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

No, you are not correct, and this is a common misunderstanding:- Pursuant to the Commercial Agents Regulations, agents in the UK have extensive rights against their principals, and that is irrespective as to whether or not there is actually any agreement in writing between the parties. Whereas certain of those statutory rights (and where a written contract does exist) may potentially be enhanced, varied or excluded by what is contained in any written agreement (or, in certain instances, enhanced, varied or excluded by custom and practice), that an agent does not have any agreement in writing does not at all mean that he does not have any rights, as, and as I say, he will in any event have his basic statutory rights. In my experience, many agents indeed do not have any formal written agreement with their principals, but I would reiterate that that fact does not ordinarily present us with any difficulties whatsoever in being able to progress (for example) compensation claims, following a termination. In actual fact, it is important to be aware that, in many cases, what is contained in a written agency agreement may very much be to the agent’s considerable disadvantage (e.g.:- creating a contractual obligation to have to achieve a minimum level of sales which, if not complied with, may potentially then wipe out any claim to compensation, on termination) and, in such cases where the agent has entered into a badly worded contract from his point of view, it clearly may likely have been far, far better had he not had any contract in writing at all.

No, this ordinarily would not be correct, at all - as the law currently stands, a Court would regard the “agency contract” as meaning the entire contractual agreement between the parties (i.e.:- and not just the most recent individual contract, covering a renewed period of the relationship) and so that all of your efforts, achievements and earnings (to the extent respectively relevant) would be taken into account in assessing the quantum of your compensation/indemnity entitlement on ultimate termination of the overall relationship.

When any business is sold, that generally speaking will have been either as a result of a sale of shares in that business, or otherwise as a result of a transfer of the business’ goodwill. Also generally speaking, whenever it is a case of the former (i.e.:- a sale of shares in the limited company which owns the business) the effect of that transaction does not of itself affect the status of any agents involved - i.e.:- their contracts were and still are with XYZ Limited, and all that ordinarily will have happened is that the shares (or a relevant majority of shares) in that limited company will have been sold, and, as the agents’ contracts were subsequently then still with XYZ Limited (and not with the individual shareholders), the sale transaction, and as I say, does not ordinarily in any way and of itself affect the agents’ legal status. On the other hand, whenever the transaction involving the principal does not involve a sale of shares (perhaps because the principal is not a limited company), but involves (instead) a transfer of the goodwill in the principal’s business, that may then mean that, and as part of that process, the agent’s contract is by that event and at the same time terminated. However, and that said, what sometimes happens in practice (although each case needs to be looked at on the basis of what are its own individual facts and circumstances) is that whenever a new owner acquires the goodwill in a principal’s business (in the way which I have described), that the agent’s services may still be required, and so that the relationship of principal and agent are therefore continued by the new owner. As however there will be very important issues from an agent’s point of view whenever there is a sale of a principal’s business (such as establishing what are the essential time deadlines for notifying of an intention to pursue any claims which may rise in those circumstances, in respect to any appropriate compensation due) it is essential that agents promptly take legal advice to determine what may be their legal position and rights whenever a principal’s business is sold. For example, it may be that, as a result of the sale of the business and the deemed termination of his agency, and even though the new owner of the business may be wanting the agent to continue acting, the agent may potentially have a claim for compensation against the former owner, as well as having the opportunity to continue as agent for the new owner.

On the face of things, the answer to this would not be favourable from your point of view, in that Regulation 2(1) provides that the definition of who (for the purposes of the legislation) is to be deemed as being a “commercial agent” does not include any person who acted on behalf of a limited company “in his capacity as an officer” of it - in other words, and as a director is clearly “an officer” of a company, and notwithstanding that in seemingly acting (also) as an agent, a director had - for example - the power to negotiate sales, such “agents” would not ordinarily be regarded as being “commercial agents” for the purposes of the 1993 Regulations, and thus not entitled to avail themselves of the corresponding statutory advantageous provisions (such as any entitlement to claim compensation). Obviously, the facts of your circumstances may mean that the above comments do not represent what would be the legal position as regards your situation (i.e.:- I would need to know all relevant information, as - for example - it may be that whoever advised you in respect to the business sale transaction and drew up the requisite legal paperwork made sure that there was included a provision which expressly stipulated that you had certain financially beneficial entitlements in the event of the termination of your agency, and with those entitlements perhaps being akin to what rights you would indeed have had as a “commercial agent” pursuant to the legislation). However, subject to this, what I have set out does nevertheless appear to address what seemingly is your position in this instance, in the eyes of the law.

There are generally two potential meanings when we refer to an agent being appointed on an “exclusive” basis:- Either that the agent is appointed to represent a principal on the basis that he will not also simultaneously represent any other principal, or, alternatively, that the agent is appointed on the basis that an agreed territory area or an agreed group of customers is exclusive to him, in the sense that he will be entitled to receive commission generated from all and sales within that area or to that group, irrespective as to whether he may actually have been in any way involved with any particular relevant sale. Ordinarily, when we refer to “exclusivity” we are meaning the second of the above two scenarios (i.e.:- agents are not generally appointed on the basis that they represent just one principal and, if they are, that potentially gives rise to other and more fundamental issues), and “exclusivity” may be established either by words in a written agreement, or by custom and practice, The reason why it is so important that an agent is appointed on an “exclusive” basis (and therefore - subject to any agreed specific exceptions - ordinarily entitled to receive commission on all sales) is that, quite apart from obviously directly impacting on what the agent may then receive during the term of the agency by way of commissions, the fact that the agent was appointed on an “exclusive” basis will also directly impact on the amount which an agent may potentially ultimately receive upon termination, by way of compensation or an indemnity.

The answer to this is that, whereas you are correct in what you say that the Commercial Agents (Council Directive) Regulations 1993 set out the relevant law which governs the relationship as between a principal and an agent, what you need also to bear in the forefront of your mind is that many of the rights and obligations of either party pursuant to the Regulations may be either varied, excluded or supplemented by what is provided for in an agency agreement (or, in passing, by custom and practice) - I will give you just one example:- Whereas (subject to overcoming the caveats and satisfying the relevant conditions stated) Regulation 8 provides for an agent to be entitled to be paid commission in respect to certain transactions concluded after the termination of an agency, those rights given to an agent by Regulation 8 may however be entirely excluded if there is a suitably worded agreement to that effect, between the parties. Hence therefore when I am asked about whether an agent may be entitled to (so called) “pipeline transaction” commission following the termination of an agency, I have to be made aware before I can answer that question as to whether there was any agreement, validly excluding (as I have explained) what would otherwise be the agent’s rights, pursuant to Regulation 8. There are other examples which I could give to you (like Regulation 8), but it serves to make the point that, in understanding what are your rights and obligations as an agent, it is a matter of (a) appreciating what the Commercial Agents Regulations provide for, (b) recognizing that certain of those statutory provisions (and as I say) may be varied, excluded or added to by agreement between the parties, and (therefore) (c) understanding the significance of taking prompt advice in response to a principal presenting to you an agency agreement, which it wants you to enter into.