Transferring Agency Agreements

by Andrew Leach of Cobbetts L.L.P.

The English High Court has recently ruled
that an assignment is insufficient to transfer
an agency agreement to a limited company
set up for tax reasons. This can have serious
consequences if the principal subsequently
terminates the agency and the agency
company seeks compensation from its
principal under the Commercial Agents
Regulations (“the Regulations”).
The recent decision in Barnett Fashion Agency Ltd v
Nigel Hall Menswear Ltd is a stark reminder for
agents that the process of transferring an agency
agreement to a new entity is not a straightforward
matter. This transfer often takes place when a sole
trader (agent) decides to incorporate a limited
company to transact the agency business through.
The transfer of the agreement should be considered
fully and legal advice should be sought on whether it
is effective to transfer both the benefit and the
burden of the agency agreement to the new entity.
If the agency agreement is only assigned, then this
will not be effective to transfer the burden of the
agency agreement and this will have serious
financial consequences if the new entity seeks
compensation on the termination of the
agreement.
FACTS
Nigel Hall was a manufacturer of high quality
menswear. He traded through a limited company,
Nigel Hall Menswear Ltd (“the Defendant”). In 2000,
the Defendant appointed David Barnett, an agent
for clothing manufacturers to be its agent. At the
time, David Barnett traded as David Barnett
Associates (“DBA”), a partnership. The agency
agreement was contained within a letter from the
Defendant to DBA and was governed by the
Commercial Agents Regulations, which give agents
minimum rights under European Union law, such as
the right to claim substantial lump sum payments on
the termination of an agency agreement in certain
circumstances.

DBA initially sent the Defendant invoices and these
were duly paid. Mr Barnett later received
accountancy advice and was advised to incorporate
a company through which to provide DBA’s agency
services. Barnett Fashion Agency Limited (“the
Claimant”) was incorporated in 2003 and DBA
purported to transfer all its agency contracts to the
Claimant. All invoices for commission due were
presented to the Defendant as “David Barnett
Associates trading as Barnet Fashion Agency
Limited”. No discussion took place between the
parties as to the assignment of the agency
agreement, however the Defendant did not raise
any objections to the new invoices and continued to
trade under the agency agreement.
In 2005, the relationship between the parties broke
down and the agreement was terminated by the
Defendant. The Claimant brought a claim for
compensation in the sum of £190,000 for the loss of
the value of the agency agreement under the
Regulations. The Defendant stated that the
Claimant had no standing to bring such a claim,
because it was not a party to the agency agreement
(the agency agreement being with DBA the
partnership that was in existence at the time the
agency commenced and not the limited company
being the vehicle that was created to transact the
agency business through).
DECISION
The High Court decided to consider whether the
Claimant had standing to bring the claim before
considering the evidence. The High Court
ultimately ruled that the agency agreement was
between DBA and the Defendant and that the
Defendant owed no duties to the Claimant. Even if
DBA had assigned its rights under the contract to the
Claimant, that did not have the effect of transferring
the whole agreement. In order to transfer the whole
agreement (i.e. the benefit and the burden) all three
parties would have had to consent in the form of a
novation agreement. There had been no discussion
about the assignment with the Defendant and it had
not agreed to a novation. The only right that DBA could assign to the Claimant was its right to receive commission payments from
the Defendant. The Claimant was not entitled to
receive compensation payments from the
Defendant under the Regulations.

CONCLUSIONS

Only the benefit and not the burden of an agency
agreement can be assigned. In order to transfer the
whole agreement to a limited company (or any
other entity), all three parties would need to enter
into a novation agreement. This will require the
principal’s consent.
DBA would still, in principle, have been entitled to
bring the claim for compensation. However, the
Commercial Agents Regulations impose a one year
time limit for compensation claims to be notified.
This period had expired whilst the wrong party was
pursuing the claim. DBA, the correct party, therefore
lost its right to claim compensation.
This case highlights the benefit of ensuring that the
contractual position is reflected properly in the
documentation and of using a specialist lawyer with
more expertise in this area. Cobbetts LLP are such a
firm and have a specialist team of lawyers dealing
with commercial agents’ issues and contractual
issues regarding the importing and exporting of
goods generally.

Article written by Andrew Leach of
Cobbetts LLP, a leading law firm with
offices in Birmingham, Leeds, London
and Manchester

Head Office:
One Colmore Square
Birmingham B4 6AJ
Tel: 0845 404 2564
www.cobbetts.com

Disclaimer: This column does not contain legal advice and is for general guidance only. Agentbase, Cobbetts LLP and the writer accept no liability in connection with the general guidance given in this column.

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