Q’s and A’s on Agency Law - April 2012
© David Bentley, Bentley and Co, Leeds LS28 8AF
Q.An agency I had held for some time was recently terminated and, in response to my claiming compensation as a consequence of that termination, the principal is arguing that it is not obligated to have to pay me anything on the basis that, in terminating my appointment, it acted entirely properly by affording me the correct amount of notice period and promptly and in full paying me all of the commissions which I was due. Is this correct? In other words, does the fact that the principal did not breach any of its obligations in terminating the agency mean that it therefore does not have to pay me any compensation, as a result?
A.No, as long as, following termination, you did not agree with the principal that any such payments then being made to you were intended to compromise any rights which you additionally had to the appropriate form of compensation. The fact that the principal may very well have acted entirely properly in how it went about terminating your appointment does not then get it off the hook in terms of potentially being additionally obligated to have to financially compensate you – in other words, that potential obligation to have to pay compensation is not rooted in the fact of the principal having gone about the termination process wrongly by (for example) not having afforded the agent proper notice, but simply by dint of the fact of the termination, in circumstances giving rise to a claim.
Q.As I understand that there are strict time deadlines which apply following termination in terms of when I then have to have notified any former principal of my intention to pursue a claim for compensation or an indemnity, how can I gauge as to when termination is deemed to have actually taken effect?
A.The date as to when termination is deemed to have taken place is ordinarily very clear and easily established as a point of reference, and is not necessarily the same date as when notice of termination is served – i.e.:- it is that date from when the agent no longer has the continuing authority of the principal to negotiate or negotiate and conclude sales on the principal’s behalf. Whereas, and as I say, in most cases, this relevant date will not be open to any doubt, the case of Claramoda Limited –v- Zoomphase Limited is interesting to note as to how a Court determined a situation where the date of termination wasn’t clear, and with specific regard to determining when therefore the 12 months time limit for the agent having to have notified of his intention to pursue a claim for compensation, had expired – in thatClaramoda case, and whereas the principal had signalled its wish that the agency come to an end, no actual date for subsequent termination had ever been settled on, and so what the Court had to look at was up until what point in time the agent effectively had the principal’s continuing authority to negotiate/negotiate and conclude sales which, on the facts of that particular case, was some considerable period after the notice of termination had been given.
Following on from the above, the answer to your question is therefore that, in the first instance, it ordinarily ought to be very clear as to when termination is deemed to have taken effect (e.g.:- the principal’s letter of termination ought to state that). However, where the position for whatever reason isn’t clear, the outcome of the Claramoda case is helpful (i.e.:- it confirms, as I say, that the relevant point to establish is when the agent no longer had the principal’s authority to act as its sales agent), plus it should anyway always be borne in mind that effective notice of intent to pursue a claim for compensation/an indemnity ought always to be given as soon as practically possible, should be in writing and should also be given in accordance with any relevant provisions of any written agreement.
Q.I am unclear as to whether my entitlement to compensation on termination of my agency is to an indemnity or not – whereas I have a written agreement with my principal, and whereas there is a section in that contract headed “Compensation”, the relevant wording beneath the heading then goes on to refer (for example) to any entitlement being capped at one year’s averaged earnings. What is your advice as to what may be my entitlement, please?
A.Obviously, I would need to actually see a copy of your contract, and to see what is set out as regards your entitlement on termination – based however on what you have set out in your question (and I would certainly not rule out other possibilities), it seems to me that there are two possible scenarios, here:-
Either you have a written contract with your principal which, potentially unlawfully and invalidly (on the basis of Regulation 19), seeks to limit the amount which you may claim by way of compensation when, subsequently, the agency terminates; or, as an alternative scenario, it seems that maybe whereas the relevant wording may very well not be at all perfect and (therefore) confusing, and as it did in the 2002 case of Hardie Polymers –v- Polymerland, a Court may decide that, even though the relevant heading of a clause dealing with the issue was entitled:- “Compensation”, it was apparent from the actual provisions and wording of that clause that the parties had intended that the agent’s entitlement on termination was indeed, and in fact, to an indemnity.
In the first instance therefore, and as I say, I would need to see an actual copy of your agency agreement.
