see a copy of that contract. The main reasons why I would need to see a copy of any contract which you have with your principal is (firstly) that that may set out how much notice of termination (potentially over and above what would otherwise be the minimum length of notice, as set out in the Commercial Agents Regulations) you are obliged to provide, and (secondly) I need to know if you have agreed in any written contract to any post termination “restrictive covenant” — i.e.:- for a period of time, following the termination of your agency, that you would not act in any way in competition with your principal. If you do not have any written agreement with your current principal, then, and varying with however long you have thus far been its agent (and assuming that yours wasn’t a fixed term agency which hasn’t yet become a contract for an indeterminate period), the number of months’ notice to terminate which you would have to provide (in writing) would be a minimum of one month (where your agency has lasted for up to 12 months), a minimum of two months (where the agency had been ongoing for more than a year, but for less than two years), and a minimum of three months (where the agency has lasted for more than two years). An additional point to be aware of is that any notice period ordinarily can only expire at the calendar end of the relevant final month. Where there is a written agreement in place, and assuming that the period of notice which you as the agent are supposed to afford your principal is no greater than the period of notice which the principal would have to provide to you (i.e.:- were it the principal terminating instead of you), there might be a provision in the contract to the effect that either party, in order to terminate the relationship, has to provide the other party with notice which is greater than the statutory minimums as set out in the legislation. If however there is no such provision, and to answer your question, the period of notice which you would have to provide to your principal in order to terminate your agency, and in the circumstances which you describe, is as per the varying periods which I have set out above (and which depend on how long you have been the agent).

You must always of course be clear and bear in mind that you cannot take on any competitive agency whilst you are still the agent for the first principal (i.e.:- before your notice period has properly expired). As I have pointed out, where there is a written agreement in place and where that contains a valid post termination “restrictive covenant”, the expiry of whatever is the appropriate notice period may not however then free you to immediately thereafter start acting for a rival principal — please note in this regard that if you do have a valid restrictive covenant in your agreement but you chose nevertheless to ignore its terms, your current principal may then be entitled to (at the very least) take out a Court injunction against you (preventing you from continuing to represent the proposed new rival company), which would then set in motion what may be a very expensive set of circumstances for you. Clearly, if you have agreed to any such restrictive covenant, you need our advice before you take any steps. For your information, in order for a restrictive covenant to be regarded as reasonable and therefore potentially binding on you, the following tests need to be passed:- Firstly, any “restrictive covenant” has to be recorded in writing — in other words, and as regards this type of agreement, it has to be evidenced in a written document; Secondly, the covenant must only relate to the specific geographical area in which the agent represented the principal, and/or (if this is applicable as being more relevant in the alternative:-) to the group of customers which the agent sold on the principal’s behalf to (i.e.:- and thus assuming that the agent’s “area” was not defined by reference to an actual geographical demarcation, but instead to a named group of customers); Thirdly, the covenant must only be in respect to the kind of goods which the agent previously sold on behalf of that principal (e.g.:- if the principal sells a complete range of bathroom products but the agent was only ever engaged to just sell taps on the principal’s behalf, then the agent cannot be restricted post termination of the agency from selling ALL types of bathroom products); Fourthly, the restriction can only be valid for a maximum of two years post termination of the agency; and Finally, the restriction must also otherwise be reasonable. As a PS to the above answer as a whole, you will take on board that an agent resigning his own agency (but subject to certain exceptions) is not entitled to any form of compensation.

Foreign principals, governing law and jurisdiction

Indemnity or compensation? — My agency contract has been terminated. Am I entitled to an indemnity or a compensation payment?

In the UK parties have a choice when drafting a contract to elect for the indemnity provisions to apply. Regulation 17(2) provides, ‘except where the agency contract otherwise provides, the commercial agent shall be entitled to be compensated rather than indemnified’. If the parties make no election within the contract, or there is only a verbal agreement and the point is not discussed, then the fall back position is that compensation shall apply. The majority of cases feature compensation entitlements. The UK regulations are unique in the European landscape in that they allow parties to choose compensation or indemnity. All other countries, save for France, provide for payment of an indemnity. Broadly speaking, there is no cap on compensation payments, whereas the indemnity regime is highly structured and a payment is capped at the average of the past 5 years’ commission income or a one year average for any lesser period.

