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3 November 2016

Agency Latest – Cutting Both Ways

Many readers will conduct their sales via a commercial agent, That is to say, broadly, using the services of a self employed sales person, generally paid wholly or mainly by commission on the sales in his territory.

Background

The relationship is governed by a contract between the agent and the principal, which may be written or unwritten and also by the Commercial Agents (Council Directive) Regulations 1993. Notably, these regulations provide for certain payments to be made by the principal to the agent when the agency comes to an end in most (but not all) circumstances.

The law in this are has developed over the years since the regulations came into force, generally by various cases in which the courts have clarified or explained the law. This continues to happen and there has been a recent case containing lessons for both principals and agents.

Recent case

Earlier this year in “Alan Ramsay Sales and Marketing Ltd –v- Typhoo Tea Ltd”, a former agent claimed for compensation under the regulations. The High Court’s decision cut both ways. The agent and the principal discussed for some time by email a dispute between them and whether the agency should come to an end. These discussions all took place on a without prejudice basis (meaning the emails could not be referred to or relied on in court). However, in the course of the emails, there was a proposal to terminate. The agent responded to this on an ‘open’ basis (normally meaning that it could be referred to or relied on in court) to show the agency had in fact been terminated. The court said that the agent couldn’t do this and thereby claim that the agency had terminated.

It got worse for the agent at this stage, as the court further found that the agent had, by so doing, committed a serious breach of the agency agreement.

However, the court also found that the principal had not ‘accepted’ the breach (which would have terminated the agency agreement) since it did not respond accordingly or indicate in some other way that it had done so. By not acting, although the agent was in serious breach, the principal had in effect waived the breach and lost the opportunity to do anything about it. Not only that, the effect was that the agent was in fact entitled to compensation under the Regulations.

This really was a case that cut both ways for the parties.

Lessons

  • Don’t mix up open and without prejudice discussions or correspondence.
  • A serious breach by an agent may well entitle the principal to terminate the agency.
  • If so the principal must act quickly or lose that entitlement.

Prompt legal advice is advisable.

For more information contact Richard Bailey at rbailey@steeleslaw.co.uk.

This article is for general guidance only. It is not to be relied upon and professional advice should always be taken on specific circumstances.

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