Turn to Face The Change

by Stephen Sidkin
of Fox Williams LLP

Competition never
ceases. A business can
succeed or fail by its
willingness or not to
accept change, to adapt,
or to move forward.

But what of a situation where a principal needs an
agent to change? Is the agent obliged to do so?
Can the agent treat the requirement to change as a
material breach of the agency agreement triggering
a claim for compensation or indemnity?

In one case decided in 2006, the relationship
between principal and agent had been
disintegrating for some time, not least as a result of
what the principal considered to be the
underperformance of the agent. The principal had
a t t emp t e d t o a d d r e s s t h e a g e n t ‘ s
underperformance by requiring him to use a palm
computer. However, the agent pointedly refused to
use the computer and was generally disruptive and
abusive.

Ultimately, the principal informed the agent that it
was reducing the extent of the agent’s territory and
market. This was an action which was specifically
provided for in the agency agreement. However, it
resulted in the agent claiming compensation under
the Commercial Agents Regulations on the basis
that the agency agreement had been wrongly
terminated by the principal.

Before the court, the agent pointed to the
obligation on the principal to act dutifully and in
good faith. However, the court concluded that the
agent had failed to maximise sales opportunities
and that this was in part as a result of his refusal to
use new technology. His refusal went to the heart of
the agreement and, as such, the termination was
justified.

Four years later, in a similar pattern of events, the
cour t again concluded that an agent ‘ s
noncompliance with a principal’s reasonable
instructions justified the termination of the agency
agreement. In this particular case, the principal had
bent over backwards to accommodate the agent’s
repeated refusals to use email, even to the extent of
offering to pay for the agent to attend evening
school classes. However, at the same time, the
principal informed the agent that if he continued to
refuse to use email, it would impose an
administration fee on him.

When, ultimately, the principal did impose this
administration fee, the agent verbally abused the
principal’s managing director and it was on this
verbal abuse that the principal relied for its defence
when the agent brought a claim in court against it
under the Regulations.

In relying on this verbal abuse as showing a
breakdown in the relationship between principal
and agent, the principal was taking a chance. It
would have been better advised to rely simply on the
agent’s refusal to comply with the principal’s
reasonable instructions to embrace a change in the
way in which the agent had been working, namely to
use email.

A different scenario was at the heart of another
judgment six years ago where the principal required
a change in the work undertaken by the agent. In
this particular case, the principal was able to rely on a
provision in the agency agreement which enabled
the principal to require the agent to change the way
in which it worked. As a result, in the subsequent
litigation, the court decided, unsurprisingly, for the
principal.

So what can be drawn from these judgments?

First, it is clear that the courts will not stand in the
way of reasonable requirements made by the
principal. Equally, the courts will permit businesses
to become more efficient – an agent refusing to
‘move with the times’ may find himself on thin ice.
But third, it will help enormously if the agency
agreement enables the principal to expressly require
various changes in the way in which the agent goes
about his business to take place.

Five top tips
for principals…

A formal agency agreement will invariably
enable the principal to maximise the agent’s
performance and minimise the principal’s
exposure.
An agreement which is clear as to goods or
territory will protect the principal. In contrast,
an agreement which refers to “the principal’s
products” or is vague as to territory (for
example, north of a line from the Severn to the
Wash) will only harm the principal.
The agency agreement should provide
expressly for the agent to comply with the
principal’s reasonable requirements.
A contractual provision by which the agent
acknowledges that from time to time the
principal may need the agent to change the
way he works will assist the principal.
If the agent is to be required to address
different markets, handle different territories,
or seek orders for different goods, the principal
should look to put in place a number of
separate agency agreements with that agent.

Ten Dominion Street,
London,
EC2M 2EE

Tel: 020 7614 2505
www.foxwilliams.com

Stephen Sidkin

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

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