Some Q's and A's on agency law - January 2022

Q’s and A’s on commercial agency law – January 2022

??????Fixed term contracts

Q.?????????I recently had an agency terminated and am consequently wanting to recover compensation under the Commercial Agents Regulations. The agency in question commenced in 2007 when I entered into a one-year fixed term. The principal is arguing that I have no entitlement to any compensation. This is on the basis that, because the fixed term expired many years ago (in 2008) and was not subsequently then renewed in writing, there was no actual agreement in place as at the date of termination (and notwithstanding that I actually continued as the agent up until October 2021)?

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Is the principal correct in what it is arguing, and have I therefore no prospect of recovering any compensation?

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A.????????No, the principal is not correct: -

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Firstly, by Regulation 14 (of the Commercial Agents Regulations), any agency which is entered into for a fixed period but which then continues to be performed by both of the parties after that fixed term period has expired, shall be deemed to be converted into an agency contract for an indefinite period. What this effectively therefore means is that, after the expiry of the fixed term, the agency is then subject to the minimum notice requirements (in respect to any subsequent termination) as set out in Regulation 15 (with Regulation 15(4) expressly providing: - ‘The provisions of this Regulation shall also apply to an agency contract for a fixed period where it is converted under Regulation 14 into an agency contract for an indefinite period subject to the proviso that the earlier fixed period must be taken into account in the calculation of the period of notice’).

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Secondly, confirmation of the existence of any agency does not require that there also exists an actual written agency agreement.

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Thirdly, and as to whether you are actually entitled to any compensation under Regulation 17, that depends on various factors. However, and as a starting point, (and to reiterate: -) that prospective entitlement certainly does not depend on any initial fixed term having to have been expressly renewed in writing in circumstances where the agency has simply continued, and nor does it depend on there having been any agency agreement in writing at all.

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Formula for calculating compensation

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Q.????????I am seeking compensation in respect to the recent termination of an agency and understand that the correct formula for calculating the amount to which I may be entitled is to take an average of my earnings from the agency over the past five years, and to then multiply that average amount by two. Is that correct?

A.????????No (with respect), your formula isn’t at all correct: -

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The basis for calculating the amount of an agent’s compensation entitlement is as set down in the seminal decision of the House of Lords in July 2007, in the case of Graham Lonsdale -v- Howard & Hallam Limited. In that landmark case, the Lords ruled that the ‘damage’ which the agent is to be financially compensated for is the loss of the value or goodwill he can be said to have possessed in his agency, with the amount of compensation due being determined by establishing the hypothetical sales value of that agency as at the point of its termination (and making the assumption that the agency would have continued). Whereas, and over the subsequent fifteen or so years since the Lonsdale case, other important court case decisions have set down more detailed guidance as to the valuation process for compensation sums, none of those case decisions reflect the very basic (and fundamentally incorrect) premise as set out in your question.

Further to the above, I should also add that I am of course making the assumption that it is correct to say that your entitlement would be to ‘compensation’ as opposed to ‘an indemnity’. As to this, if you did not have any written agency agreement with this principal which agreement expressly provided that your prospective entitlement to any compensatory payment was in fact to ‘an indemnity’ then (and by default) that prospective entitlement would indeed be to ‘compensation’. (The basis for calculating ‘an indemnity’ entitlement is of course very different to the basis for calculating ‘compensation’).

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Recording terms of an agency in writing.

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Q.????????I have an agency with a principal who appears to be unwilling to record the terms and basis of our agreement in writing. What should I do?

A.????????Having the terms of any agency recorded clearly in writing is always far preferable to not doing so. If however your principal is unwilling to cooperate with you then, by Reg 13(1), you are entitled to require it to enter into a written agreement with you. What therefore I advise that you do in the first instance is to proactively set out the terms of the agency as you understand them to be, and to send those to the principal, and see how it responds. I would also continue to press for the principal’s cooperation in either informing you where it considers what you have set out to be inaccurate, or otherwise to sign and return the relevant agreement to you.

