Legal and practical issues dealing with Agents in the UK
from the perspective of a Dutch Principal
What is an agent?
For these purposes considering only a "Commercial Agent".
"a Commercial Agent is a self-employed intermediary who has continuing
authority to negotiate the sale or purchase of goods on behalf of another
person (the Principal), or to negotiate and conclude the sale or purchase of
goods on behalf of, and in the name of, that Principal. (Regulation 2.1)
1993 the Commercial Agents (Council Directive Regulations) 1993 ("The
Regulations") in force in the UK on 1 January 1994 implementing the
Council Directive CC 86/653 on Commercial Agents (OJ 1986 3-2/17) ("the
Directive")'
The Dutch Law equivalent is based on the Directive and is the law of
5.7.1989; re-enacted by law no 374 of 1993 as Articles 400-445 of Title 7 of
the Burgerlijk Wetbroek.
It is important to be clear about the nature and role of the Commercial
Agent. Please note that whilst there are various types of Commercial
Agents such as marketing and ‘introducing' agents, the distinctions will not
be discussed at length for the purposes of this presentation since in
practice it is likely that notwithstanding the title or description, the
substance of the agency relationship will be covered by the Regulations.
Key contacts
Andrew Wood
Consultant
T: +44 (0)1603 756512
F: +44 (0)1603 756464
M +44 (0) 7766 086453
[email protected]
Linked in
www.linkedin.com/andrewdkwood
Clear Legal Advice
Cambridge Chelmsford Ipswich Norwich
www.birketts.co.uk
Contrast other alternatives which may be
better suited for the market: a direct sales
force/employees or a distributor?
As you will have heard from Michael (NBCC)
there are a number of ways of looking for an
agent in the UK.
The essential feature of the agent is that it
does not assume risk for itself but acts on
behalf of the Principal, unlike a distributor
who buys and sells in his own name.
Many will now belong to professional
associations such as the Manufacturing
Agents Association and so will be aware of
the legal rights they enjoy but also the need
for a proper agreement.
It is important to have a written agreement
(best done by a lawyer) and to consider the
applicable law whether English or Dutch. For
the talk we are only considering the
Regulations which apply in Great Britain
(Northern Ireland has similar regulations).
We are essentially talking here about sales
and marketing agents who deal in goods on
behalf of a Dutch manufacturer or supplier
who is operating in the UK market. It does
not matter where the principal is based.
Note that even if a US company, acting as a
principal, appoints an agent in the UK whose
territory is Great Britain then the Regulations
will still apply.
It is important to recognise that in dealing
with the UK it is a different legal system to
the Dutch legal system (contrast civil and
commercial codes and UK common law) as
well as different cultural and business
approaches. UK Agency agreements and
arrangements are different to many found in
continental Europe e.g. commissionaire
arrangements or del credere arrangements.
By way of background - prior to 1994, in the
UK commercial agents did not share the
same protection as other agents did in
continental Europe. This is why it is a major
change as far as English law is concerned.
Agents are now fully aware of the rights that
they have (mandatory as well as other
contractual rights) which means in
negotiating the terms of an agency
agreement a Dutch Principal must be aware
of certain matters.
Unlike the Netherlands, the Regulations only
apply to commercial agents dealing in goods
and not services. This is an important point
and where an agent is selling both goods and
services (for example software and
hardware) then it may be sensible to have a
separate agreement for each of the roles.
Some preliminary tips - matters to
consider before entering into an
agreement
UK? Will each agent be exclusive to the
territory? Will you be fixing the price for the
goods or services that the agent will provide
or will you allow him to decide on the pricing
and the conditions for sale in the UK? If you
have existing customers in the UK, will you
continue to serve these as "house
accounts"? Will you exclude the agent from
dealing with those customers as otherwise
he may be entitled to commission on the
sales to those customers that you make.
