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

There is nothing in the Agency Regulations which entitles you to a greater rate of commission than has been agreed with a principal - all that the Regulations provide for in this regard is what an agent should be paid (in the unlikely event) where no agreement with a principal has actually been reached, and so that there is then provision for the relevant going rate to have to be paid. Where however a lower rate (i.e.:- a rate lower than the industry “norm”) has been agreed, you may be stuck with that, from a contractual point of view. The above said, I understand that you may now have increased costs in operating your agency, and so that, in these circumstances, the thing to do perhaps is to proactively address the apparent anomaly by approaching your principal, and seeing whether he is agreeable to negotiating a revised rate of commission - if you would like me to draft your e-mail in this regard to the principal concerned, please let me know.

Answering the second part of your Question first (i.e.:- as to whether or not you are bound to accept what is being offered to you in terms of this deal), the answer to that is that, ordinarily, you are not obligated to have to agree to any proposed arrangement such as this and so that, if what is being put to you does not appeal to you, you could always of course consider litigating the matter through the Courts, or (and this is obviously potentially far better still) otherwise seeking to negotiate an improved out of Court deal with the principal, which may also involve the payment of whatever is the relevant settlement amount, in one single installment. With regards to the initial part of your Question (i.e.:- as to my thoughts overall as regards any settlement which involves payment by installments), my response to that is that, principally because, in this type of scenario, there is ordinarily a very limited scope to be able to have any sort of security for the payment of future amounts of money (e.g.:- a charge over any property belonging to the principal, and/or any personal guarantees by any directors in respect of the debt payable to you), you are clearly taking a risk to a lesser or greater extent, in relying on the principal’s cash flow enabling payment of all of the agreed installments to be made in due course, and in line with the agreed payment timetable. If however what you are hopefully going to be receiving is a decent enough sum, and reflective of what would represent a good award by a Court, you may or may not then take the view that this is a risk worth taking. Some further issues to think about are also, as follows:- First of all, it would be essential to have any settlement deal appropriately recorded in writing and, amongst the various essential provisions included in such a settlement agreement, there most definitely ought to be included a clause which makes clear that if any one of the installments is not paid on time that you would then be entitled to straightaway demand that all remaining installments be paid immediately, and irrespective as to when those installments would otherwise have become payable, in the future. You may also want to consider including a clause in the settlement agreement which provides for you to be paid interest, on the aggregate amount being paid to you. A second additional point to make is that this type of situation often throws up a conundrum, which is this (and this follows on from what I was discussing above re lack of tangible security for installed payments):- If a former principal is proposing to pay you your agreed sum in installments, there may clearly be some cash flow issues there, and maybe the risk of an insolvency scenario down the line, which would then place at risk payment of any and/or all of the scheduled installed sums. On that basis, you will need to weigh up what is the financial position of the principal, and its short and medium term viability, and to then go on and weigh up whether you may actually recover more financially by settling for a quick and lesser deal now (albeit over installments), rather than maybe achieving a greater amount in Court or through negotiations, but you ultimately not receiving all or any of that higher sum, on account of the principal subsequently going into liquidation. Obviously, you will also need to bear in mind that, in the list of creditors in the event of an insolvent situation of the principal, debts owed to commercial agents are not ordinarily secured (and are not classified as “preferred”), and so that you may decide to accept a quick settlement, rather than holding out in going for a Court decision, which will take considerably longer to achieve and may ultimately be practically useless if, and as I say, the principal has gone into any form of insolvency, by that stage.

First and foremost, I would highlight the wording of the relevant provision of the regulations in respect to your Question which is Regulation 17(9), which provides, as follows:- “The commercial agent shall lose his entitlement to the indemnity or compensation for damage in the instances provided for in paragraphs (2) to (8) above if within one year following termination of his agency contract he has not notified his principal that he intends pursuing his entitlement” Secondly, and following on from the above, I would say to you that, yes, it does very much matter that we establish with you as to who was the agent in this case, and whether, in each instance that a change in that regard was effected, the proper legal agreement (including as a party to the requisite formal written agreement the principal in question) was entered into. This was very much established as a point of fundamental importance in the High Court case last year (2011) of Barnett Fashion Agency Limited -v- Nigel Hall Menswear Limited. In the light of the above High Court decision, what needs to be emphasized as a point of practice now (and which should be undertaken in each and every instance where there may be any semblance of doubt as to which party was or may at any point in time be regarded as having been the agent in any case) is that each and every one of those conceivable parties which potentially may have been the agent (such as, in your situation, the three parties you have identified in your Question) should each separately notify the principal in question of their respective intentions to pursue their rights pursuant to the Commercial Agents Regulations. This is because if (say) that party which it turns out was the agent hasn’t in proper time (in accordance with Regulation 17(9)) correctly and effectively notified of his/her/its/their intention to pursue a claim for (as appropriate) compensation or an indemnity, it may be too late to ever subsequently make that claim. As I say, there is no doubt whatsoever, that the safe way to properly go about any claim for compensation/an indemnity in terms of the requisite initial steps is, in adhering first and foremost to the statutory requirements of Regulation 17(9), to have drafted the appropriate notification letters, but I would also stress that there are many other important considerations also to bear in mind, such as the fact that getting the Regulation 17(9) notification process right is not the only time sensitive issue in pursuing any claim.

My advice is, as follows:- Whereas it is obviously essential that (and before I can look to competently advise you) I see a copy of the cheque covering letter to which you have referred in your Question, and also that I discuss with you any relevant additional background facts and circumstances, I have to say that I am very concerned that you may indeed have compromised your further rights, by acting in the way that you have done - it is all about the relevant provisions of the Commercial Agents Regulations, the content of the cheque covering letter, timing, and (as I have said) maybe any other relevant facts and circumstances:- First of all, the relevant provision of the Commercial Agents Regulations is Regulation 19, which provides:- “The parties may not derogate from Regulations 17 and 18 [which are the Regulations dealing with compensation] to the detriment of the commercial agent before the agency contract expires” Whereas it is not feasible in the space for this Answer to explain to you everything which Regulation 19 means and can potentially relate to, the point to note for immediate purposes is that what it is effectively stating is that any attempt by a principal, BEFORE the agency in question terminates, to compromise what would otherwise have been the proper and appropriate amount of an agent’s rights to compensation/an indemnity, is potentially invalid and can therefore be overruled by a Court. In other words, if, BEFORE an agency terminates, an agent compromises what would otherwise have been his proper entitlement to compensation/an indemnity then, very generally speaking (and any agent reading this should always take our advice before making any assumptions as regards this very difficult area) the agent may ultimately be saved from what he may rightly regard as his own folly in otherwise having compromised his rights to the correct amount of compensation/an indemnity. The next issue then is the content of the cheque covering letter to which you have referred in your Question, and whereas (and as I have said) I need to know about any further relevant facts and the exact content of the letter, I have to say that it very much sounds as though that letter does seek to compromise (by paying you the stated amount of money) NOT ONLY your rights to outstanding commission, but also all of your rights to any other amount of money (including, but not only, compensation) and, if that is what it effectively does, we next need to look at the issue of timing - i.e.:- what’s the date of the letter, when was this letter sent to you, what date you banked the cheque and what date therefore can the Company’s offer be deemed to have been made and accepted. Following on from all of the above and whereas I like to think that we can work miracles, I have to repeat what I have already stated which is that I am very concerned that you may have compromised your further rights, as, if the letter is damning in its content and effectively sets up this potential fait accompli post termination of the agency period, and (moreover) you accepted the cheque and thereby effectively accepted the terms proffered by the former principal, you may regrettably have lost your rights to make any further claims.