WS7 – AGENCY AGREEMENTS

Agency (Commercial Agents (Council Directive) Regulations 1993) and Distribution Agreements

Two most common Agency

forms of marketing
arrangement.  an agreement where on person acts on behalf of another.
 Agents, if acting within their authority, bind their principal who can sue and be sued on the
contract.
 Principal and Agent treated as one undertaking (Regulations apply)
Distribution agreement

 supplier sells goods to a distributor who buys to re-sell on his own behalf.
 The distributor’s profit is the mark up he charges on the subsequent re-sale.
 Supplier has no contractual relationship with end customer.
 Two + separate undertakings and Art. 81 applies (not Regulations)

Why chose one over Agency Distribution agreement

the other? Agents generally bind the principal If client cannot supervise agent, to
an extent, then distribution
agreement is better.
If client wants to break an unfamiliar
market a distribution agreement is
better. Client will not have the risk,
distributor has local knowledge,
language problems avoided.
Agent does not (commission based).
Distributor has own profit incentive
If goods are tailor made then agency
agreement is better suited. If goods to be sold are standard then
may be more suited to a distribution
agreement.
If principal wants to be contractually
bound with end user then agency Is easier for supplier to control
agreement is better. liability to distributor than to
customer in an agency. End user
deals as a consumer and thus
cannot exclude liability as easily.
Principal makes the profit and pays a
commission in an agency agreement,
unlike in a distribution agreement.
Agency may be more appropriate re
services than goods.
Genuine agency agreements cause
fewer competition law problems, unlike
distribution agreements.
Cheaper than distribution
Resources of P important (supervision
and communication vital)
 Exclusive Rights: → gives Agent stronger
rights to commission (compensation
easier to claim). Agent won't work in a
territory w/o exclusive rights.

NB : If client is a large business it may be able to set up a subsidiary or use an existing one to
avoid both types of arrangement. (May not be possible, may be expensive, time
consuming)

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Types of authority

The agent’s authority A principal will be bound by a contract entered into by its agent if the agent had authority to
enter into the transaction

• Actual authority – express (i.e. in the agency contract) or implied

Depends on the agreement between the parties

1. Express The P has expressly If the A has express actual authority then
actual given prior consent to there is no need to look any further.
authority the A’s actions.

2. Implied The P has impliedly The question then is whether the A had
actual consented to A’s implied actual authority (e.g. through a
authority actions. course of conduct)?

• Apparent (‘ostensible’) authority:

Is there apparent authority,

1. Did P hold A out as having authority?

2. Yes, then, third party can assume A can do anything which is ‘usual for
agents in this sort of business.’

If so, the third party is entitled to assume that the agent has whatever authority is ‘usual’
for agents in that sort of business

The principal will be bound as long as the third party relied on the ‘holding out’

However, if third party knew A was acting outside his authority then P shall not be
bound.

IMPACT:

• If the principal is bound, he may have a claim against the agent for exceeding his actual
authority

If A breached agreement, termination under reg 16?

• If the principal is not bound, the third party may have a claim against the purported
‘agent’ for breach of warranty of authority

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AGENCY STRUCTURE

1. The regulations ‘govern the relations between commercial agents and their principals’ per
Do the Commercial regulation 1(2)
Agents (Council
Directive) Regulations Main purpose – TO PROTECT THE AGENT
1993 apply?
Requirements:

1. ‘commercial agent’ per 2(1)

2. in Great Britain (NI excluded per 2(5))
3. parties have chosen UK law to govern contract per 1(3)

2. Is agent a ‘commercial agent’ for purposes of regulations?

Is the person an
‘agent’ within the 2(1) defines ‘commercial agent;’
definition?
• ‘self-employed intermediary
• who has continuing authority
• to negotiate the sale or purchase of goods on behalf of another person (the
principal), Marketing agent
or
• to negotiate and conclude the sale or purchase of good on behalf of and in the
name of that principal.’ Sales agent

Outline what type of agency agreement is it?

LOOK FOR CLAUSES IN THE CONTRACT

 Holding out - must describe as agent of principal

 Promotes interests of principal
 Conclude contracts for the sale of products on behalf of principal.
MAIN THING TO LOOK OUT FOR EXAM
 Agent doesn't own the products, c.f. distribution where they do.

a. Sales agency:

Agent:
1 – finds,
2 – negotiates, and
3 – enters
into contracts with third parties on the principal’s behalf thus binding the principal.

b. Marketing agency:

Agent:
1 – finds and
2 – negotiates
with them and they then contact the principal

c. Del credere agency:

where agent guarantees the customer’s performance of the contract in return for
additional commission.

d. Introducing agent and no ability to negotiate (NOT IN EXAM)

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3. 1. Within the exceptions:
Is the relationship
excluded? Regulation 2(1) excludes certain people.

