Appointing an exclusive agent: what are the issues to look out for?

There is an urban myth that if a company appoints a sales agent on an exclusive basis, the sales agent can act only for that company and for no other company.

The fact that this is an urban myth is shown by replacing:

We appoint you as our exclusive sales agent” with “We grant you exclusivity”.

In other words, by granting a commercial agent exclusivity, the company is restricting itself from what it can do.

This self-restriction requires that consideration is given as to the extent of the exclusivity. All too often agency agreements provide simply for the commission only sales agent to be an exclusive agent for the sale of the company’s products in the territory.

The issues of uncertainty

However, granting exclusivity still leads to uncertainty in a number of respects.

Without further detail, what is to be the situation if the company:

  • Extends the range of its existing product line?
  • Puts onto the market replacement products for its existing product lines?
  • Stops offering certain products for sale?
  • Develops or acquires new product lines?

If the agency agreement is not clear about the target customers for the products, difficulties can arise. For example, will the sales agent be suitable for all target customers? Does the company wish to reserve certain customers to itself? Is it intended that the sales agent will be able to seek orders from the online channel?

Geographical consideration is the final issue of uncertainty. Countries and areas do change – for example, in terms of a sales agent whose territory is the European Union after Brexit. But what of the situation where:

  • an order is obtained by a sales agent from a customer in one area;
  • but the head office of the customer is in the territory of a different sales agent; and
  • the goods are to be delivered to an address in the area of a third sales agent?

 

Exclusive v sole v non-exclusive

It would be reasonable for non-lawyers to hope that what is meant by “exclusive” would be clear in law. For example, as a result of having been defined in an Act of Parliament or judgment given by a court. The reality is that this is largely a false hope.

There is no Act of Parliament which defines “exclusive” in the context of agents. Further, such judgments as exist are old judgments concerned with the entitlement of estate agents to commission.

As such, it is normally considered that in the absence of other words in the agency agreement, the appointment of a sales agent on an exclusive basis means that the company appointing the sales agent cannot compete with the sales agent in the obtaining of orders. Nor can the company appoint other sales agents who compete with the first sales agent.

In contrast, if the sales agent is appointed on a sole basis (and again in the absence of other words in the sales agency agreement) the company appointing the sales agent can compete with the sales agent in the obtaining of orders for the company’s products. But, the company cannot appoint other sales agents to do so.

The third – and least common – type of appointment is where the sales agent is appointed on a non-exclusive basis. In this situation, the company appointing the sales agent is able to meet with the sales agent and appoint other sales agents to compete with the first agent in the obtaining of orders for the company’s products.

But, in respect of each type of appointment the overriding points are:

  • whether or not there are other words in the sales agency agreement which may affect the extent of the sales agent’s appointment; and
  • the need to specify clearly the products, customers, and territory which are the subjects of the appointment of the sales agent.

 

Why does all this matter?

The relationship between the principal and the sales agent should be a symbiotic relationship. The better the sales agent does, the better the principal does, and vice versa. But agents are protected significantly by law.

Accordingly, this all matters because, unless the sales agency agreement is drafted so as to maximise the sales agent’s performance and minimise the principal’s exposure, the principal can be left exposed when dealing with a sales agent’s claims:

  • for commission; and
  • in respect of the statutory rights to which a terminated sales agent is entitled.

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Stephen Sidkin

T: 020 7614 2505

F: 020 7614 1405

SlSidkin@foxwilliams.com

Stephen Sidkin is partner at Fox Williams LLP (www.agentlaw.co.uk; www.fashiolaw.co.uk)

© 2020 Fox Williams LLP

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