The parties to a principal/agent relationship are not obligated to have to enter into a written agreement (but subject always to Regulation 13 of the Commercial Agents (Council Directive) Regulations 1993 (‘CAR’), which regulation entitles either party to require the other to provide a signed written document setting out the terms agreed, including any terms subsequently agreed). However, recording in writing the terms of any commercial relationship (including a commercial agency relationship) is always best practice, as that can avoid unnecessary future points of dispute.
In entering into a written agency agreement, great care must be taken by both parties to ensure that they can actually comply with what they are agreeing to be their respective obligations. Moreover, in the case of the agent, compliance with such obligations can potentially make the difference between it subsequently being entitled to any form of compensatory payment on termination, or not. This is because Regulation 16 of the CAR entitles either party, in circumstances of a breach of their contractual obligations by the other party, to terminate the agency relationship ‘immediately’ and, by Regulation 18(a), where a principal has justifiably terminated the agency immediately, the agent would not then have any rights to bring a claim for (as appropriate:-) compensation or an indemnity.
It follows therefore that agents need to ensure that they can comply with all contractual obligations, such as (and just as a few of many potential examples) in agreeing to:-
- Sales targets – to avoid being in breach of contract (with the potentially adverse consequences, as explained above) agents should ensure that, for example, any expressed sales targets are actually achievable; are expressed in such terms whereby they cannot be unilaterally set by the principal; and are also worded so that the agent is not deemed to be in breach if prohibiting circumstances beyond its control materialise (such as a significant customer going out of business or failing to place anticipated volumes because of circumstances attributable either to the principal or to other factors). This all explained, the most by way of a ‘sales target’ obligation that an agent should ever really agree to is to use its ‘best endeavours’ to maximise sales, as opposed to having to achieve a particular level of sales.
- Provide feedback – agents are frequently required to report to their principals as regards customers’ feedback regarding products and service and/or otherwise as to market conditions, and this can be on a fairly regular basis (i.e.:- weekly, monthly, or quarterly). However, and again, agents need to ensure that they do not agree to do something which they cannot actually comply with (and so as to avoid being in breach of contract, with the potential consequences as explained above).
- Make a minimum number of customer visits – agents may be required to make a minimum number of visits in a particular period, but, again, the agent must ensure that what is being required of it is practical.
By Regulation 3(2)(c), agents must otherwise ‘comply with reasonable instructions given by the principal’ with, moreover, Regulation 3(1) requiring the agent to ‘look after the interests of his principal and to act dutifully and in good faith’. Failure so to do and in circumstances where the principal may consequently be entitled to terminate the relationship forthwith, may likewise lead to circumstances where the agent may potentially lose its entitlement to any form of compensatory payment.
In summary, agreements in writing are always advisable, but agents should particularly take care to consider what it is that they are being asked to agree to do (as well as taking advice as regards all other aspects of the draft agreement). This is because obligations need basically to be achievable and otherwise worded protectively of their position, and so as to avoid subsequent breaches.