2(1)(i) officer of a company who can bind his company

2(1)(ii) partner who can bind his partners
2(1)(iii) an insolvency practitioner

2. Within the exclusions?

Regulation 2(2) excludes relationship when

2(2)(a) agent is unpaid

2(2)(b) agent operates on commodity market/exchanges
2(2)(c) agent is a crown agent for overseas government

3. 2(3) and 2(4) say they do not apply where activities as a commercial agent are
considered ‘secondary’ eg part time

Schedule para 4 says is secondary if:

merely supplying promotional material direct to potential customers,

person is granted an agency without reference to other agents in area and
where customers normally select goods themselves and merely place
order through agent.

Para 5 says consumer credit agents and mail order catalogue agents for consumer
goods are secondary agents.

If meet requirements and not excluded, regulations govern agency relationship.

What do regulations provide for?

Regulation 3 (1) agent must look after principal’s interests and act dutifully and in good faith
DUTIES OF
AGENT TO
(2) agent must (a) make a proper effort to negotiate and conclude
PRINCIPAL
(b) communicate all necessary info to P
(c) comply with all P’s reasonable instructions

Regulation 4 (1) P must act dutifully and in good faith

DUTIES OF (2) P must (a) give A all necessary documents re goods

PRINCIPAL TO
(b) obtain necessary info for performance of agency contract
AGENT

(3) obliges P to tell A inter alia

(i) which transactions accepting
(ii) which refusing
(iii) which not performing

Regulation 5 Reg 5(1) - CANNOT derogate from 3 or 4

Regulation 6 (1) If P and A have not agreed remuneration, A shall receive a customary remuneration for his
practise. If no custom, then a reasonable remuneration.

(3) possibility of remuneration other than by commission

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Regulation 7 (1)(b) A’s entitled to commission during his agency period where the transaction is concluded as part
of his action or the transaction is achieved with a third party which A acquired – before entered into
COMMISSION agency agreement
DURING
CONTRACT

(2) A entitled to commission re a transaction entered into with a customer if he has an exclusive right
to commission in that specific area or to that specific group of customers – where P gets customer
in period of exclusivity but A not involved

Regulation 8 (1) Post-agency commission if;

(a) transaction was mainly attributable to A’s efforts and transaction was entered into within a
COMMISSION reasonable period of termination of that contract, or
AFTER
(b) where contract concluded post agency yet order received before the end of A’s agency
CONTRACT
TERMINATED period.

Regulation 9 (1) No commission for A under 7 if payable to other under 8, unless equitable to share it.
(a) Gives priority to earlier agent, successor can share if equitable

Regulation 10 (1) Commission due on - execution of transaction by P, P should have executed transaction or third
party has executed it.
WHEN
COMMISSION
- ‘due’ at the moment when agent can be certain its earned, even though P may not actually have to
DUE
pay it until later.

(3) Payable not later than last day of month following quarter in which it became due.

Regulation 11 (1)(b) Right to commission lost if contract between third party and P shall not be executed and P is
not to blame for this.
EXTINCTION OF
RIGHT TO
(3) Agreement to vary above to detriment of A is void if detrimental
COMMISSION

Regulation 12 (1) P shall supply A with statement of commission due, not later than last day of month following
quarter in which commission became due.

(3) derogation from above is void

Regulation 13 (1) A and P can get document setting out terms of agency contract on request

RIGHT TO HAVE (2) purported waiver of above is void

WRITTEN
CONTRACT

Regulation 14 Fixed period agency which A and P continue post period is deemed for an indefinite period.

Regulation 15 (1) Indefinite period is terminable on notice

MIN NOTICE (2)(a) 1m for first year, (b) 2 m for second year, (c) 3 m thereafter. Cannot agree shorter
PERIOD ON
TERMINATION
(3) If longer, notice to be observed by P must not be shorter that that to be observed by A

(4) Unless agreed, end of period must coincide with end of month

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Regulation 16 Regs do not affect a rule of law which would otherwise terminate agency contract

Eg preserves right to terminate agreement for repudiatory breach

Regulation 17 (1) On termination A shall be indemnified or compensated

INDEMNITY / (2) A shall be compensated unless agreed otherwise

COMP PAYABLE
TO AGENT ON
TERMINATION Indemnity
OF CONTRACT
(3) A’s entitled if;

(a) he has brought new customers or significantly increased volume of business from
existing customers and P continues to derive substantial benefits, and
(b) payment of indemnity is equitable having regard to all circumstances, especially
commission lost

(4) Amount shall not exceed a figure equivalent to an indemnity for one year calculated from average
remuneration over preceding 5 years (effect – encourage principles to opt for express indemnity
provision in their agency agreements so that they know how much they will be liable for).

