Q’s and A’s on Agency Law – June 2012

Subject to (a) whatever is relevant and which may be in any written contract which you may have with this principal, and (b) whether the sort of action threatened to be taken by the principal in this instance has previously been taken in the past and, if so, how you responded in the face of that (i.e.:- whether there has been any relevant prior custom and practice), this is not at all something which you are obliged to accept. Fundamentally, it takes two parties to make a contract and, unless either one of those two contracting parties has at any time in the past agreed that the other party may unilaterally make random changes without getting the affected party’s consent, it likewise takes two parties also to vary a contract (with a change in the rate of commission paid by the principal to the agent being an obvious example of something which has to be agreed). As to whether there is a written agreement in existence, this is fundamental - i.e.:- if there is no written agreement or if there is an agreement but there is no such clause within that entitling the principal to do what it is proposing to do here, then the principal cannot just change the commission rate; similarly, if there has otherwise not been any prior custom and practice established whereby the principal has forced changes which you have effectively just gone along with, then, and likewise, you do not have to accept the change proposed in this situation, whereby your commission rate would be reduced. Following on from and in the light of the above, you have therefore to decide whether you (nevertheless) want to discuss with your principal the change which it is wanting to make (- and I only say that you may want to discuss changes, as nothing of what I have set out above means that your principal couldn’t just terminate your contract, although, depending on all other relevant facts and circumstances, that would not then prevent you from pursuing a potentially perfect good and decent claim for compensation, in the normal way). If you did decide to make any concessions towards what your principal is wanting in terms of a % reduction in what it pays you as a commission, you absolutely must simultaneously record in writing however what it is that is being agreed, making clear - amongst other fundamentally important statements - that you are not agreeing to any changes on the basis that that thereby constitutes any sort of custom and practice going forward, and/or that that thereby means that the principal would be entitled to make any similar (or any other) changes in the future, without your prior written agreement. Again, depending on all of the facts and circumstances (and if you are prepared to discuss the proposed % commission rate reduction at all), you may also want to make clear as to when the commission rate will revert to its normal level, and also that the deducted amount will be repaid to you, in full, in due course. On the other hand, if you are going to stick by your guns and reject the proposed change, you need similarly to make very clear your position, in writing - your principal needs to be in no doubt that (if, on all of the facts, this is the case) its actions would be deemed a fundamental breach of contract, potentially placing it [the principal] in breach of the Regulations, and thereby potentially bringing into play Regulation 18(b)(i) (i.e.:- a potential “constructive” termination of your agency).

Unless you have a written agreement which has an exceptionally generous provision in your favour to the effect that your commission entitlement is not capable of being clawed back in the circumstances which you describe; and/or unless there is an established custom and practice in your favour; and/or unless Regulation 11(1) applies (- i.e.:- the fact that the customer has not paid is due to a reason for which your principal is to blame -):- - you would very likely have to accept the principal’s actions as you have described them, as the reality would appear to be that you had merely been paid the £4,500 on account of your commission entitlement, which entitlement appears now to have ceased to exist.

This is another instance of where it first of all needs to be established whether you have a written agreement with your principal and, if so, what (if anything) that provides for in terms of this situation, and also as to what may have been any relevant prior custom and practice - the position otherwise is ordinarily that if you are appointed on an exclusive basis, to cover a specific geographic territory area, or to deal with customers within a defined group, then it cannot then happen that - without your consent and without appropriately compensating you - a principal can unilaterally just take a customer away from you. Again, subject to whatever else may have been agreed or otherwise established by custom and practice, this position is reinforced by the provisions of Regulation 7(2). . Following on from the above therefore, you thus need to establish what may be contained as any relevant provision in any agency agreement, and also as to whether this sort of thing has happened before and what transpired then, and, subject to all of that, to set out (in clear and direct terms) your objections to your principal. Again, Regulation 18(b)(i) [see my answer to the first question of these Q’s and A’s] may ultimately be in point also.

If you haven’t agreed with the principals in question that you have to advise them of any new agencies which you take on (or to get their permission), then, subject to (a) the fact of your new agencies not meaning that you will as a result have insufficient time and resources to properly represent your already established principals and to thus honour all of your obligations, and (b) what you will be selling for the new companies not constituting a conflict of interest with what you already sell on behalf of you existing principals, then I cannot see an issue - as a self employed sales agent, you are free to take on as many different agencies as is realistic and feasible, all the whilst ensuring that (and as I say) you are able to honour all of your obligations.

Of itself, probably not:- The way in which compensation (as opposed to an indemnity) is nowadays assessed is based on the rationale of the House of Lords as laid down in the 2007 decision in the case of Lonsdale -v- Howard and Hallam, and since that decision decreed that that rationale is (very generally speaking) to assess the hypothetical value of the agency which has been (and at that point when it was) terminated (i.e.:- and always assuming that it hadn’t have been terminated in fact, and so that a deemed purchaser would therefore have been interested in acquiring it), the length of time that the hypothetical “selling” agent had been the principal in question’s agent would not of itself be relevant in that process, although I imagine that it might suggest that the principal’s business had historically been solid and that the principal/agent relationship had worked well (which factors potentially might enhance value).

Essentially, and subject to a couple of very important points which I will make below, this is a matter of personal preference - i.e.:- given that compensation claims can take some time to resolve and are less straightforward to determine compared with claims for unpaid commission, it is not necessarily the wrong thing to do, to chase up and get in unpaid commission, before launching a compensation claim - that said, and as I have alluded to, there are at least two very important issues to be aware of, as follows:- Firstly, as Regulation 17(9) sets out a very strict timeline within which the agent has to have effectively notified the principal in question of his [the agent’s] intention to pursue a claim for compensation/an indemnity, there is of course the obvious danger that, in concentrating initially just in the claim for unpaid commissions, the deadline for notifying in the way in which I have described, pursuant to Regulation 17(9), may be overlooked. Secondly, there is also the danger that if your principal co-operates after termination of your agency in agreeing to pay you your commission, in then sending you the amount due, it [the principal] may attempt also to compromise your other claims (i.e.:- for - for example - compensation/an indemnity) by sending you the payment on the stated basis that it is (for example) “in full and final settlement of all claims” or using some other form of effective words which, if you then accepted the payment, you may merely then potentially scupper your claim for compensation (or an indemnity) before you have even got it launched.

There are at least three points to make to you:- Firstly, if your principal has stated to you that it wishes you to stop representing it with effect from a certain date then you absolutely must co-operate with that, whatever are your disgruntled feelings in terms of the fact of the termination, or the fact of the insufficient notice period. In effect, and quite apart from anything else, you would in any event thereby no longer be acting as “commercial agent” on behalf of the company, as the definition of a commercial agent contemplates the fact of the agent in question having the “ongoing authority” of its principal, which would plainly have been withdrawn, based on what you are saying that the principal has stated to you. Secondly, if it is indeed correct to say that you have been given an insufficient period of notice, you will nevertheless be able to subsequently make a claim for “damages in lieu” - i.e.:- in addition to whatever other rights you may have, such as to claim appropriate compensation, you would also be able to claim for a sum of money representing what you would have earned over the notice period, by way of commissions. Thirdly, and depending on whether you have a written agreement with this principal and, if so, what it provides for, you may also have the right to claim for an additional period by way of damages in lieu, if your contract provided for a notice entitlement which was longer than the statutory minimum.