Q’s and A’s on Agency Law – August 2012

The first point to highlight is that (and unless, in any written agency agreement which you have with your principal or as has otherwise been established as custom and practice, your principal is required to pay you your commission entitlement even sooner), pursuant to Regulation 10 of the Agents Regulations, a principal has to pay commission which is owing to you within a set timescale - that timescale (by Regulation 10(3)) is that your commission has to be paid to you not later than on the last day of the month following the Quarter period in which (based on Regulation 10(1)) the relevant amount of commission became due. It follows from the above that you are not obliged to have to allow your principal a period of time to pay you owed commission beyond the above timeframe, and if any delay in making payment becomes untenable and your principal (by dint of having not paid you by when it should have done) is thereby in fundamental (and “repudiatory”) breach of its contractual obligations to you, then it is possible that (after you have taken further legal advice) you could regard your agency as having thereby been constructively terminated (thereby potentially entitling you to bring a claim for appropriate compensation), and you may also very well be justified in threatening your principal, in respect to the unpaid commission element, with winding up proceedings, which is a legal process which potentially threatens the continuing existence of the company owing money, on the basis that it has no justifiable or credible defence to not paying the sums due. Finally, take note that if you are ever prepared to allow your principal a timeframe to pay you commission where that timescale is longer than what has been agreed (irrespective as to whether that timeframe has been established by custom and practice, or is otherwise as set out in a written contract, and where that time frame is better than the “long stop” periods as set out set out in Regulation 10(3)), you should make sure that, in appropriate terms, you promptly put in writing your position to your principal to the effect that you do not thereby intend (by your allowing the extra time to pay) that the established timescales for making payment to you of your commission are therefore agreed to be permanently varied, going forward.

Initiating a winding up process is only ever potentially appropriate where there is no defence to the amount being claimed, and therefore no dispute. It is simply (therefore) a matter of the principal not paying money, which is clearly and unequivocally owed. As regards your principal taking its time in considering its position in respect to your compensation claim, and what potentially to offer you as a payment, this is part of the normal process - moreover, you should be clear that a Court would ordinarily allow a company which is being sued or threatened with being sued (in respect to - for example - a compensation claim, arising from an agency termination), a reasonable period of time (e.g.:- several weeks) to consider its position and any proposals which it therefore wishes to make to you. This being so, for you (or any lawyer representing you) to stipulate to the opponent unreasonable timescales or not to allow requested extensions of time which a Court would allow, will only present your position unfavourably to a Court (should matters indeed eventually ever get that far).

As each agent’s entitlement to compensation or to an indemnity is judged on its own facts, it would not be correct to say that a principal has to treat each agent in the same way. Each case would potentially therefore be very different. As regards your principal’s threat to rely on your supposed breach of contract, I would say that that is a standard sort of threat and that you should be aware that unless the principal is able to establish that the reason why it terminated your agency or otherwise had grounds to do so was on account of any breach of contract on your part or failures which, in either case, constituted a fundamental breach of your obligations, then it is perhaps likely that all that the principal is doing is saber rattling, to try to deter you from pursuing your claims, at all.

The first thing to say about this is that this situation may very well have been covered in any written agreement which you entered into with your principal, at the outset. That not being the case, however, the position is otherwise dealt with, by default, by Regulation 9(1), which (not very helpfully) provides that a commercial agent shall not be entitled to receive commission on transactions concluded during the period of the agency if that commission is payable to the former agent by virtue of Regulation 8 (i.e.:- that Regulation which entitles a previous agent to commission in certain circumstances in respect to transactions concluded after the termination date of the agency) unless “it is equitable because of the circumstances for the commission to be shared between the commercial agents”. If therefore (and as I say) you and your principal did not foresee that this situation might arise, and therefore dealt with it beforehand in a written agreement, then - unless you can now reach a deal with your principal which all sides can regard as satisfactory - the fall back position will be to rely on and interpret the very broad wording of Regulation 9(1), in establishing what proportion of the relevant commission entitlement you are to get paid.

The position being taken by your principal is not supported by anything in the Commercial Agents Regulations - in fact, by virtue of the fact that Regulation 6(3) expressly provides that:- “Where a commercial agent is not remunerated (wholly or in part) by commission, Regulations 7 to 12 below shall not apply” (with Regulations 7 to 12 not including the compensation provisions), it is clear from that that the Regulations (apart from just Regulations 7 to 12) are intended to be relevant also in those circumstances where the agent is paid, wholly or in part, by a retainer.

This is a familiar instance where I would first of all need to see a copy of your contract, in order then to be able to advise you. The position is this:- Ordinarily (i.e.:- in circumstances where there is either no agreement in place which entitles the principal to act in this way, and/or there has not previously been any instances of this occurring tantamount to that having thereby been established as custom and practice), a principal cannot simply vary the terms of the agency agreement unilaterally - i.e.- without the agent’s consent to that. Indeed, if the principal does go ahead and purport to make changes, the agent may very well then have grounds to treat such conduct as effectively amounting to a constructive termination of the agency, and to pursue a claim for appropriate compensation, accordingly. The other side of the coin is that I have seen contracts over the years where a principal’s right to vary unilaterally such basic and fundamentally important terms as the agent’s territory area have been perfectly validly included without the agent having noticed when he entered into the contract, and, that being so, the agent may very well then have to accept that the principal has the right to act in this way. If the agent hadn’t noticed the relevant clause (and/or hadn’t understood its practical meaning and effect) that will not then spare him its adverse consequences, and the knock on effect could actually be twice over, meaning this:- If an agent does indeed have a relationship with his principal whereby it is established that the principal is freely able unilaterally to make fundamental changes to basic terms such as commission rates or territory areas as examples, then not only is the agent potentially at risk of having to endure the adverse consequences of any action accordingly taken by the principal at any point in time, the agent may also lose out when it comes to establishing how much compensation he may be entitled to on termination (and assuming that compensation rather than an indemnity would potentially be due), as any hypothetical valuation of the agency (according to the principles laid down by the House of Lords in the Lonsdale case) would have to reflect that the notional purchaser would be acquiring an agency some or all of the most fundamental terms of which could effectively be changed at a stroke by the principal, and that is clearly not a value enhancing facet (i.e.:- thus potentially significantly weighing down the value of the agency).

Ordinarily, the death of one partner in a partnership of one or more agents would not give rise to any termination, and nor therefore give rise to any claim for any compensation (or any indemnity) by the Estate of the deceased individual. This is because, in these circumstances, and unless there is an agency agreement in place which agreement expressly provides that, for example, the death of any specific individual would thereby terminate the relationship with the principal (or unless the principal decides to terminate), the agency would instead continue and whatever were the arrangements as between the partners themselves in respect to this eventuality, and as recorded in any relevant partnership agreement document, would then come into operation. In dealing therefore with the situation described in your Question (i.e.:- where you say that the death of your partner has triggered the termination of one of your agencies), and subject to whatever is provided for in the written agency agreement with your principal and subject also to the provisions of any partnership contract which you had with your late partner, my advice would be that a claim for the appropriate form of compensation (arising as a result of the agency in question having been terminated) should be promptly pursued by both yourself and the Estate of your late partner.