Q’s and A’s on Agency Law - February 2013
© David Bentley, Bentley and Co, Leeds
Q.In the last quarter period, I have failed to achieve an agreed sales target on behalf of one of my principals, and am concerned as to whether this may mean that the principal may consequently be entitled to terminate my agency, without any further obligations to me. I have a written agreement with this company, clause 3.4 of which provides as follows:-
“The Agent shall use all best efforts as is reasonable for the Principal to expect to achieve the Sales Target as agreed from time to time”
What is your advice, please?
A.Whereas you say in your Question that you have an “agreed sales target”, what the wording of your contract appears actually to stipulate is that you have in effect to “reasonably endeavour” to achieve any agreed level of sales and, so long as you can show that you have done that, then I do not see that you have necessarily breached any of your contractual obligations to this principal. That said, it may of course be that your agency contract has other provisions, which other provisions may contradict or change the effect of clause 3.4 but, that possibility aside, I reiterate that I do not see that your principal would have any basis for terminating your agency forthwith (i.e.:- with potential loss of termination rights) unless it can establish that, and as I say, you failed (in the words of clause 3.4) “to use all best efforts as is reasonable for the Principal to expect to achieve the Sales Target as agreed from time to time”.
Q.Pursuant to my agreement with my principal, I am entitled to receive 6% commission on all sales from an agreed territory area, plus an additional 2% on top of the 6% if I achieve sales in any given 12 months period over and above a stipulated level. The industry which I operate in is relatively resistant to the general economic climate, and I last year achieved a level of sales over the 6% sales threshold. The problem which has however arisen since then is that the largest part of my threshold “excess” sales has related to one particular transaction which ultimately fell through after the order had been agreed and processed, and this being solely on account of the principal failing to deliver the products on time and as agreed, as a result of which the customer resourced the product elsewhere and cancelled. My principal is consequently now refusing to pay me my commission in respect to this sale- can I reasonably object to the principal’s stance as regards this?
A.Regulation 11 is relevant here, which provision stipulates that:- “The right to commission can be extinguished only if and to the extent that (a) it is established that the contract between the third party and the principal will not be executed; and that (b) that fact is due to a reason for which the principal is not to blame”.
On the basis therefore of the above Regulation, and on the basis also that it can be established that (and as appears to be the position, judging from what you are saying) that the relevant sale only fell through on account of the principal’s failures in some important respects, I would say that you are definitely potentially entitled to insist on your commission being paid to you, notwithstanding that the principal has effectively failed to see the sale ultimately materialize. Following on from this, you should put your case in writing to the principal, making clear why you consider that you are entitled and, if necessary, promptly take legal advice if no satisfactory response is forthcoming.
Q.A new account which I recently opened on behalf of one of my principals has gone into liquidation, and this being after the ordered goods were delivered, but before payment had been received. As a result of this, my principal is saying that it will hold me ultimately responsible to pay whatever is the shortfall after the liquidation process has been concluded, and after whatever available pence in the pound has been paid. Is this something which it is entitled to do?
A.In the absence of very unusual circumstances (such as that - for example - (1) you had agreed to act as the principal’s “del credere” agent (and this possibility is one reason amongst many as to why it is so important to carefully scrutinize and understand every contractual provision which you may be agreeing to), or (2) in opening up this new account and taking the relevant order you had acted recklessly or otherwise in contravention of the principal’s specific and reasonable instructions as regards opening up new accounts, to the point where, if the matter was pursued by the principal, a Court may consequently hold you as being obliged to pay financial “damages” to make good any loss which you had thereby caused), I would answer your Question by saying that your principal is absolutely notentitled to take the course of action which you have described - as an agent, and in the absence of the exceptionally unusual circumstances along the lines which I have described, you are not and cannot be deemed as being any customer’s guarantor, and a principal has no entitlement to make out otherwise.
Following on from the above, and in passing, I would make the following additional points:-
Firstly, if the customer has not already sold on the purchased goods, I would be surprised if the principal did not have any effective retention of title clause in its standard terms of business, which should then enable it make recovery of some or all of its goods.
Secondly, any principal would ordinarily reserve to itself (in - again - its terms of business) the right to accept or decline any order taken by an agent, which therefore affords it the opportunity to run all and any necessary credit checks on any new account. In the alternative, any principal acting cautiously with any new account or with any account with which it may have concerns, I would expect only to beoffering pro forma terms
Q.I am taking on a new agency, and have been presented with a draft agreement which describes me as the Company’s “sole” agent in respect to the stated territory area. Is this something which I should be happy with, or is better that I be described as the Company’s “exclusive” agent?
A.Ideally, it is better that you are described as “sole and exclusive” and that, moreover, somewhere in the agreement it is also made clear that what is meant by “exclusive” is that you are thereby entitled to receive full commissions in relation to all and any sales which are made (whether directly via yourself or not) with any customer within your stipulated territory area, or otherwise within the group of accounts which it is agreed are your responsibility - i.e.:- in other words, that you are entitled to receive commission on all relevant sales, irrespective as to how those sales materialized.
