Q’s and A’s on Agency Law – DOUBLE LENGTH combined for months of January 2015 and February 2014

The first point to make is that (and contrary to frequently made inaccurate assumptions) a two years’ average annual commissions pay-out (even) in respect to compensation claims is not established at law in the UK as any sort of basic entitlement, nor as any sort of benchmark guideline, and so that the amounts payable by way of compensation (and where they are the relevant frame of reference as opposed to an indemnity) could instead be greater than or less than that level of two years’ average commission earnings. Secondly, and whereas the process whereby any amount payable by way of compensation is calculated is now strictly based on the “hypothetical sales value” assessment methodology (as set down by the House of Lords in the Lonsdale case), amounts instead payable by way of an indemnity are calculated entirely differently (i.e.: - by reference to the wording in Regulations 17(3) and (4), and to the relevant provisions of the 1998 European Commission Report) and, moreover, are capped at the equivalent of just one year’s average annual income from the agency. In short answer to your question, therefore: - That answer is “no” (as you appear to have accepted an indemnity as opposed to a compensation entitlement, and, to reiterate, indemnities are capped at one year’s average earnings as a maximum) but that you may have other rights at termination, to receive different sorts of payments, which additional amounts can effectively bolster the amount of your indemnity payment.

On the basis that Regulation 17(8) provides that: - “Entitlement to the indemnity or compensation for damage as provided for under paragraphs (2) to (7) shall also arise where the agency contract is terminated as a result of the death of the commercial agent”, the answer to your question is ostensibly “yes” (with whether the relevant entitlement amounts to compensation or to an indemnity depending on the wording of any contract). However, agents should take note that Regulation 17(8) clearly envisages the agent as having been an individual who operated as a sole trader, and so that agents who operate in partnership, or whose limited companies would be deemed in the eyes of the law as having been the “commercial agent”, would appear not to have the same rights - i.e.:- notwithstanding the death of the person who was the “driving force”, the remaining partner(s) of the partnership or the limited company in question still continue their function as agent (and there is no automatic termination). The above may also be affected by contractual considerations but, that aside, agents need to be aware of Regulation 17(8).

No, you are not. Whereas the Regulations make clear that payment of commission has to be made within stipulated (latest/long stop) deadlines (i.e.: - Regulation 10), and even though what is being proposed may be a scheme which does not fall foul of Regulation 10, the point is that you already have in place an arrangement which is established as part of your contractual entitlement, and so that you ordinarily are not obligated to have to agree to anything less beneficial. This is not to say that you may not decide to accommodate what the principal is asking you to agree to, it is just that you are not obligated to have to do so.

Generally, principals who take this step are doing so on the basis that they consider that, of itself, that will then reduce its potential exposure to ultimately having to pay compensation/an indemnity, on termination. However, unless the wording of what you are agreeing to in each new yearly cycle fundamentally compromises your position (and that is a very good reason as to why all contracts presented to you need to be thoroughly vetted by your legal advisor, in advance), I would not say that, of itself, entering into a fixed term arrangement (or a series of them) is necessarily particularly beneficial to either party, from a legal perspective.

No, not at all. The majority of cases which we deal with are settled via negotiation and, moreover, there are various procedural stages and processes, encouraged as part of “pre action protocol” or which otherwise are conventionally pursued which, once implemented, may result in or lead to a settlement (without legal proceedings having to have been formally issued).

No, again, not at all, and (depending on the wording of the contract) for at least three possible reasons: - Firstly, I would say that, and depending on (as I say:-) the exact contract wording, an agency stipulated to end when the agent reaches the age of 65 could potentially be regarded as a “fixed term” contract (the expiry of which, and the termination of the agency, would ordinarily therefore give rise to a claim for (as appropriate: -) compensation or an indemnity). Secondly, if (on the other hand) it is deemed that your principal has terminated your agency by invoking this clause as you have described it, and assuming there to be no other relevant circumstances, given that having the temerity to acquire the age of 65 does not constitute a breach on the part of the agent, he or she should ordinarily be entitled to compensation/an indemnity, in the normal way. A third potential route to getting compensation/an indemnity in these circumstances (and, again, depending on the wording of the contract) is on the basis that the agent is deemed to have retired - in these circumstances, and whereas Regulation 18(b) (ii) does not state age 65 as being a definitively appropriate date of itself to retire and be entitled to compensation/an indemnity, it is generally regarded (subject to other circumstances) as ordinarily being a potential starting point for basis for doing so. A footnote to the above is that, in the light of the brief detail set out in your Question, it is clearly very important to establish as to whether the agent is (indeed) you as an individual as (please note) you being the driving force behind/Managing Director of a limited company which is the agent does not afford you as an individual any rights (as an agent) yourself.

No, not at all. You are perfectly entitled not to have to sign any contract which either does not reflect already agreed terms or new or varied terms which you are otherwise prepared to accept, and the fact the other agents have nevertheless signed the relevant document is entirely immaterial to this.

Whereas the term “non-exclusive” can mean (and depending on its context) various things, in (however) commercial agency situations, it ordinarily means that the agent in question is entitled only to receive commission in respect to sales which he himself generates. In other words, it would ordinarily then be the case either that a relevant territorial area or a specific group of customers was not the sole domain of that agent (and that therefore either the principal itself, or employed salesmen or other agents would also be operating in his territory area), and so that the agent only gets paid in respect to sales which he procures himself. Clearly, ruling out terms such as “non-exclusive” when reviewing draft agency contracts is very important, as is ensuring that (and conversely) any reference to “exclusive” is not meant in the sense that the agent may represent that one principal and no other.

No, nonsense. The fact of there being no written contract does not at all of itself mean that there is no entitlement to any compensation (although there being no written contract would rule out the possibility of any indemnity having been agreed to, of course). That said, it is correct that the absence of any appropriately worded (and however brief) contract altogether may potentially negatively affect the amount payable by way of compensation, on termination. It is also noteworthy that the absence of any written agreement would also confirm (and this is in your favour: -) your entitlement to post termination pipeline transaction commission.

Nowadays, it likely wouldn’t work at all in that a recent High Court case decision (Shearman v Hunter Boots) has established that clauses such as the sort which you describe in your Question, and which are written with the intention of simply being the most economical from the principal’s point of view, would likely now be disregarded (i.e.: - ruled as invalid), and so that the agent’s prospective entitlement on termination would instead, by default, be to compensation.

In theory, yes, but, in reality, you are unlikely to recover any compensation - that is because: - First of all, and following the House of Lords’ 2007 decision in the case of Lonsdale, the amount of any entitlement to compensation depends on the hypothetical sales value of the agency, as at termination. Given this, and the fact that, at the point of this particular termination (as described in your Question), there cannot be said to be any value in your agency, that is why - strictly on the principles laid down by the House of Lords - there thus cannot be any practical entitlement to a compensation claim. Secondly, and even if there had have been a clear legal basis to bring a compensation claim, the fact that the principal has gone into liquidation clearly indicates that there may unlikely be anything substantial by way of cash funds materialising to settle any debt to pay you compensation, in any event.

Unless there is anything in any written agreement preventing this approach from being made, then there is nothing wrong in your principal’s actions. Meaning to say that there is nothing in the legislation which prevents this practice and, as a main agent engaging a sub-agent, your best form of defence to this sort of occurrence is to have incorporated in a sub agency agreement a clear and binding post termination restrictive covenant of appropriate duration and scope, to tie your sub-agent to you.