Stephen Sidkin, a commercial law partner at Fox Williams LLP, discusses the various issues concerning agency agreements.

 

Agency agreements can be written or unwritten. There is no requirement under English law that an agency agreement must be in writing. This lack of requirement is consistent with the position of most agreements under English law – formality is rarely a requirement. But given this flexibility, why have a written agency agreement? The answer is that a written agreement can provide a great degree of certainty. In this respect, the key word is “can” this is because:

• Where the Commercial Agents Regulations apply, certain obligations are automatically imposed on both principal and agent. Further in respect of many of these obligations, contracting out is prohibited by the Regulations.
• Whether or not the Regulations apply to the agency agreement, certainty can evaporate when faced with the general language used or provisions which are poorly drafted in the written agency agreement.

The Commercial Agents Regulations

The Regulations impose on both the principal and agent an obligation to act dutifully and in good faith towards each other. The Regulations provide specific “examples” of these obligations. For example, the agent is required to comply with the reasonable instructions of the principal. Meanwhile, the principal should inform the agent within a reasonable time of the principal’s acceptance or rejection of an order obtained by the agent for the principal.

However, somewhat surprisingly, what is meant by the reciprocal obligation to act dutifully and in good faith and the specific examples given in the Regulations, as well as the corresponding provisions in the EU Agents Directive (which the Regulations implemented into English law) is, in turn, somewhat uncertain. This is because of the few court judgments which have interpreted these provisions. The flip side of the lack of court judgments is that the opportunity arises for principal and agent to agree in the agency agreement provisions which build on these general obligations.

Nor do matters rest there. Recently, there have been some “innovative” judgments given both by the European court, as well as appeal courts in several EU member states, in the interpretation to be given to the provisions in the Directive as to the principal’s obligation to pay commission and as to how the compensation payable to the agent on termination of the agency agreement is to be calculated.

Agency agreements generally

Generally, imprecise language can be costly. Take, for example, on obligation to pay commission on goods sold. Expressed in such straightforward language in a situation where the buyer of the goods has not paid the principal for the purchase price, can the principal legitimately refuse to pay commission to the agent? Interestingly, where the agency agreement is subject to the Regulations, the position is that commission can be withheld if the principal is not responsible for the non-payment by the buyer. So, in a situation where the buyer refuses to pay for goods delivered late, the principal will still be required to pay commission to the commercial agent. Further, the situation can become awkward for either the principal, agent or both. For the principal to impose its agency agreement on the agent provisions which are considered to be unreasonable as they allow the principal to avoid performing its contractual obligations will be unenforceable.

Sometimes an agent will act for a principal which offers goods that compete with some of the goods of another principal also represented by the same agent. A claim by the agent that the second principal was aware of the situation at the time of engaging the agent is most unlikely to prevent the first principal from being able to claim that the agency agreement has been seriously breached by the agent. To prevent this situation from occurring, the onus is on the agent to obtain the prior informed consent of both principals to the agent acting for each of them. Nor is the situation ameliorated by one principal putting onto the market a new product which was not offered for sale by that principal at the time when the agent was appointed, or even when the agent took on another principal.

In brief, if the agent is to choose which product or which principal the agent is to promote at any point in time, both principals must agree to the agent having the right to choose. A claim by the agent that it knows which products better suit different customers is an unsustainable position for the agent to take.

And what of variations?

The parties to a written agreement can be expected to focus on the provisions they consider most important to their respective roles. Unsurprisingly, this is no different in respect of an agency agreement. However, most written agreements used in business will have a raft of different provisions tucked away towards the end of the agreement – after what are often considered to be the key substantive provisions of the agreement. These tailed provisions are usually given the dismissive, generic name of “boilerplate,” as if they are not worthy of consideration.

But care is needed, particularly if the agency agreement contains a “no oral modification” clause. The general position following a judgment of the UK’s Supreme Court is that a no oral modification clause means just that – a variation of the agency agreement must be in writing. The fact that principal and agent orally agreed to vary the written agency agreement is irrelevant. The fact that by the actions towards each other, the conduct of principal and agent indicated a change to the written terms of the agency agreement is equally irrelevant.

And finally

Both principal and agent should be careful for what they wish. In the absence of there being a written agency agreement, both principal and agent can require from the other a signed written document setting out the terms of the agency agreement. Whilst this provision in the Regulations is little known, it can be used by either principal or agent to its advantage by forcing the other party to the agency agreement to set out what are the terms of the agreement and in turn being required to demonstrate how those terms were agreed.

For further information visit www.agentlaw.co.uk or www.foxwilliams.com.