A key issue in the appointment of an agent is the extent of the appointment.
This is usually expressed in terms of the appointment being on an exclusive, sole, or non-exclusive basis. However, often these terms are used without careful consideration as to their legal meaning. Sometimes they are used and are then the subject of carveouts which may or may not achieve the principal’s objectives. In the absence of other words in the agency agreement, under English law an agent appointed on an exclusive basis will act as the agent of the principal in the territory, or in respect of the products, or in servicing specific customers stated in the agreement to the exclusion of the principal and any other agent of the principal. However, it is clear at this point that it is possible to include other words in the agreement which amend the extent of the exclusivity. In addition it is possible that exclusivity can be granted on a narrow basis by reference to a specific territory, product lines, or types of customer. Exclusivity can be contrasted with the appointment of an agent on a sole basis. Here, in the absence of other words, the principal will act alongside the agent again in respect of a specific territory, products, or customers. However, the principal is constrained from appointing other agents so to act.
The appointment of an agent on a sole basis in turn can be contrasted with a situation where the appointment is on a non-exclusive basis. A non-exclusive appointment can be compared to a free for all in that there is no restriction on the principal from appointing other agents in the absence of anything else being stated in the agency agreement. How then should a principal choose between exclusive, sole, and nonexclusive? The starting point is to identify the principal’s objectives for appointing the agent. Do any of the territory, products, or prospective customers lend themselves to a division between two or more agents? If division is applied, will each agent be sufficiently incentivised to act in a way which achieves the principal’s sales objectives – in terms of the aggregate value of orders, winning new customers, or exclusion of competing products? The principal also needs to bear in mind that as a general rule of thumb it is invariably easier to enlarge an agent’s geographical territory, products carried, or customer base than to reduce it. The only real contractual exception is where specific provisions are included in the agency agreement requiring the agent to achieve specific minimum sales requirements as well as providing for the taking away of parts of the territory, product base, or customers in the event that the agent fails to achieve a specific sales requirement.
A principal should also bear in mind the possibility of mixing and matching in terms of, for example, granting exclusivity in respect of a certain products and nonexclusivity for all other products offered for sale by the principal. Neither the common law nor the Commercial Agents Regulations prevent such an arrangement being put in place. Equally, a principal should consider the issues of product updates, versions, and enhancements. Is the agent likely to be the right person for the new version? Does the update lend itself to a different medium for the particular market? Ultimately, thought given by a principal as to the extent of the appointment can only be for the principal’s advantage as it seeks to achieve business success by using agents.
Ten Dominion Street, London, EC2M 2EE Tel: 020 7628 2000 www.foxwilliams.com
Disclaimer: This column does not contain legal advice and is for general guidance only. Agentbase, Fox Williams LLP and the writer accept no liability in connection with the general guidance given in this column. Please ensure that you obtain legal advice before acting in reliance upon anything in this article. For example, please be clear that the answers given in this column may not cover all possible angles, aspects, relevant considerations and/or points of law and so that all or any information which is given above needs in every instance to be referred for legal advice for clarification and amplification, before being relied upon