The following preliminary matters
should be considered prior to any
detailed negotiations or making an
Consider competition law implications of
offer or entering into a formal written
your agency agreement to avoid problems
agreement or contractual arrangement
with the OFT. A 'genuine' agency agreement
with an agent
Consider the taxation implications of your
business arrangements in the UK. If you are
new to the UK market and will be operating
from the Netherlands but using an agent in
the UK depending on your products, will you
need to have a separate UK bank account or
VAT number for your customers to pay you.
Will they pay you in the Netherlands? This
might have local tax implications as you
might be considered to have set up a UK
branch.
Who will be appointed as the agent?
Is it in fact an individual, or is he represented
by a company? This will be important both
for checking with whom you are dealing - we
can organise credit and company searches
but also checking liability as well as
succession. If you appoint an agent which is a
company then you need to make sure that
there is a change of control provision in the
agreement so that you are protected if the
agent company is taken over by a competitor
or a third party of whom you do not approve.
Before you appoint the agent, whether an
individual or a company, take up references
from other suppliers who have used the
agent. Check the legal and financial status of
the company with Companies House or a
credit agency. How long has the company or
agent been operating? Can you see previous
accounts? Does the agent have local
knowledge and business contacts? Does it
have a good reputation within the specific
area of business? Does it belong to a trade
association?
What are your plans for the UK?
is unlikely to give rise to any competition law
problems as stated in paragraph 12 of the
Commission Notice of May 2000. However,
each case is assessed on a case by case
basis. There are no strict guidelines that
define a genuine agency agreement however
obligations have been identified that form an
inherent part of an agency agreement.
In addition there are other preliminary
matters to consider before the agent is
appointed, such as:
What marketing and sales support will
you give your agent?
Will you supply him with samples and
marketing material? Will he be required to
attend exhibitions and trade fairs - at his
expense or yours?
What is your sales target for the UK?
Will you have a business plan and marketing
plan with targets for the agent each year? It
is important to have targets so as to be able
to demonstrate, if appropriate, that an agent
who fails to perform is therefore in breach of
the agreement. Note that this is one of the
exceptions to the normal rule that on
termination of an agreement the agent is
entitled to compensation or indemnity. If you
have targets and the agent fails to perform
you may prefer not to terminate the
agreement but have the right to change
from an exclusive agreement to an nonexclusive agreement to allow you to appoint
other agents to also take over the market
alongside the old agent. It is important
however that the agreement deals with this
specifically to avoid arguments about sharing
of commission.
Is your market the whole of the UK or will
you divide it into geographical areas? Can the
agent cover all the areas or will you appoint
separate agents for separate parts of the
Clear Legal Advice
Cambridge Chelmsford Ipswich Norwich
www.birketts.co.uk
How will you manage the agent?
It is important that there is regular
communication between you and the agent
including personal meetings. The agreement
should specify how often the agent should
report to you (e.g. weekly or monthly) and
the format of those reports. Likewise, in the
agreement there will be specific duties for
both the principal and the agent and, in the
case of the principal, to supply the agent with
information about the market and
manufacturing capacity but at the same time
requiring the agent to report on the state of
the UK market and likely demand for the
supply of the Dutch manufacturers goods.
How will the sales be administered
from the Netherlands?
It is important to have separate terms and
conditions for the UK based on English law,
particularly if dealing with consumers in the
UK. One of the advantages of appointing an
agent is that you will have greater control
over price (thereby avoiding problems of
retail price maintenance). You should also
have the right to reject potential customers'
orders either because you are unable to
supply or because of the credit rating of the
potential customer. How far will you require
the agent to verify the credit worthiness of
your customers in the UK?
The authority of the agent - important to
specify in writing what the agent is required
to do, what products he sells and the area
and customers. In some cases an agent is no
more than a marketing agent but in other
cases has full authority to conclude sales.
Where the principal is part of a group of
companies it is important to specify whether
the agent is acting for one member group or
the whole group. This can have implications
and repercussions for the compensation
payment calculations.
As far as the principal's obligations are
concerned it is important to be able to
specify what support is to be given to
customers both in terms of after sales and
maintenance and how far the agent is
required to deal with for example complaints
or rejects or returns.