Contributed by Thom Vaughan, EAD Solicitors LLP.

I am owed a substantial amount of commissions by a principal based in France, and also have a claim to bring (against the same company) for compensation following the termination of my agency. Do I have to pursue my claims under French law?

A) No, you would pursue your claims under this country’s law unless you had otherwise agreed (ordinarily in a formal written contract document) that French law was to apply in respect to the relationship instead. In other words, and making the assumption that you operate in this country, unless you have agreed to be bound by the laws of another EU country, you will (by default) be bound by the laws as apply to the activities of agents in Great Britain.

I have recently started to work on behalf of a French company, which is new to the UK market. As such, they have asked that I operate in a specific way, which is different to how I operate on behalf of the other companies which I represent, such as that I am being asked to hold stock in my own business premises, and to invoice customers directly, when I make a sale. In the light of these arrangements, I am wondering whether I would in fact be regarded as being a sales agent, and therefore subject to the protections afforded by the Commercial Agents Regulations, or whether in fact I would fall outside the scope of the legislation — what is your advice, please?

In relation to some of the information set out in your Question, I am particularly interested to know in the first instance (and when you say that you are being asked to hold stock, and that you invoice customers directly) whether therefore you buy in the products from the French company, sell them on and then realise your income not from a % sales commission, but instead from the profit in terms of the difference between the purchase and sale prices. I would also like to know whether there exists any written agreement between yourself and the French company and, if so, what that provides for in setting out the basis of the relationship, and how it is to operate. Subject to the above and to whatever any written agreement might provide for, the bottom line is that if what you are describing as being your relationship with this company is that of a distributorship (and merely holding stock belonging to another company is not something of itself which determines that you are not a commercial sales agent) that will not be covered by the Commercial Agents Regulations and so that, and as an example, you would not therefore be entitled to receive on termination any form of compensation.

There are various distinguishing factors as between an agent and a distributor — however, the key relevant aspect of the definition of a “commercial agent” (as per Regulation 2(1)) is someone who (or a partnership or other form of corporate entity which) is “self employed”, and has the “continuing authority to negotiate the sale or purchase of goods on behalf of another person [“the principal”], … or [the continuing authority] to negotiate and conclude the sale and purchase of goods on behalf of and in the name of that principal”.

I have an agency with a company based in Australia. In the event ever of a parting of the ways, would I be protected by the Commercial Agents Regulations?

First of all, in the event that you happen to have a written agreement with this company in Australia then you need to establish as to whether it stipulates that the laws of Australia (or of any particular State in Australia) apply to and govern the relationship. In that situation, and whereas that would not of itself preclude the application also of the UK Commercial Agents Regulations (see below), if however you are going to be agreeing to the application of another Country’s laws then you must be very clear as to what those laws will entail from your point of view, as if you were to ever to breach any relevant terms, and you having agreed to another Country’s legal system as being the contractual frame of reference, that could potentially ultimately scupper what would otherwise have been your potential entitlement to compensation pursuant to English law.

Secondly, and the above made clear, if you have entered into an agreement which is stated to be subject to Australian law then, because Australia is not another member State of the EU, and assuming you satisfy all relevant criteria and can overcome the necessary hurdles, the UK Agency Regulations would also apply (including in the event of a termination), thus potentially entitling you to make a claim for compensation. Finally, if you do not have any written contract with this Australian principal then, on the assumption that (for example) you are carrying out your agency function in this Country, the Regulations will in principle similarly apply.

I have recently had an agency terminated by a company in France, for which company I have introduced a significant amount of new customers over a five year period, and also enhanced their goodwill and business with existing customers. Can I expect to receive a significant amount by way of compensation, and will that compensatory sum be calculated pursuant to English or French law?

There are several issues to be addressed in answering your question — the initial main two points to look at, are:-

Firstly, as to whether you had any agreement in writing with this French principal and, if so, whether that document made any stipulation as to which Country’s laws were to apply to the agency. If the answer to this question is “no” (i.e.:- there was no agreement in writing) then, essentially, and on the basis that you carried out your agency function in England, then English law should then be deemed as having governed the relationship. If (and on the other hand) there was an agreement in writing, then it is necessary to see whether that made any stipulation that French law would apply to the agency and, if there was such a stipulation in any written contract, and that stipulation was worded effectively, then French law would ordinarily apply instead (i.e.:- rather than English law).

