Q & A’s on Agency Law

by David Bentley of Bentley and Co. Solicitors

Q. I have been representing a particular principal for approximately ten years, and have recently been presented with a draft agency agreement which contains provisions that I find unacceptable (such as a post termination restrictive covenant, and a sales target obligation which is described as a “fundamental” obligation). Whereas I have read your frequent comments that I would not necessarily at all have to sign any such agreement, the position however is that I am being threatened with termination of the relationship unless I do so – what, please, is your advice?

A. The first thing to understand is as to whether what you are being asked to sign reflects terms in respect to your agency which are already agreed – if the draft contract does merely contain terms which are already agreed then, since you are simply being asked to sign an accurate written record of those terms, you would be obliged to do so.

On the other hand, if the draft agreement does not reflect terms already understood and agreed as between you and the principal, you would be entirely at liberty to refuse to sign. Obviously, the difficulty here is that you have said that the principal has threatened to terminate your agency if you do not accept the terms of the proposed agreement. It is very important that you understand that, if you refused to sign a written agreement which never reflected the current terms of your agency then the fact of that does not preclude you from being entitled to claim compensation/an indemnity, in the normal way, if the principal did ultimately go ahead and terminate you because you did not sign. At the end of the day, it is going to be a question therefore as to whether you are better taking your chances that the principal will not after all terminate if you do not sign the document (but, if it does, that you potentially at least will be perfectly entitled to as a consequence of that claim compensation). Or, on the other hand, you entering into the agreement, potentially then falling foul of one of the nasty fundamental obligation provisions and having the agency terminated on a forthwith basis with then no entitlement to any compensation.

Q. I have an agency with a company based in Australia. In the event ever of a parting of the ways, would I be protected by the Commercial Agents Regulations?

A. First of all, in the event that you happen to have a written agreement with this company in Australia then you need to establish as to whether it stipulates that the laws of Australia (or of any particular State in Australia) apply to and govern the relationship. In that situation, and whereas that would not of itself preclude the application also of the UK Commercial Agents Regulations (see below), if however you are going to be agreeing to the application of another Country’s laws then you must be very clear as to what those laws will entail from your point of view, as if you were to ever to breach any relevant terms, and you having agreed to another Country’s legal system as being the contractual frame of reference, that could potentially ultimately scupper what would otherwise have been your potential entitlement to compensation pursuant to English law.

Secondly, and the above made clear, if you have entered into an agreement which is stated to be subject to Australian law then, because Australia is not another member State of the EU, and assuming you satisfy all relevant criteria and can overcome the necessary hurdles, the UK Agency Regulations would also apply (including in the event of a termination), thus potentially entitling you to make a claim for compensation. Finally, if you do not have any written contract with this Australian principal then, on the assumption that (for example) you are carrying out your agency function in this Country, the Regulations will in principle similarly apply.

Q. My principal has recently terminated my agency after an 18 months period, and is claiming that I am not entitled to any form of compensation as I was only ever appointed on a trial basis – is this a valid argument?

A. In a word:- “no” – first of all, I would suggest that 18 months is a very long “trial period” but it isn’t about how long that initial period is supposed to be, in any event – all agencies potentially involve the obligation of the principal having to pay compensation/an indemnity and the fact that what the principal is saying to you doesn’t hold any water is that, upon expiry, all fixed term contracts (which is what a trial basis arrangement effectively is) potentially likewise involve an obligation to potentially have to pay compensation/an indemnity.

Q. I am currently in negotiations with a former principal with regards to my claim for compensation, following termination, and the company in question (with which I did not have any written agency contract) is making a major issue as to the fact that (as it sees it) I did not open many new accounts, which (in its view) impacts on the value of my claim. Is this correct?

A. If I am to assume that your claim is to compensation as opposed to an indemnity (and I make this assumption on the basis that you say that you didn’t have any written agreement with this principal), then as to whether or not you opened x or y number of accounts is not necessarily at all relevant in assessing the quantum of your claim for compensation – the value or worth of the claim is reflective of the amount which a hypothetical purchaser would have paid to acquire the agency and, reflective of potentially a very high agency value, you may very well instead have sustained and maintained business for the principal which business might otherwise have gone to competitors, and/or you may have been very successful in increasing business from existing customers, and these (other) factors are potentially very important in terms of establishing the value of your agency. The above said, keep in mind that if the termination of your agency entitled you instead to an indemnity that the factors which would then determine the value of that claim would be distinctly different in terms of the relevant considerations, including the fact that the number of customers introduced would be much more of a front-line valid (although NOT the only important) consideration.

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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