Q.My agency has terminated and I am currently at odds with my principal as to how much I should receive in respect to commissions for future orders where I will have played a substantial part in their procurement, when they do ultimately materialize. Is there a test for establishing this?
A.First of all, I am of course assuming that you do not have any written agreement with your principal which precludes your entitlement to post termination commissions (pursuant to Regulation 8) – I am partly making this assumption as I would not imagine that your principal would otherwise be discussing this with you, if it weren't for the fact that he is aware, or has been advised, that it is a relevant potential entitlement which you have.
The above assumption made, I would answer your question like this:-
There is no actual time limit set down by Regulation 8 – all that that refers to is a “reasonable” period following termination of the agency, and so that the answer must therefore (unhelpfully) be that what is deemed “reasonable” must vary from case to case and industry to industry – for example, whereas in some industries, and if they are ever going to materialize, orders will follow on very quickly after an agent’s input, there are other industries where that is not the case at all (such as was held in the 2003 case of Tigana –v- Decoro, where a “reasonable” period was held to be several months following termination, and that being on the basis (of the specific facts of that case) that sales had started to grow very significantly after the agent had been appointed and the fact also that the agent had inputted his work very much at the start of the agency relationship and so even though that relationship was very short lived in that instance, it was clear that specific sales which continued to flow in after the termination date were substantially due to the agent’s efforts over anybody else’s.
Q.In these currently difficult trading times, my principal is consistently late in paying me my commission due. Whereas, to a limited extent, I am generally understanding (and therefore tolerant) of the position (particularly since I am pleased with the agency in terms of what overall I earn from it), is there anything which you advise that I should be doing, to nevertheless safeguard my position?
A.The first point to make is that, by effectively indulging your principal in this way, you are potentially placing yourself at greater risk of, as regards ultimately being paid this particular amount (and as with payment of any other sum which you might be owed by your principal), not being paid any or all of the relevant sum as an unsecured and non preferential creditor, in the event that your principal went into liquidation. The second point is that you may be very well advised to in any event write to your principal, explaining your position, and the fact that you are not by your actions waiving or intending to waive your statutory rights as to when you should be paid.
The point with the above is, even though your entitlement as to when, by statute (i.e.:- pursuant to Regulation 10(3)), and as a "long stop" date, you HAVE to be paid commission due, and that that date cannot be varied to your detriment, to nevertheless avoid misunderstandings, it is probably best to explain in writing that you are not intending by your actions to set any sort of precedent.
Following on from the above, a couple of further points to make to you are, as follows:-
Firstly, as there is this "long stop" protection in the Regulations as to when you HAVE to be paid commission due to you (and quite apart from whether your contractual rights afford you an even better payment arrangement) I would normally be taking the very firm position that an obligation to have to pay agents their commission on time is not negotiable.
Secondly, consistently late payment of commission, which actions constitute breaches of contract (and of Regulation 10), may ultimately lead to a constructive termination scenario, and thus potentially far greater problems for the principal concerned. In certain extreme cases, therefore, it may be appropriate to promptly remind the principal of this, in appropriate terms.
Q.I had an agency terminated earlier this year, and, in response to my making a claim against it for compensation, my former principal has argued that, using (its interpretation of) the rationale of the House of Lords' decision in the Lonsdale -v- Howard & Hallam case, I should not be entitled to anything much (if to anything at all) as my earnings were relatively small. Is this correct? If so, how does it place agents who perhaps have several "small" agencies which, taken together and as a whole, nevertheless constitute a very viable agency business?
A.This sort of approach appears to have largely stemmed from some comments made by the Judge in the 2007 case of Nigel Fryer Joinery Services Ltd -v- Ian Firth Hardware Limited, which comments were to the effect that, on the basis that the amount of compensation due to an agent was broadly referable to that amount which, on a hypothetical sale of the agency as at the date of termination a willing buyer would have paid the terminated agent for his lost agency, no one would have paid anything much at all for an agency with a relatively low income.
Thankfully, the above opinion has not been taken up subsequently as a binding approach and as it appears to fundamentally undermine the main purpose of the original EU Directive, to not be in line with what the House of Lords in Lonsdale intended, and overlooks the obvious fact that ALL agencies, from the biggest to the smallest, potentially have relative and proportionate value, I personally doubt that the approach being taken by your principal has any merit, and that this will become an approach constituting a precedent.
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