As to your second question, and as to whether you can expect to recover back a significant amount by way of compensation, that will basically depend in the first instance as to the reason why your agency was terminated — meaning to say that, on the assumption that your appointment was not terminated “for cause” (i.e.:- you did nothing which could have constituted a fundamental breach of your agency, thereby justifying a “summary” termination and your thereby losing all of your statutory financial rights), you could potentially indeed be entitled to a significant sum by way of compensation, with exactly how much that materializes to be depending in part on the first issue (see above) — i.e.:- as to whether French or English law is the applicable frame of reference.

My principal is based in Scotland, and I represent the South East of England, on its behalf. This principal has recently required that all of its agents around the UK attend a sales meeting once each and every quarter, at its offices near Edinburgh, and I am wondering as to whether or not I would be obliged to have to attend — I have a number of other agencies to operate, and there is also the cost factor to take into consideration?

Assuming that you do not have any agreement which specifically deals with this point, the answer to this query is then rooted in Regulation 3(2)(c), which provides, as follows:-

“[In performing his activities a commercial agent must look after the interests of his principal and act dutifully in good faith.] (2) In particular, a commercial agent must … (c) comply with reasonable instructions given by his principal” On the basis therefore of Regulation 3(2)(c), the test to apply and the question to ask yourself is as to whether or not your compliance with a request to attend sales meetings in Edinburgh (on — I am assuming — no more than this quarterly basis) would be reasonable or not, and my clear view (based on the limited information which you have provided above) is that it would be an entirely reasonable request to make of you. It follows from the above that if my view was shared by a Court and that you had decided not to cooperate and to thus not comply with the Company’s request of you (which, to reiterate, I am saying appears to be reasonable, and to an extent particularly bearing in mind that you were presumably always aware that the Company’s Head Office was based there), you run the risk of the Company as a result of that terminating your agency, and if (as I say) a Court took the view that you had acted so unreasonably that your actions justified an immediate termination of your agency, you would additionally be at risk of not being entitled not only to damages in lieu of any unfulfilled notice period, and nor to any appropriate form of compensation.

Being a commercial agent: status, death and the Regulations

What rights might an agent’s estate have to any form of compensation in the event of their death?

Agents need to be aware that, by Reg. 17(8) of the Commercial Agents (Council Directive) Regulations 1993, upon their death, their estate may be entitled to bring claim(s) for compensation/an indemnity. These claim(s) could well be substantial and, as to their possibility, are potentially unknown to the relatives of the deceased agent.

The above may also apply as regards the death of an agent who operated through a limited company but where the limited company in question was not a named party to any written agency agreement in that instance and, whereas commissions may have been paid to the limited company, the individual person was always regarded as being the actual agent. As to who however, ultimately in the eyes of the law, would be regarded as having effectively been the agent in any particular such case (or otherwise in any case), is dependent on the relevant facts.

The deceased’s estate may also have other claims under the Regulations (such as to unpaid commissions), and the personal representatives of the passed agent in question may regard it as dutiful to establish what the legal position may be.

As always, there are important time limits in, for example, effectively notifying about any intention to pursue a claim under Reg. 17 and otherwise (time limits) generally.

One of my principals has written to me informing me that I am not devoting sufficient time to selling its products, and that, on account of that, it is considering replacing me with another agent. What is my position as regards this threat?

As a commercial agent, one of your fundamental obligations under the 1993 legislation is to act towards each principal that you represent, in good faith and in their best interests. Notwithstanding this, unless however you have agreed some specific minimum amounts of time which you would devote to representative activities on behalf of any particular principal, I would suggest that, just so long as you can show that you are complying with all of your statutory obligations (and can thus demonstrate that — for example — you are maximizing all sales opportunities), I cannot see that, fundamentally, you can do more than that. I accordingly suggest that you respond (in writing) to the principal, in (obviously) courteous but assertive terms, highlighting all of the efforts you are making and asking what exactly they are concerned that you are not doing (in circumstances where, as a self employed commercial agent, you also have duties on behalf of other principals, too). If the principal nevertheless terminates, you should promptly pursue your consequential statutory claims.

