Q’s and A’s on Agency Law – September 2013

Whereas there had been some Court case decisions over the years which indicated certain specific approaches, it was never the fact that any agent was actually automatically “entitled” to two years average annual commission earnings based on anything as set out in the legislation (the Commercial Agents Regulations), with this supposed rule of thumb having nevertheless become something which principals and agents had “understood” as being the binding position. The current definitive position (however) is as set down by the House of Lords in the 2007 decision in the case of Lonsdale (an agent) -v- Howard & Hallam Limited (the principal) which is authority for establishing that the amount of compensation to which an agent may be entitled is equivalent to the value of the lost goodwill he can be said to have possessed in the agency, or (in other words) that the amount of compensation to which that agent is entitled is based on the hypothetical commercial sales value of the terminated agency - i.e.:- the value of what someone else would have paid for it, to take it over. In practice, the reality is that, and as a result of the decision of the House of Lords in Lonsdale, agents may potentially recover even more than the equivalent of just two years (net) earnings in some instances, with the overriding point to note being that each case must be determined as to its outcome on its own set of facts.

Whereas being entitled to an indemnity (or compensation) does not preclude an agent from additionally claiming “damages” to cover any other relevant losses, if he has entered into a contract which provides for an indemnity on termination, then that [an indemnity] is what he would potentially be entitled to claim on termination of the agency instead of compensation - i.e.:- an indemnity and compensation are alternatives, and you cannot ordinarily claim both. [You will recall that, whereas there are essential differences in how you calculate indemnity entitlements as opposed to compensation sums, one of the main differences as between the two rights is that the amount of any indemnity entitlement is capped in terms of its actual amount]. The above made clear, agents should bear in mind that irrespective as to whether their entitlement on termination is to an indemnity or to compensation, they would in either case potentially additionally be entitled to claim (1) damages in lieu of proper notice, (2) commissions in respect to transactions in the pipeline as at the date of termination, (3) any other commissions due (and/or becoming due), and (4) (and as already stated above:-) “damages” to cover any other appropriate losses.

In terminating your agency, and unless there are circumstances justifying a forthwith termination, your principal is obliged to afford you the minimum period of notice as provided for by Regulation 15 of the Commercial Agents Regulations, or any greater minimum period as prescribed by any written agreement (or letter of appointment) which you may have. That said, your principal would ordinarily also be entitled to just pay to you what you would have earned during the notice period rather than permitting you to carry on representing it, through to the actual end date of the agency. As a footnote to the above, agents should keep in mind two points:- Firstly, that even though he may not be being permitted to continue actually fulfilling the role of a commercial agent during the notice period, they may still be entitled to pursue what may be very worthwhile claims to compensation/an indemnity and also to pipeline transaction commissions, except (in the case of the latter entitlement) where he [the agent] may have otherwise agreed as regards potentially excluding their rights under Regulation 8. Secondly, all the whilst that you are being paid commission in lieu of notice, keep in mind that, unless the principal has made completely clear that your agency itself is already at an end, you are still effectively under contract to the principal concerned, and so that you could not (for example) represent a competitor principal, nor should you (ever) make inappropriate comments (about the principal), which may then jeopardize your subsequent claim for compensation/an indemnity.

The rules (pursuant to Regulation 17(9)) for notifying a former principal that you intend pursuing your entitlement to compensation/an indemnity (as appropriate) are very complex, and have been made even more so by the decision in the High Court case of Barnett Fashion Agency Limited and Nigel Hall Menswear (which case makes clear that, in notifying pursuant to Regulation 17(9), it is essential that the party which, in the eyes of the law, was the agent at the point of termination, makes the relevant notification (of its intention)). Following on from the above and on the basis of just the information set out in your question, I cannot say to you that what you have done by way of notification is sufficient - it is essential that you take further (more specific) legal advice. What I can however say to you is the following are examples of what matters in terms of ensuring that your Regulation 17(9) notification is valid:- Firstly, it matters who gives the notice - as per the above, it must be from the actual agent (i.e.:- the agent who would be regarded as being the agent by the law). Secondly, timing is also very important - effective notice must be given within 12 months following the date when the agency has ended (or, again, any claim for compensation/an indemnity may otherwise then be lost for all time). Thirdly, the notice should be in writing - pursuant to the Regulations, and to be effective, a notification does not (however and in actual fact) have to be in writing, but is strongly recommended that it definitely always is. Fourthly, the notice must be effective as regards its actual content in terms of making clear what it is that the agent is actually claiming. There are several other factors which need to be borne in mind when notifying a former principal of your intention to pursue your entitlement (e.g.:- when to consider sending notifications from more than just one party, in cases where it isn’t entirely clear who might be regarded as having been the lawful agent), and we ourselves have several precedent versions of notifications which we advise our clients to use (and depending on the relevant circumstances) but always with the thought that any precedent may of course be required to be varied/adapted, depending on a particular situation.

Yes, as unless you had otherwise agreed with your principal that, for any stipulated period of time following termination of your agency, it [your principal] wasn’t to engage (or employ) any members of your staff, then that principal would be perfectly free to do so (and that could of course create for you some significant disruption, assuming that (for example) your sub agent also works with you on behalf of other principals). To have further guarded against this risk, you might have given some consideration to having a written agreement with your sub agent, which sub agency contract contained a provision making clear that, likewise for a stipulated period following the end of the relationship, he or she was precluded from working directly on behalf of any of your various principals.

The answer to your question (and on the basis of the information which you have provided) is a definite “no” - just because your principal was supposedly seeking out someone else to cover your area is certainly not of itself, and as far as the law would be concerned, an action entitling you to regard your agency as having thereby been terminated, and if what you have heard about what your principal was doing is correct, you still don’t know why exactly your principal may have been on the look out for other agents - for example, has your principal got another business which other business you are not involved with? Further to the above, an agent can only regard his agency as having effectively been terminated when it is actually terminated in unequivocal and direct terms and then subsequently duly comes to an end, and as the sort of circumstances which you have described in your question do not appear to fall into that category, you need to be very careful to ensure that you therefore continue remaining focused on representing the company to the best of your ability, and certainly without discussing this issue or your concerns with any customers or other agents.

There are at least two points to make to you:- First of all, you should not ever off of your own bat (i.e.:- without having got the principal’s prior written agreement) simply change the identity of who is the agent (if how you intend to introduce your daughter would effect that) - your taking such a step may entitle your principal to terminate your agency forthwith, or it might otherwise trigger an automatic termination of your agency (i.e.:- potentially with loss of any right to any form of compensation). Secondly, and even if you have your various principals’ consents to what you propose doing, you should ensure that the change in status of the agent is made effective by it being done in such a way that it will amount to a valid and lawful assignment. There are other points to make but the above is sufficient to clarify that whereas you are correct to say that your agency business is yours, each of the individual agencies which you hold are not however entirely free for you to deal with, as you would please.