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

My position on this is that the most ideal situation is that agents have written contracts which succinctly and accurately record all of the important provisions agreed, but that that agreement excludes any overly onerous provisions in favour of the principal (such as the principal being entitled to terminate the agency potentially without having to pay any form of compensation, if the agent, for whatever reason, fails to achieve a certain level of sales targets). In other words, having in the form of a proper contract, duly signed by both parties, written evidence of what terms have been agreed must always be the best scenario, but that what on the other hand would be the worst scenario would be where the agent does have a written agreement, but that that contract contains a whole host of provisions which may mean that (for example) the agency may ultimately be deemed valueless in terms of assessing an entitlement to compensation following termination, perhaps because the contract entitles the principal to be able to terminate on a forthwith basis in the event of any number of breaches by the agent (thereby potentially losing the agent his rights to any form of compensation). Following on from the above, I would say that if you cannot attain what I have described as the best scenario, and if the only other option would be a potentially very bad contract, drafted by a heavy handed principal, which contract may contain any number of clauses which could effectively and validly restrict or remove various of your fundamental favorable rights, then, yes, I would say that you may very well then be better off without any formal written agreement at all, relying instead on basic letters/e-mails of appointment and acceptance (without weighted and adverse provisions being included in those) and (otherwise on) custom and practice, to evidence the basis of the relationship. I would add to the above as a footnote that in a May 2010 High Court decision (in the case of McQuillan -v- McCormick) the Judge made a partial % reduction in the amount of compensation ultimately awarded to the agent on account of there being no written agency agreement in that case.

I am approaching retirement age, and am wondering about how to go about claiming what I understand will be my rights to compensation, upon that eventuality. Can you please advise me.

Whereas there has not been any test case re this issue, I would say that a Court would perhaps be very likely to take the view that if the actual agent is deemed as being a limited company that the retirement (through age or ill health) or death of any individual who may have been the main protagonist or driving force behind that limited company or who could otherwise have been described as, in reality, the agent, would NOT create any entitlement to any compensation or an indemnity. This is based on the assumption that limited companies (setting aside (technically speaking) liquidations, in other circumstances) cannot die or retire, and so that, on a strict interpretation of the law, no entitlement therefore arises. The above all said, if there happens to exist, in any relevant situation, a written contract between the principal and an agent which is a limited company, which contract makes a provision that (for example) the agency will terminate and the agent be entitled to compensation in the event of the death or retirement of Mr, Mrs. or Ms. X or Y, then that would of course change the outlook. Such contractual provisions are however rare in my experience (although that is not at all to say that agents, who operate their agencies in such a way that a limited company is deemed as being the actual commercial agent, and now being aware of how the land lies in terms of their potential legal rights, cannot press for appropriate provisions to now be included, in their favour). A couple of footnotes to the above:- Firstly, there are specific issues (also) with regards to agents (looking to retire, or who die) who are deemed for the purposes of an agency as operating in a partnership, which issues I will cover in subsequent editions of these Q’s and A’s. Secondly, any agent reading this who may want now to reverse out of any limited company structure should absolutely not do so (and take no steps in that regard), without FIRST taking legal advice.

The position is that, ordinarily, you are not at all obliged to have to sign or otherwise agree to the terms of a written agency agreement, where that document fails to reflect the current terms of your agency - on that basis, you can either write back to your principal (as you absolutely should, if you are not going to agree to the proposed new contract) and make clear that you are not prepared to agree to the proposed new terms, or you can seek to negotiate around the principal’s proposals, and see whether you can reach a mutually acceptable new contract which both you and the company can agree on, which varies what you currently have. If you do decide to reject the principal’s proposed new terms (as, ordinarily, you would be perfectly entitled to do) and the principal then reacts to that by carrying out its threat to terminate your agency altogether, the fact of that would not then in the least prevent you from bringing claim for consequential compensation/an indemnity in the normal way and on the basis that, save where an agent had previously agreed (and as would be unusual) that his principal has the unilateral right to compellingly introduce new and/or vary existing terms of the agency, there is nothing at all wrong (and it would be your total right) to refuse to accept proposed new terms. The above all said, and obviously, losing an agency and its income stream is another consideration (which the payment of compensation can often only partly make up for), and that is why your principal will know that, whatever are the legal consequences of its actions, threatening you with termination in the event that you don’t accede to its request and thus enter into a contract perhaps heavily weighted in the principal’s favour, may be something that may very well present you with a difficult conundrum. As far as agents are concerned, however, the only thing to do initially is to take thorough advice on the legal effects and implications of what you are being asked to sign and so as to then be able to make a decision as to how to proceed, on an informed basis.

In posing your question, you appear to be aware that an agent - without the express consent of the principals concerned - cannot simultaneously sell (on behalf of those principals) products which are competitive with each other and so that, where these potential conflict situations do arise, and depending on the apparent extent of the conflict cross over involved, an agent may then be faced with the difficult task of having to consider giving up an agency (in order to avoid any adverse consequences to himself, and without any right to compensation), and so as to ensure that any conflict is no longer continuing. As regards any new agencies, therefore, and in order to be able to avoid such conflict situations from arising in the future, my advice would be that you agree with any new principals:- (a) specifically - and as precisely as possible - what products of theirs exactly (or groups or types of products exactly) you will be selling; and that (b) as regards any new products which they may want you to additionally sell in the future (and whereas - you should also agree that - the principals in question should be obliged to at least have to offer you the opportunity to sell all and any such additional products) you to be entitled to either accept or decline that opportunity to sell the further (new) products, at your option, based on the circumstances (i.e.:- depending on what you are selling on behalf of other principals at the time, and whether selling all or any such proposed additional products would cause you a conflict).

First of all, it is your principal’s decision and prerogative not to continue with your services as its agent, if that is what it decides to do. However (and secondly), and for the purposes of potentially subsequently being entitled to bring a claim for compensation following termination, an agent being appointed on a “trial basis” is no less valid as the basis of an appointment than being appointed (say) on an ongoing basis, and so that you should therefore completely disregard what the principal is saying to you (about the fact of the “trial basis” appointment supposedly disentitling you to bring a claim - i.e.:- that is wrong) and pursue whatever are your rights, in the normal way.