#3201 - Agency Agreements - Commercial and IP

Commercial Law

Agency Agreements

Definition:

Agent is an INTERMEDIARY between the supplier [the “principal”] and the ultimate consumer.
Agent REPRESENTS the supplier – he can negotiate and [sometimes] conclude contracts for supplier. Agent acts on behalf of the supplier.
Agent is NOT PARTY to the contract [it is the supplier who contracts with customer]. The agent creates a legal relationship between the supplier and end consumer. Supplier bears the financial and legal risk!
Agent receives a fee / commission for his services for each contract

Types of Agency Agreements:

Sales: Agent has authority to conclude the contract.
Marketing: Agent only has authority to negotiate on behalf of the supplier.
Exclusive: The Agent is assigned a territory and has exclusive authority to negotiate / conclude contracts over this area. The principal cannot interfere.
Non-Exclusive: Agent, principal and other agents can conclude contracts in the territory. Least advantageous for the Agent.
Sole: Both agent and principal can conclude contracts within the territory.

Sources of rights / obligations

Agent has a fiduciary role
Common law rights for Agent [e.g. indemnity against expenses incurred on principal’s behalf]
Commercial Agents Regulation 1993
Contractual rights [from Agency Agreement] the agreement defines the authority of the agent and specifies the rights & duties for both supplier and Agent.

Agent’s authority

General rule: If agent acts within authority [actual or apparent] the contract is binding between the principal and 3^rd party.

Actual authority:

Express; or
Implied: “usual / customary authority” agent may impliedly have the authority which any agent in THAT position usually has or what is customary for agents in that particular trade to have

Apparent / ostensible authority:

Based on Estoppel [fairness to 3^rd party to impose the authority on the agent]
3 requirements =

Representation that Agent had authority
From someone with authority to make that representation; and
3^rd party must rely on that representation

Agent’s liability

Acting WITH authority = Agent is NOT liable under the contract – he is a true intermediary
Acting WITHOUT authority or acting outside the scope of his authority = agent can be liable under TORT or for BREACH OF WARRANTY [i.e. liable for misrepresentation]

Commercial Agents:

Commercial Agents Regulation 1993

1^st Jan 1994
Objective: Offers protection to agents who build the value of their principal’s business [almost acting as quasi-partner]. Harmonizes EC states’ different laws.

Reg 1(2): Definition of what the regulation applies to: “the regulation governs the relationship between commercial agents and their principals … in relation to the activities of Commercial Agents in GB”
Reg 2(1) = definition of a commercial agent – applies to BOTH sales and marketing agents:

Commercial agent =

Self-employed intermediary;
Who has continuing authority to negotiate the sale or purchase of goods on behalf of and in the name of another person [the principal] or to negotiate and conclude the sale or purchase of goods on behalf of and in the name of that principal….

“Negotiate” = Case-law PJ Pipe and Valve v Audco India:

Deal with / manage / conduct
Requires some skill or consideration
Idea of developing goodwill is important
Does not necessarily matter if no power to negotiate terms / pricing

When will the regulation apply? 3 criteria =

Jurisdiction: activities within the UK – protection by UK regulation. [Selling in another company – protection from that Member State regulation]
Commercial agents – must fit definition [see above]
The agent must not be excluded:

Reg 2(3) &(4)

Agents whose activities are secondary = i.e. sales not individually negotiated / agent not using his own skills to develop the market]

Where the contract covers the supply of services rather than goods

Agent’s duties

Act in accordance with principal’s instructions
Reasonable skill / care
Avoid conflict of interest
Perform personally
Account to principal
Not to accept bribe

Regulation 3:

Reg 3(1): Look after the interests of his principal and act dutifully and in good faith
Reg 3(2)(a): make proper efforts to negotiate and [where appropriate] conclude transactions
Reg 3(2)(b): communicate to principal all necessary information available
Reg 3(2)(c): comply with reasonable instructions given by the principal

The agent’s Rights:

Remuneration
Indemnity
Lien

Reg 4 – the general duties of the principal
Reg 6&7 – right to commission during agency agreement
Reg 8 – Right to commission after termination of the agreement

“Where the transaction is mainly attributable to the agent’s efforts and the contract is concluded within reasonable time after termination”

Reg 10: when commission is due / when it must be paid
Reg 11: right to commission is extinguished where contract is not carried out but it is not principal’s fault.
Reg 15: principal has a duty to have minimum periods of notice to terminate the agreement [there is an exception to this when Agent commits a repudiatory breach]
Reg 17: compensation or indemnity for agent if agency is terminated.

Can the Agent receive Compensation or Indemnity:

Reg 17: principal should provide to the commercial agent a ‘pay-off’ on termination of the Agency Agreement. The pay-off can take the form of compensation or indemnity. Principal cannot contract out of its obligations to pay.

Reg. 17(6) / Lonsdale v Howard & Hallam: Calculating compensation = compensation for damage actually suffered as a result of termination.
Not if Reg. 18 applies [sets out grounds for excluding compensation and / or indemnity under Reg.17. i.e. Agent terminates or agent was at fault and immediate termination is justifiable]
Reg. 17(2): presumption in favor of compensation [if the contract is silent on the terms of what agent should receive].
Reg. 19: the parties cannot derogate from Reg. 17&18 with an agreement that is to the detriment of the agent before the agency contract expired.

No separate claim for damages
Compensation is not capped at 2 years [different to Indemnity payment]

Contract must expressly allow for indemnity

Reg. 17(3) to (5) (see box below)
Not if Reg. 18 applies

Reg. 19
Separate claim for damages allowed

Calculating

Sum must reflect the value of A’s contribution to the business. [Including damages]
Compensation for any damage suffered as a result of the termination [Reg.17(6)]
Discretion of court:

Payment will include loss of business, including goodwill

Compensation should reflect the value of the business at the date of termination.

Compensation based on damages the agent actually suffered as a result of termination.

Calculating

Payment must be equitable (issue of discretion)
Reg. 17(3): Agent must have:

Bought new customers in; or

Increased the existing customer base

P continues to derive benefit from those customers

Reg. 17(4): Cap at ONE year’s commission [AVERAGE OUT last 5 years if it goes back that far]
Reg 15(5): Agent can still seek damages in addition to indemnity payment.

Cannot set a minimum / maximum

After...

#3201 - Agency Agreements - Commercial and IP

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