Q’s and A’s on Agency Law

Q) I am being ‘requested’ by one of the principals I represent to vouch for the financial viability of all customers whom I introduce, and otherwise on an ongoing basis, to confirm that the customers I take orders from are able to settle their financial commitments (to the principal). This is being put to me as supposedly a ‘reasonable’ request (which I therefore have to comply with), but is that correct?

A) Whereas (yes) it is correct that you have to comply with all ‘reasonable’ requests made of you by a principal, it is very much a judgment call as to whether or not something asked of you is a reasonable request (and this ought not to be something which is determined solely by the principal). In any event, and my foregoing general explanation aside, I would anyway ordinarily say, save for any relevant exceptional circumstances which you would need to let me know about, that you should not agree to what is being asked of you in this instance, as:-

Firstly, carrying out checks and enquiries as to prospective customers’ viability should never be the responsibility of an agent – as a principal generally always reserves to itself the right ultimately to either accept or not accept any order, one of the factors which undoubtedly influences its [the principal’s] decision in that regard is how confidently it regards the financial position of the customer, and that should be nothing to do with the agent.

Secondly, and in any event, I would be concerned as to the potential implications of an agent (for example:-) implicitly vouching for the financial health of any customer as, in the event that the customer in question doesn’t then pay the principal (and absent very clear and very necessary contractual protection), it might be possible that there is a case for the principal to bring an action against the agent (to recover monies not paid by the third party customer).

In answering this Question, I am making the assumption that you have not actually agreed to carry out the obligation which you describe, in some form of contract document with your principal.

Q) Why do I read you sometimes referring to compensation and, in other instances, to an indemnity? It’s confusing. Why don’t you stick just to using one of the terms, or explain why the necessity for referring to both?

A) The reason for referring to both compensation and an indemnity is because they are alternate entitlements, and are assessed as to their respective amounts quite differently, in that compensation is calculated on the basis of an assessment as to what would have been the hypothetical sales value of the agency as at the point of termination, whereas an indemnity is calculated (very broadly speaking, and taking account of what commissions were earned in the final twelve months of the agency) on the basis of assessing to what extent (and within guideline parameters) the agent would have continued to earn commission from business introduced by him to the principal, and from which business the principal would therefore continue to derive an ongoing benefit.

Also, the amount of an indemnity payment can never amount to more than (but need not be as much as) the equivalent of a year’s average earnings, and will only be the relevant compensatory basis where there has been an election to that effect by the parties (in, say, a formal written contract), with otherwise compensation being the prospective entitlement instead (and by default).

Q) My principal is seeking to argue that I have no rights to any form of compensation following termination of my agency, and that being on the basis that I apparently accepted the Company’s decision to bring about the ending of the relationship by co-operating during the notice period, and so that therefore it was (apparently) a ‘mutual’ decision. Is it indeed correct that I would have no rights or entitlements to any form of compensation in these circumstances?

A) Whilst at all times being very vigilant not in the process to inadvertently compromise whatever rights you may have (e.g.:- to compensation) as a result of such termination, whenever a principal terminates an agency relationship, you must of course and in any event co-operate in an appropriately professional manner, but the fact of you doing so should not of itself prevent you from thereafter being able to pursue your entitlements.

Accordingly, I see no basis to prevent you from being entitled to pursue any valid claim for compensation/an indemnity in the circumstances which you describe, and being cooperative in response to a termination initiated by the principal ordinarily in no way debars you from pursuing a Regulation 17 claim.

Q) I have information that one of my principals is deliberately providing me with inaccurate sales detail information so as to thereby be able not to have to pay me all commission due to me. Is there anything I can do about that?

A) Yes, you should insist on exercising your rights (pursuant to Regulation 12(2)) to be provided with all relevant information from the Company’s sales books and records, in order to establish what sales have been made and, to the extent that you are able to prove that any number of such sales should have generated a commission entitlement in your favour, you should promptly pursue that.

Q) My agency was terminated last September just after I’d shown the principal’s extensive latest range of products to the main core of my customers. Whereas no orders had been placed by that point in time when the agency terminated, I am certain that a substantial amount of orders will have been placed soon thereafter. Is there anything I can do to claim the commissions in respect to such sales?

A) Potentially, yes, provided that:-

Firstly, you did not previously agree that, following termination, you would not be entitled to (so-called) pipeline transaction commissions – you would have agreed this disentitlement if you had agreed that the provisions of Regulation 8 (of the Commercial Agents Regulations) would not apply to the agency (or otherwise words to that effect).

Secondly, [you also need to establish] that the pipeline sales in question will have materialised within a reasonable period post termination.

Thirdly, [you furthermore need to be able to prove] that the relevant transactions were ‘mainly attributable’ to your efforts during the period of the agency, as opposed to anyone else’s (including as opposed predominantly to the principal’s efforts).

Q) I am owed a substantial amount of commissions by a principal based in France, and also have a claim to bring (against the same company) for compensation following the termination of my agency. Do I have to pursue my claims under French law?

A) No, you would pursue your claims under this country’s law unless you had otherwise agreed (ordinarily in a formal written contract document) that French law was to apply in respect to the relationship instead. In other words, and making the assumption that you operate in this country, unless you have agreed to be bound by the laws of another EU country, you will (by default) be bound by the laws as apply to the activities of agents in Great Britain.

 

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

Fax: 0113 236 2511

Email: db@bentleyandco-solicitors.com

www.bentleyandco-solicitors.com

www.directiveglobal.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 the 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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