It is important to note that a sales agency comes under a different level of regulation than a marketing agency. The Commercial Agents Regulations 1993 set out that both parties must act dutifully and in good faith.
Regulation 3 goes on to state that the agent in particular should:
- negotiate and, where appropriate, conclude the transactions they are instructed to take care of to the best of their abilities;
- provide all the necessary information available to them to their principal; and
- ensure that the reasonable instructions given by their principal are complied with.
Regulation 4 goes on to confirm that the principal in particular should:
- provide the necessary documents relating to the goods concerned to their commercial agent;
- obtain all necessary information for the performance of the agency contract and provide this to their commercial agent. In particular, they should notify their commercial agent within a reasonable period if and when they anticipate that the volume of commercial transactions will be significantly lower than that which the commercial agent could normally have expected; and
- where the principal has accepted or refused a commercial transaction procured for them by their commercial agent they should inform their agent of the same within a reasonable period. They should also confirm any non-execution to their agent.
When establishing a formal agreement, both the principal and agent will agree that all aspects of their relationship need to be covered. The standard Regulations offer entitlements such as a written agreement, reasonable commission in absence of an agreed fee and outlines indemnities and rights to notice relating to contract termination. They also offer protection to principals when the agent is at fault. As such, protection is offered to both parties under general circumstances but specific considerations such as exclusivity, authority, territories and restrictions all need formalising if they are to form part of a useful agreement. Within the legal system these terms can be more complicated than commonly thought, so legal advice is essential in understanding and protecting your interests regardless of whether you are the principal or an appointed agent.
Agreements of this nature will often need to include scope for development and change, accounting for factors that may affect the relationship if they come to pass, such as product launches, withdrawals or changes to markets served. Foreseeing and factoring in contingency for possible future outcomes is a critical part of the work which we do in creating agreements that ensure security.
The termination of a contract is an extremely important area for both parties as there are certain sections of general regulation that always take precedence, even above a written contract. This relates to scenarios where individual agents suffer loss as a result of a wider agency termination. Indemnity or compensation payments can come into effect under these circumstances and understanding how they are applied is very important for agents and principals alike. Furthermore is the issue of any restrictions to be agreed should the agreement be terminated. Failure to detail the full protocol for contract terminations within a commercial agreement can cause serious problems for either party if not done thoroughly.
If you have been involved in a termination of an agreement within the last year we recommend seeking expert advice as to where you stand. There is a time bar of one year after termination for agents to claim compensation or an indemnity.