(5) A can still seek damages too

Compensation (focuses on compensating the agent for the value of their efforts)

(6) A is entitled for damage he suffers as a result of termination

(7) Deemed damage when termination deprives A of commission which proper performance would
have secured for him, or when he has not been allowed to amortize costs and expenses incurred
performing agency contract. – substantial benefits or amortize costs

(8) If A dies still entitled to indemnity or compensation

(9) Loss of right to either if A has not notified P he intends to pursue entitlement within 1 year from
termination

Effect of If not for Reg 17, a principle could terminate the agreement at any time by giving the
Reg 17 required amount of contractual notice. The principle could then deal direct with the
agent’s customers, taking the benefit of all the work the agent did.

This reg recognises a form of investment by the agent for which they are entitled to
be paid when the agency ends.

Regulation 18 Effect – agent won’t be able to claim compensation or indemnity

ABILITY TO (1) Commission’s not payable where

EXCLUDE
PAYMENT OF
INDEMNITY / (a) P terminated following a breach by A justifying termination, or
COMP UNDER
REG 17 (b) A terminated agreement, unless termination is justified by circumstances attributable to P,
on grounds of age or illness or A assigns his right and duties to another under agency
contract

(c) agent loses entitlement if he assigns the agency to a third party

Regulation 20 A and P cannot derogate (contract out) from 17 and 18 to A’s detriment.

RESTRAINT OF

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TRADE CLAUSE

Regulation 22 (1)(a) Restraint of trade clause is only valid if is in writing and 1(b) relates to the area or customers
entrusted to A in contract
NOTICE
(2) Only valid for not more than 2 years post termination.

(3) 20 does not affect restrictions imposed by law. I.E. It must also be reasonable as common law so
requires – it must be no more than is reasonably necessary (in duration and scope) to protect
P’s legitimate interests – common law

Regulation 22 Re service of notice

5. Reg. 5(1) - CANNOT derogate from 3 or 4

If the clauses of the
contract DO NOT Reg. 10(3) - Derogation from 10(2) or (3) to the detriment of the agent = void.
COMPLY with the
regulations, does the Reg. 11(3) - any agreement to derogate from 11(1) to the detriment of the agent = void.
Regulation permit
DEROGATION from Reg. 12(3) - any agreement to derogate from 12(1) or (2) = void
clause?
Reg. 19 - A and P cannot derogate (contract out) from 17 and 18 to A’s detriment before
agency contract expires.

NB.
i DEROGATION PERMITTED UNLESS STATED OTHERWISE

ii IF NO DEROGATION, REGULATION PREVAILS

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6. Termination Circumstances Allowing Either Side to Terminate that Maybe Included in Contract:

P 86 - 88 TB a) Financial difficulties
b) Breach of the agreement (will often have notice procedure for party in breach to resolve
the breach where poss
c) Change in control of agent

Contract Should Deal With Effects of Termination?

(a) stock, samples and advertising material held by the agent.

(b) Sales agent has already negotiated, but where no moneys have been paid over.
(c) The agent’s authority to negotiate on behalf of the principal.
(d) The agent’s duty of confidentiality.
(e) The agent’s right to compensation on termination.

Does Principal Need to Pay Agent on Termination?

Reg 17 obliges P to give A 'pay-off' on termination

On basis of Lonsdale v Howard and Hallam…(i.e. goodwill)

- Compensation assessed by reference to value of agency business including goodwill

at date of termination i.e. loss to agent
 No presumption that starting point = 2yrs minimum
 No 'just and reasonable' test in assessing compensation
 Perhaps favours P instead of A (esp where business of A in decline)

Only v limited grounds (reg 18) for excluding A's right to indemnity or compensation
(also see reg 19 re. derogation).

Regulation 17 – does the PRINCIPAL need to pay anything to the AGENT on termination. 5.3.6.3

Tigana v Found that a regulation 17 lump sum is also payable when a fixed term agreement expires through
Decoro effluxion of time.

Factors affecting level of compensation to be paid:

a. period of agency contract (Indefinite per 14)

b. period agency actually lasted

c. terms and conditions attaching to agency agreement (E.G. having to return goods at A’s
expense may increase compensation)

d. nature and history of agency

e. 17(7) matters - (a) damage from termination

(b) lost commission
(c) write-off costs

f. nature of client base – regular orders?

g. exclusive therefore more loss?

h. has P retained a great benefit?

i. can A act now? Restraint clause valid?

j. Regulation 8 payments to take into account

k. manner agency ended

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 l. A’s financial contributions to A’s goodwill.

Lonsdale v Courts reviewed previous case law:

Howard &
Hallam Ltd a) it is inappropriate to apply French law in the UK and no reason why the UK should use 2
2006 years commission in calculating compensation for damage
b) purpose of Reg 17 is to compensate for damage to the agent’s business as a result of
termination
c) Compensation should be calculated on the value of the agency business to the agent at the
date of termination and this INCLUDES goodwill