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???????????Non-payment of commission

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Q.????????I negotiated for my principal a relatively significant sale, which sale would have generated for me a commission payment in excess of ￡10,000. The principal however is refusing to pay me the relevant commission amount, and that being on the basis that the customer’s order was never fulfilled because there was a stock shortage. Am I nevertheless still entitled to the commission payment?

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A.????????In answering your question, it is necessary to consider the relevant point of reference, which is Regulation 11, which provides that: -

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???????????‘11(1) The right to commission can be extinguished only if and to the extent that: -

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(a)??it is established that the contract between the third party and the principal will not be executed; and

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(b)??that fact is due to a reason for which the principal is not to blame’.

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In respect therefore to as to whether you are entitled to your commission entitlement, this evidently depends on whether it can be said the stock shortage (and the failure to deliver the customer’s order) was due to the principal’s actual fault. As to this, stock shortages could of course have materialised on account of many different circumstances. Consequently, establishing that the situation was definitely something for which the principal is ‘to blame’, and so that your commission entitlement should be honoured, may be difficult. However, the relevant circumstances need in the first instance to be clearly established.

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Another agent’s different contract terms

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Q.????????Another agent of my principal is being paid commission at the rate of 10%, whereas the rate I am paid is 7.5%. Can I insist on parity?

A.????????No, a principal is perfectly entitled to enter into different terms of engagement with different agents, and there is nothing in the Regulations which obliges it to have to do otherwise.

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Introduction of customers

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Q.????????Following the termination of an agency with a particular principal with whom I had a written agency agreement, I am entitled to (according to the terms of that contract) an indemnity payment.

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However, a dispute has arisen as to the calculation of the amount of that indemnity entitlement, on the basis of the principal arguing that I didn’t introduce certain of the customers whose introduction I (on the other hand) am claiming the credit for.

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Can you therefore advise as to what is, for the purposes of calculating the amount of an indemnity, the basis of assessing when an agent is deemed to have ‘introduced’ customers?

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A.????????For the purposes of part of one of the steps to be taken in the process of calculating the amount of an indemnity entitlement, it is indeed necessary to assess which customers the agent introduced to the principal. As to this, the 1996 Commission Report on the application of article 17 of Council Directive 86/653 states that ‘the agent must have acquired the new client and in this respect the instrumentality of the agent is crucial’. Subsequently, Mr J Mitting QC decided in?the case of Moore v Piretta PTA Ltd [1998]?that, and reflective of the guidance as is set out in the Commission Report that (and as regards the meaning of ‘instrumentality’), whereas the agent has to have played ‘an active role’ in terms of the introduction of any such new customer, ‘a small level of involvement is sufficient and it is enough that the agent has merely contributed to bringing the new customer’.

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In light of the above, and in the circumstances, you might realistically be hopeful of indeed establishing that you ‘contributed’ to bringing to the principal any particular customer under discussion. That would then make any commission earned from that customer in the relevant time period relevant in the calculation of the indemnity sum.

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? David Bentley, Bentley Agency Law Limited, Bentley & Co Solicitors 7 Littlemoor Road, Pudsey, Leeds, LS28 8AF?

T: - 0113 236 0550 e-mail:- [email protected].

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‘The only law which we practice is the law as it relates to commercial agents’.

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Please note that: -

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The above Questions and Answers provide (and are intended to provide) just a limited ‘snap shot’ of the law as it is today. Each of the Answers set out moreover assume a context or a set of circumstances (which, were they any different, might then give rise to a (materially) different Answer), and potentially have caveats, exceptions or qualifications.

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Anyone reading this article should therefore take legal advice specific to their individual circumstances, and should not therefore rely on any information or perceived conclusions to be drawn from any given Answer.

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Any references to a Regulation number, the ‘Regulations’ or to the ‘Commercial Agents Regulations’ is a reference to the (relevant regulation of the) ‘Commercial Agents (Council Directive) Regulations 1993’.

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