Other agency-law questions

I am writing to you in connection with the old chestnut of sales targets, as I am finding that a couple of my principals are being very insistent in striving to impose upon me the compulsory achievement of sales targets. I am aware of your resistance to agreeing targets but can you offer me anything in terms of how I might contend with my principals’ pressure?

Setting aside the separate (but very important) issue about whether your principals have any legal basis to apply this pressure on you, and how you should respond generally, I would suggest two constructive alternative forms of wordings basis re sales targets, both of which (but depending always on what are the other provisions of the agreement) may assist you:- First of all, a provision which makes clear that you will merely endeavour to achieve any agreed sales targets [i.e.:- your obligation would then be that you will endeavour to achieve, rather than you WILL achieve the target]. Secondly, and again depending on other wording as to whether this would be effective, a clause which makes clear that any failure on your part to achieve any agreed sales target would not then constitute any form of breach on your part, save where such failure was entirely your fault [i.e.:- such failure is very unlikely ever going to be entirely your fault].

At the end of each selling season, I am required to send back to one of my principals the samples which they forwarded to me before the start. The problem which I routinely face, however, is that a number of these sample items either get “lost” in transit, or otherwise arrive back damaged and then my principal looks to me to pay the financial differential, which can amount to several thousands of pounds. What do you advise that I do about this, and can I indeed be made liable?

The answer to this question (as to your potential liability) is that, yes, you could be made liable (if it cannot be proven that it wasn’t your fault or otherwise your responsibility), and so that my advice is that you should go to sensible lengths to cover off this risk, such as:-

Preparing a full written inventory of all stock items being returned Using specialist couriers and having their representative sign an acknowledgment acknowledging receipt of all of the items (a) as per the written inventory being supplied, and (2) being in good condition (save for any specifically highlighted exceptions). Better still, however, ask the principal to arrange to collect the samples itself.

By following the above steps, you are (obviously) transferring and otherwise minimizing the risk to an extent, and these are clearly sensible commercial steps to take.

I currently have one very large agency, and another one which is more modest in terms of what it earns me. I also just now have the opportunity to take on another (i.e.:- a third) agency, and am wondering as to whether I can only do this if I have my other two principals’ prior written approval — what is the position as regards that, please?

Unless you have otherwise agreed with any of your principals either (a) as to how many other agencies you will carry, and/or (b) that you will seek that principal’s prior written approval before you take on any other agency, then, as long as the new agency isn’t going to take up so much of your time as to prevent you from properly s e r v i c i n g y o u r e x i s t i n g p r i n c i p a l s ‘ requirements or isn’t going to involve you selling products which are in competition with what you already sell for your current principals, I do not see that you have any requirement to first of all have to get any existing principal’s permission, to take up a new agency opportunity. My above advice is based on the premise that, as a self employed person, you are clearly not constrained by the sorts of obligations which an employee owes to his employer, and are thus entitled to maximise your own profitability. In this regard, and whereas representing a number of different principals in the same industry can benefit those companies for which you are the agent, the importance of ensuring that you do not over-stretch your resources to the point where you cannot properly service all of your principals, and the importance also of ensuring that you do not place yourself in a situation where you are contracted to sell products, on behalf of different principals, where those products are in conflict with each other, cannot be over emphasised.

Contributors

David Bentley, Bentley Agency Law Limited (trading as BentleyandCo, also known as Bentley & Co Solicitors). 7 Littlemoor Road, Pudsey, Leeds LS28 8AF. Tel 0113 236 0550. Email db@bentleyandco-solicitors.com. Web www.bentleyandco-solicitors.com. BentleyandCo is the trading name of Bentley Agency Law Limited (SRA No. 554403), a company registered in England, recognised, authorised and regulated by the Solicitors Regulation Authority.

Thom Vaughan, EAD Solicitors LLP. Prospect House, Columbus Quay, Liverpool L3 4DB. Tel 0151 735 1000. Email thom.vaughan@eadsolicitors.co.uk. Web www.eadsolicitors.co.uk.

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