One of My Main Principalks Has Made Clear to Me That He Does Not Consider Me to Fall Within

Q’s and A’s on Agency Law - January 2014 and exactly 20 years on since the Commercial Agents Regulations 1993 became law on 1 January 1994

Q. The Managing Director of one of my main principals has made clear to me that he does not consider me to fall within the definition of what constitutes being a “commercial agent” (as set out in the Commercial Agents Regulations) on the basis that I have no authority to negotiate sales on the principal’s behalf (i.e.:- all “negotiations” which I undertake with third parties are ultimately subject to the principal’s agreement, before any sale can materialize). Is the principal correct in its view?

A. This is a frequently misunderstood aspect of the Regulations but it is clear that the definition of who is a “commercial agent” for the purposes of the relevant sections of the Regulations is deemed to be a very wide one - for example, in the case of Gary Parks -v- Esso Petroleum, Lord Justice Merritt, in determining whether the agent in that case (Gary Parks) was a “commercial agent” or not, stated that the test in establishing the meaning of the word “negotiate” was to:-

“take the normal meaning of the word from the Oxford English Dictionary definition … This definition does not require a process of bargaining in the sense of a haggle”

Then, in the subsequent case of PJ Pipe & Valve Co Limited -v- Audio India Limited (2005), it was held by the Court in that instance that the word “negotiate” (i.e.:- as used in the actual definition of “commercial agent”, in Regulation 2(1)) included even agents who were engaged merely to develop the goodwill of their principals. The Honorable Mr Justice Fulford also stated in the PJ Pipe & Valve case that the role of the agent was that of a “commercial agent” “notwithstanding [the agent’s] lack of authority to progress agreement on commercial terms or prices”.

Finally, in the later case of Nigel Fryer Joinery Services -v- Ian Firth Hardware Limited (2008), it was held that an agent who merely “canvasses” sales on behalf of a principal would also be regarded as falling within the definition of a “commercial agent”, and Mr Justice Patten (again, in the above Nigel Fryer case) stated that the definition of “commercial agent” includes “an agent whose role is to get the client interested in the product; suggest possible prices subject to confirmation by the principal; and to encourage the customer to place an order at those prices”.

On the basis of the above, it can thus be seen that your principal appears likely to either be confused or to be being disingenuous in what he is saying to you, as it is now well established that, save for where there is strong evidence to suggest that the “agent” falls foul of the exceptional circumstances as set out in the Schedule to the Regulations, he, she or it would ordinarily be regarded as being an agent, in most circumstances.

Q. A prospective new principal wishes to engage my services but is wanting to get me to enter into a “Consultancy Agreement” - it is wanting to do this as it considers that that is the way it may avoid the spectre of the application of the Commercial Agents Regulations (i.e.:- by the contract referring to the relationship as a “Consultancy Agreement”) - will my agreeing to thus becoming this company’s “consultant” indeed take me outside the scope of the Agents Regulations?

A. Whereas what an agent is called or how he or she is labeled may have some significance in the final reckoning as to whether or not they would be regarded as being a commercial agent for the purposes of the legislation, I have never found it to be materially important in practice in that what is far more relevant and crucial is what the agent (or “consultant”) was actually doing on behalf of the principal - in other words, a Court would much more look at the substance of what the relationship entailed the agent carrying out as its role, as opposed to looking just at labels.

Following on from the above, and whereas it is obviously better that your contract should properly reflect in its title what is the actuality of your role (i.e.:- as an agent rather than as something else), if you were coming to me to pursue a compensation claim on your behalf and produced a written agreement in which you were referred to as a consultant (as opposed to an agent), I cannot say that I would be overly troubled unless you were clearly not carrying the function of commercial agent, in practice.

Q. At a recent Trade Show, a new customer based squarely in my territory area came on to my principal’s stand and placed a sizeable order. As however I was temporarily away from the stand at the time, the Managing Director is saying that the account in question will be treated as being a house account because I did not open it and did not take the initial order - is this correct?

A. If you have an agreement in place with this principal which agreement provides that you are entitled to receive commission on all sales in respect to any customer either (1) from a defined group of customers, or (2) from a specific geographical area (or there is an established custom and practice which reflects this same position) then - unless you have any other clause in your contract which nevertheless entitles the principal to elect to nominate any account as a house account as it chooses - your principal cannot unilaterally just take this position which appears to be fundamentally at odds with what are your contractual rights.

The above being the case, you should very promptly make very clear in writing (and in appropriate terms) to your principal that you do not agree with the stance which it is taking, and so that you therefore expect to be paid all commission in the normal way in respect to all sales to this account.

Q. Following the House of Lords decision in the Lonsdale case, is how much an agent may be entitled to by way of compensation following termination more accurately predictable?

