Could there be opportunities for principals and sales agents alike as a result of the UK leaving the EU, as is expected, on 31 October 2019 without a withdrawal agreement being in place?
The question may seem counter-intuitive. But where a principal is looking to exit a sales agent, Brexit could well turn out to provide an opportunity to do so. However, the same may also be the case for the commission only sales agent which is acting for the principal!
Why is this important?
Agency agreements exist (as do all contracts) to regulate the relationship between two parties in respect of a particular issue.
But unlike other commercial contracts, the law of many countries provides specific protection for sales agents in the event of termination an agency agreement.
As a result, if the principal gave notice to the sales agent in accordance with the terms of the agency agreement, a claim for compensation can be compounded by a claim for the other statutory rights that the commercial sales agent may enjoy. For example, under EU law a sales agent may on termination of the agency agreement be entitled to claim:
- damages for failure to give proper notice; and
- commission earned but unpaid at the time of termination; and
- commission which would have been earned had the agency agreement continued by reference to the orders which reached the principal after termination as a result of the efforts made by the sales agent before termination; and
- commission on orders which have been accepted but not fulfilled by the principal where the reason for nonfulfillment is a reason for which the principal is responsible.
Why then the possibility of Brexit opportunities?
Many sales agency agreements will contain force majeure clauses. The literal meaning of force majeure is an unforeseen circumstance that prevents the fulfilment of a contract.
So far, so good. But:
- experience shows that many force majeure clauses are poorly drafted in terms of when they operate and what are the consequences of the occurrence of an event of force majeure.
- can it really be said that the occurrence of a hard Brexit and its consequences is an unforeseen event?
It has also been recently argued by the European Medicines Agency that the consequences of the UK leaving the EU meant that a lease of its offices had been frustrated – resulting in the EMA not being liable for its continuing lease obligations. However, this argument was rejected by the English High Court.
The upshot of this is that as the sales agency agreement cannot as a matter of English law be ended as a result of Brexit occurring, then it must be the case that both parties are required to continue to perform it.
As a result, it will not be possible for the sales agent to claim that it has been unable to do this or that as a result of Brexit. Non-performance is likely to provide an opportunity for the termination of the agreement.
Following on from this, the principal should consider the provisions in its agreement that deal with the sales agent’s performance obligations. Non-performance of a particular obligation may provide the opportunity to claim that the sales agent has committed a breach so allowing the agreement to be terminated for cause – and putting the principal in the position where they can avoid a claim for compensation!
Be careful what you wish for
Given that such an agreement cannot be ended on the basis that Brexit has resulted in the agreement being frustrated or that Brexit amounts to an event of force majeure, it is the case that the sales agent can look to the principal to continue to perform their contractual obligations.
It will not be enough for the principal to claim Brexit this or Brexit that. Non-performance of the agreement by them may enable the sales agent to claim breach so resulting in a claim for compensation and other entitlements.
It is possible that the sales agency agreement will be governed by law other than English law. Indeed, in the case of agreements where one party is in the EU and there is no express reference to the law of a particular company, EU law will determine which country’s law (that of principal or agent) will apply.
This is important as the laws of many member states of the EU may take a different view as to the effect of Brexit – so resulting in termination of sales agency agreement or a claim for damages by the sales agent in any event.
© 2019 Fox Williams LLP