Q & A’s on Agency Law

by David Bentley
of Bentley and Co. Solicitors

Q. My main principal currently owes me
approaching £4,000 in terms of unpaid
commissions, which amount it is disputing
paying to me owing to the potential for a
part refund from the customer concerned,
which is on account of certain problems
which affected the supply. As far as I am
concerned, however, I don’t regard there
as being any risk of the feared refund and
that, in any event, I took this order and am
therefore entitled to be paid for it, no
matter what.
Bearing this in mind, I have recently
collected £3,000 from a customer as an
amount due to my principal, and intend
keeping hold of that sum as part
settlement of the commission due to me –
do you see any issues in my doing this?

A. Irrespective as to whatever rights to the relevant
amount of commission you consider that you may
have, as a matter of law you absolutely cannot do
what you are contemplating doing – there are
various reasons for this, such as:-

First of all, if your principal had financial difficulties
which may ultimately lead to it going out of business
and you were aware of that fact, by you taking the
sum of money you have referred to in your question,
you would effectively be getting yourself preferred
as a creditor, and thus inappropriately prioritizing
your claim over and above other parties’ legitimate
claims.
Secondly, by you taking this money in the way in
which you are describing, and quite apart from all
other relevant considerations, you would likely
thereby be acting illegally in handling money
belonging to your principal and without your
principal’s authority (which would potentially give
your principal grounds to terminate your agency,
forthwith).
Thirdly, and again, by you taking the money, you
would effectively be taking the law into your own
hands in the sense of unilaterally taking the decision
that the principal had no legitimate defence to not
paying you the relevant sum which you claimed was
due to you, and so that you were thereby acting as
your own Judge in respect to the dispute.
Following on from the above, and for at least the
reasons which I have given, you most certainly
should not act in the way which you are
contemplating.

Q. I was given notice by one of the Q.
companies I (until recently) had as a
principal, and have recently completed
the three months’ notice period. During
that notice period, I was negotiating a
potentially very lucrative contract with a
new customer, which deal I suspect will
come to fruition in about a month’s time –
in addition to whatever other rights I may
have to any form of compensation on
termination, can I therefore claim
commission in respect to this relevant
prospective transaction, which, as I say, I
believe to be in the offing?

A. As ever, the answer to this question is:- It
depends. In any situation such as this – i.e.:- as to whether the
agent may be entitled to receive commission in
respect to transactions “in the pipeline” as at the
date of termination – it depends on at least the
following factors:-
Firstly, I would need to know as to whether you had
any written agreement with your principal and, if
you did have any such written agency contract, I
would need to see a copy of it, in order then to
determine whether it contained any provision which
effectively excluded your potential rights pursuant
to [as far as the UK legislation is concerned:-]
Regulation 8;
Assuming then that you either didn’t have any sort
of relevant agency agreement in this instance or, if
you did, that that contract didn’t contain any clause
which effectively excluded your rights under
Regulation 8 (always assuming that the UK
Regulations are the relevant frame of reference, in
this case), the other two primary factors which
would need to be considered are, as follows:-
Firstly, can it be said that the transaction under the
spotlight, when it is concluded, and notwithstanding
that it will have been concluded after you are no
longer the agent for the company, will have been
“mainly attributable” to your efforts whilst you were
acting as agent [i.e.:- as opposed to anybody else’s
efforts]; and:-
Secondly, can it also be said that the transaction in
question was entered into within “a reasonable
period” after the agency with your principal
terminated [and what amounts to a “reasonable
period” will vary from industry to industry, and will
depend in part on what is the normal sort of period
for a transaction to materialise from the roots of an
enquiry].
Following on from the above, it is clear that being
aware of what you have and haven’t agreed to in a
written agency agreement is as important as ever,
and that whereas there are a number of hurdles
which require to be overcome in order to be able to
establish an entitlement to pipeline transaction
commission in any given situation, it is (a) quite
possible that the agent would be entitled, and (b)
quite possible also that the sum involved (as to what
the agent may be entitled to receive) could be a
significant amount.

Q. The industry I am in is currently
experiencing a marked downturn due to
the recession, and that is significantly
affecting my level of earnings. As a
consequence of that, I am looking to take
on an employee role, to supplement my
income. Can I do this without first of all
getting my various principals’ permission?

A. Setting aside all other relevant considerations, I
have to say that, if I was one of your principals, and
you were only going to be representing me on a part
time basis [and it isn’t clear to me from your question
as to how much time you will be spending working as
an employee], I would feel extremely uneasy and
dissatisfied. Whereas of course principals appreciate
that you will have other companies which you sell on
behalf of and that therefore you cannot give 100%
of your time to selling just their products, it is (as I
say) quite another thing to accept that your agent is
not engaged the overwhelming majority of his time
in terms of his business functions, in selling as a sales
agent. It may be that the time you will be spending
as an employee effectively has no or minimal impact
on your function as an agent (in which case no
adverse issues may then arise). Subject to and
following on from the above, a further consideration
is that, pursuant to the Regulations, it is implicit and
very important that an agent will seek always to look
after the interests of his principal, and if the agent is
not devoting substantially the whole of his time to
sales agency activities, then it must follow that the
agent is not then fulfilling one of his core functions,
and so lays himself open to potentially even being
sued by the principal on account of foregone sales
and the lost profit in respect to those sales.
Finally, if it is correct that times are unfortunately
sufficiently tough for you that you have to
contemplate the actions highlighted in your
question, then the most advisable step would likely
be to speak to all of your principals, and to establish
with them as to whether they would be accepting of
your proposed course of action (and, if so, all of any
new arrangements going forward, absolutely must
be recorded in writing, for the avoidance of any
misunderstandings down the line). Also, bear in
mind that if you are going to have to resign any
agency in the circumstances which you have set out,
you would NOT then be entitled to any form of
statutory compensation, as a consequence of you
doing that.

David Bentley is a Partner
with Bentley and Co.
Solicitors and specialises
in agency law.

7 Littlemoor Road,
Pudsey, Leeds, LS28 8AF
Tel: 0113 236 0550
www.bentleyandco-solicitors.com

Disclaimer: This column does not contain legal advice and is for general guidance only. Agentbase, Bentley and Co. Solicitors 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

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