A. The answer to your question is both “Yes” and “No”:-

Firstly, “Yes” in the sense that, prior to the Lonsdale decision, the basis for calculating compensation was unclear (and notwithstanding that there was (as there still is) a statutory frame of reference supposedly there to give guidance). This lack of clarity meant that there were various approaches taken by the Courts in assessing how to calculate compensation in the thirteen years or so prior to Lonsdale, many of which approaches were at odds with each other. However, what Lonsdale did was to set out an authoritative basis at least in terms of how you assess compensation, and that was to say that the amount of compensation to which an agent is entitled on termination is based on an assessment of the loss of the value or goodwill he [the agent] can be said to have possessed in the agency. Put another way, it was a matter of assessing the commercial value which, hypothetically, someone would have paid for the agency, as at the point of termination.

From the above, it can thus be seen that we now have clear guidance on what we are supposed to be assessing in reality, in assessing the worth of a compensation claim.

On the other hand, however, and notwithstanding that Lonsdale is looked upon as this seminal authority, the fact is that there is now much dispute as to what should be the precise way for calculating the relevant amount of the hypothetical commercial termination point value of any agency, with (here also) different approaches producing different resultant numbers. That said, and in a growing number of appropriate circumstances, we are seeing an increasing level of compensation amounts being paid to agents and that is buoyed by recent case decisions which appear to support higher multipliers in a significant number of the circumstances which we are dealing with.

Q. A principal which has recently terminated my agency has indicated that it intends paying to me the lesser of compensation or an indemnity (as that is its understanding of what the Regulations provide and allow for) - is that correct?

A. First of all, if there is no agreement in place as between a principal and an agent providing for an indemnity to be payable on termination then, assuming that your entitlement is otherwise sound, your principal is bound to have to pay to you on termination compensation - i.e.:- it is not a case that the principal can subsequently make a unilateral decision as to whether to pay either compensation or an indemnity, to suit itself.

Secondly, if it is the case that your agency agreement somehow reflects what the principal is saying to you is going to be its approach, then this is highly questionable as the parties cannot conditionally select the option of an indemnity but only on the basis that that selection does not involve the agent receiving more than it would otherwise have been paid by way of compensation. This moreover is reflected in the recent case decision of Charles Shearman -v- Hunter Boots (2014) where there were sub-clauses in the agency agreement in that instance which provided that:-

14.4. Upon termination of the Agreement the Agent shall not be entitled to compensation but shall be entitled (subject to clause 14.5) to be indemnified …. 14.5. The Agent will not be entitled to the indemnity referred to in clause 14.4 but will be entitled to compensation for the damage it suffers as a result of the termination of its relations with the Agent [sic] if the amount of such compensation would be less than the amount payable by way of indemnity. 14.6 If as a matter of English law it is not mandatory that the Agent be paid an indemnity or compensation then clauses 14.4 and 14.5 shall not apply.

In respect to the above clauses, the Court held that these provisos (which, at the outset of the agency, purported to provide for alternative systems of compensating the agent on termination but solely dependent on whichever system turned out at that time of termination to be cheapest for the principal) were contrary to the original EU Directive and contrary also the Commercial Agents Regulations. The contract wording was accordingly held by the Court to have created a situation where the agent would have had the worst of both Worlds and so that the relevant wording was struck out of the contract, as if it had never been included.

Following on from the above, I am confident that what your principal is saying to you needs to be vigorously challenged to see how it can possibly justify its stance. If your circumstances bear resemblance to the facts of the Hunter Boots case, then, clearly, your principal will struggle.

Q. I recently resigned an agency to take up an opportunity with another principal, and my now former principal is arguing that I am not entitled to any post termination payments because of this fact that I resigned - is that correct?

A. If you do not have any agreement with the former principal which provides that, upon termination, you are not entitled to receive commission in respect to any transactions which are concluded within a reasonable period following termination, and where such transactions can be shown to have been substantially down to your efforts as opposed to anyone else’s, then, and notwithstanding the fact that you had resigned your own agency (and thus would not ordinarily additionally be entitled to any form of compensation/any indemnity), you would still be entitled (following termination) to so called Regulation 8 commissions, as such an entitlement does not depend at all on which party terminated the agency.

In addition to the above potential right pursuant to Regulation 8, you would also otherwise be entitled to receive all commissions owing to you in any event, such as any commissions as appropriate in respect to any notice period.

The ONLY law which we practice is the law as it relates to commercial agents.

Please note that, as far as we can, we take cases on on a “success related fee”.

Please ensure that you obtain legal advice before acting in reliance upon anything in this article, particularly since each individual’s circumstances may necessitate a unique approach, and also on account of the fact that the law may of course at any time change. Furthermore, please be very clear that the answers given in this column may not cover or otherwise refer to all possible angles, aspects, relevant information and/or points of law and so that all or any information which is given above needs in every instance to be referred for legal advice for clarification and amplification, before being relied upon.