EM Law are experts in drafting, negotiating and advising clients on agency agreements. Our lead contract lawyer is Neil Williamson who has extensive experience in advising clients on a wide range of commercial law matters.
An agency agreement is formed when one person, called the agent, is authorised by another person, called the principal, to act on the principal’s behalf. A principal who assigns agency to an agent is creating a legal relationship with the agent. The purpose of an agency agreement is to set out the terms and conditions of the relationship between the principle and the agent. It is important that the principal and agent have clear written commercial terms agreed so that both parties know what to expect from their deal.
• Duties and responsibilities of both parties.
• The geographic region in which the agent will operate.
• Whether the agent will have exclusive or non-exclusive rights.
• The rate, method and timing of payments.
• Any non-compete agreement.
• Protection of trade secrets and confidential information.
• Level of authority to make commitments on behalf of each other.
• The duration of the agreement, termination and how any breaches are handled.
The Commercial Agents Regulations 1993 may apply to your agency agreement. These Regulations only apply to the supply of goods and do not cover the supply of services. The primary intention of the regulation is to enhance and protect the position of commercial agents in relation to their principals. When drafting any agency agreement, it is important to determine whether the regulations apply. This is because:
• Many important terms of the regulations cannot be excluded from an agency relationship or may be excluded only if this operates in the agent’s favour.
• Its application may determine whether a principal chooses an agency or another model, or to use a self-employed or employed sales force to market its products.
• If there is any cross-border element, there may be important differences in how member states have implemented the directive. When appointing an agent elsewhere in the EEA, it is important to seek advice from local lawyers.
• The Regulations apply to agency arrangements whether oral or in writing. Principals should therefore be very wary when conducting discussions with agents or potential agents.
Both an agent and a distributor are intermediaries in the supply chain between the principal/supplier and the end customer. Unfortunately, the labels “agent” and “distributor” are sometimes used interchangeably. This can cause considerable confusion as their legal position in relation to the principal/supplier is not the same.
The distinguishing factor is the position, or status, of the intermediary in relation to the principal/supplier and in relation to the end customer:
• An agent acts on behalf of his principal, and can either introduce a customer to the principal or actually create a contract between the principal and the customer. An agent is generally not a party to the contract between the principal and the end customer. The end customers are the customers of the principal, not the agent. Where the agent is promoting the sale of the principal’s goods, title in the goods will normally pass directly from principal to end user.
• In a distribution relationship, the end customers are customers of the distributor, not the supplier. Where the agent is promoting the sale of the principal’s goods, the distributor buys goods in its own right from the supplier, and the distributor sells the goods to end customers. Title in the goods will normally pass directly from principal to the distributor or reseller and on to end user.
It is important to always be clear about which arrangement is being used. Confusion may occur because parties have used a standard form agreement which does not reflect the commercial and legal reality of the supply chain.
A principal is fully liable for any actions an agent takes on their behalf if he or she is acting within the authority they have been given. If an agent makes a mistake or performs an illegal activity while representing the principal, the principal may be technically considered to have committed the act, since the agent was essentially acting as the principal. A principal will also be bound by any contracts an agent enters into on their behalf and may be liable if they injure a person or damage property. The agency agreement must therefore be in writing with clear terms and conditions. The agreement should explicitly limit the principal’s liability if the agent does something that wasn’t authorised.
Many agency agreements tend to be for an indefinite term, or are a fixed term contract which has continued. Under the Commercial Agents Regulations, minimum notice periods for termination apply when a contract is concluded for an indefinite period or runs beyond its fixed period and is therefore deemed to be of an indefinite period. In these circumstances, either party may terminate by notice on :
• One month for the first year that the agreement has been in effect.
• Two months for the second year.
• Three months for the third and subsequent years.
Unless otherwise agreed, the notice must expire at the end of a calendar month. The Regulations further provide that the parties cannot agree on shorter periods of notice but can agree on longer periods, subject to a few conditions. For many agencies, the agent may need a longer period of notice than the minimum specified in the Regulations, in order to run down its business in an orderly fashion.
For any questions you may have concerning agency agreements contact Neil Williamson.
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