By way of some additional comments to the above:-
Firstly, you should be aware that an agent being appointed on a “sole” basis would likely mean that whereas the agent would be the Company’s only agent in the relevant area, that would not prevent the principal from itself “competing” in the territory by having its own employed sales force, the fact of which would potentially very significantly negatively impact on the amount of the agent in question’s rights on termination, to any compensation.
Secondly, you also need to take care to check the wording of any written contract, as regards how the terms “sole” and/or “exclusive” may be specifically defined, for the purposes of that agreement.
Q.My principal recently effectively forced me to accept a cut in my commission rate from 5% to 4% - the Sales Director had e-mailed me, informed me that this was going to happen, and that I should accordingly forthwith submit my commission invoices at the reduced rate which, for the first subsequent two months, I have duly done. After however reading some of the Q’s and A’s in previous columns of yours, I have now formed the impression that my principal acted unfairly in forcing this change upon me and, as I never acquiesced in this way before, am I in a position to make my point to the principal that it has effectively breached the terms of my contract?
A.The first point which concerns me based on the information which you have set out in your Question is as to whether or not, by submitting your commission invoices at the new rate, you may thereby have already signified your acceptance of the position which (as you say) was forced upon you, or whether instead and in doing so, you had somehow effectively reserved your position and made clear that you did not accept the change.
The above is potentially fundamentally important in determining what may be your rights in this matter, as what started out as an attempt to force a change may ultimately be regarded in the eyes of the law as a change by consensus, if the agent’s reaction (however reluctantly) is deemed as effectively one of acceptance.
Subject to the above, I would want to establish with you whether you had any written agreement with this principal and, if so, what the terms of that contract may provide for, and also whether there have been any previous instances of your effectively accepting the principal forcing changes on you, in any similar way.
Q.My principal has recently required me to undertake several additional tasks, in terms of calling on customers to collect faulty products, which additional obligations have caused me to incur a significantly higher level of expense items, mainly petrol. Am I entitled to claim this back from the principal?
A.In the absence of any agreement to the contrary as regards this, I would say “no” - as a self employed entity, you would ordinarily be deemed as being solely responsible for your own operating expenses and so that it is obvious that, if your principal is requiring you to undertake duties beyond the scope of what was originally agreed, and, as a result of which, you are therefore incurring expenses which were not contemplated or budgeted for at the outset, you should seek an express agreement that an appropriate contribution to your expenses outlay, be made.
Further to the above, bear in mind that your principal is only entitled to require you to comply with its “reasonable” instructions, and so that if what you are being asked to (additionally) undertake is beyond the scope of what is “reasonable” you would accordingly be perfectly entitled to decline and to say that it is unrealistic to expect you to do whatever is the relevant task.
Q.I operate as an agent in a particularly competitive industry where sales can be lost if customers’ product query specifications, or price negotiations, are not dealt with promptly. In this respect, one of my principals last year had an overhaul of its sales division, and the upshot of that to me is that, ever since, I have struggled to be able to respond to my customers sufficiently quickly, and am consequently losing sales and commission revenue. Is there anything I can do, and what should I be doing about this?
A.Basically, there is a line between a principal (on the one hand) being, in effect, (perhaps temporarily) disorganized/slow to respond, which an agent may have just to recognize as an issue not serious enough on its own facts to justify any legal claim against the principal (but sufficient merely to persuade the agent to consider looking for an alternative company to represent), and (on the other hand) the principal’s incompetence/disorganization being so fundamentally an issue and so marked that the agent may indeed be entitled to pursue legal action (against the principal - for - for example - commission for lost sales), and as to which side of the line your particular situation and circumstances stand is a matter of degree. There are also provisions in the Regulations which require a principal to act “in good faith”.
In practical terms, my advice to you would be, in the first instance, to keep as careful a log of events as is possible, and so that, down the line, the relevant events and details may be succinctly and accurately recorded, if and as necessary. Beyond that, I would advise - depending on the seriousness and specific aspects of the principal’s apparent failings - that you promptly address (in writing) the relevant issues with the company, and make clear that its actions and shortcomings are not acceptable.
In summary, my advice is therefore that, depending on - for example - (a) what the principal is failing to do, (b) how serious in degree those shortcomings are, (c) to what extent the failings are directly the responsibility of the principal, and (d) how seriously those circumstances financially negatively impact on you, it may very well be possible to potentially establish a case and claim against your principal that (for example) it has fundamentally failed to deliver on its basic obligations to you, which in turn affords you various rights. However, the strength of such a case will depend on all of the relevant facts (see above), and potentially how quickly you react.
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Please ensure that you obtain legal advice before acting in reliance upon anything in this article, particularly since each individual’s circumstances may necessitate a unique approach, and also on account of the fact that the law may of course at any time change. Furthermore, please be very clear that the answers given in this column may not cover or otherwise refer to all possible angles, aspects, relevant information 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.