Delivery and logistics - is the agent to be
involved in this? How far will the agent be
required to check the credit worthiness of
the customer and arrange appropriate
delivery?
Insurance - it is important to make sure that
not only are the goods covered by your
consignment insurance in the Netherlands,
but also that you have third party insurance
to cover the agent's activities. In certain
cases, depending on the length of the
agreement and the age of the agent, it may
also be sensible to consider personal life
insurance to cover the cost of paying
compensation of the agreement dies as this
is a ground for paying compensation.
How will you pay your agent?
Normally agents are paid on a commission
basis but the commission may vary
according to different types of customers or
goods or different areas. Depending upon
whether the agent is exclusive or nonexclusive or whether you have rights to sell
direct to customers as well ("sole
arrangements") - all of which need to be
specifically stated in the agreement. In some
cases agents are allowed to determine the
price themselves by putting a mark-up on the
price. However, this will not necessarily stop
the agent or intermediary being a
"commercial agent" for the purposes of the
Regulations. In some cases merely describing
the arrangement as a "distribution" when in
fact it is an agency arrangement will not
avoid the Regulations.
Confidentiality/Intellectual property rights
etc. as part of the duties of the agent it
should keep the principal's business affairs
confidential. However, in the case of
intellectual property rights where there is
know how involved in technical equipment
and goods, it is important to have specific
rights set out in the agreement as well as
ensuring that the agent's rights to sell in the
UK under a trademark or patent do not
infringe any intellectual property rights and
that any licensing rights extend to the
activities of the agent. Specific matters to
negotiate. It is important to remember that
prior to a concluded written agreement that
any offer you make to the agent if in writing
Clear Legal Advice
Cambridge Chelmsford Ipswich Norwich
should be made "subject to contract". It is
also important to keep records of your
discussions and copies of the emails leading
up to the written agreement.
Key matters to consider
• Commission basis or other remuneration
or payment arrangements
• Duties of Agent
• Duties of Principal
• Exclusive or non-excusive or sole
appointment?
• Which customers to be retained by a
principal e.g. house accounts
• Geographical area
• Restrictions on agent post termination of
agreement (Note - Competition Law
implications and maximum of two years)
• Passive and active sales? Use of website
and internet sales
• Term of years? Fixed terms or rolling
agreements?
• Notice period(s)
• Targets? Key performance indicators
• Insurance arrangements?
• Product range?
• What about future products?
• Corporate agents: change of control?
• Termination arrangements: compensation
or indemnity?
• Assignment or not?
• Sub-agents?
• Competition law implications
• Applicable law and jurisdiction clause
• Boilerplate clauses
www.birketts.co.uk
The written agreement
Note the importance of a written agreement
which is drawn up by an English lawyer based
on the Regulations.
There is no concept of a "probation period"
or trial period. The Regulations still apply.
During the course of the agency
arrangements, keep records of all
conversations and meetings with the agent
including emails and letters in case there is a
future dispute.
It is important to have clear terms in the
agreement setting out the scope of the
agent's authority and ability to negotiate.
Note that there are mandatory (that is the
parties can not contract out of) provisions for
both Agents and Principals in terms of duties.
As for the agent, it must act dutifully in good
faith, make proper efforts to negotiate,
communicate all necessary information and
act in accordance with the reasonable
requests of the principal. The Principal in turn
must provide the agent with the necessary
documents and information to act as agent,
including the likely volume of transactions
(which may be difficult since the agent may
know the territory better) as well as inform
the agent of sales accepted or rejected.
Need to ensure that all records are kept for
VAT (BTW) purposes.
The agreement will have a dispute resolution
clause, perhaps use of mediation. If there is a
minor dispute between the parties but if it
cannot be resolved then you will need to
consider the implications as to the
termination.
There should also be a clear auditing
arrangement in the agreement both to
enable you to check the agent's records but
also for the agent to have access to
independent certification of sales and the
principal's records.
It is also important to check if the agent can
act for other principals in competing
products. It is usual to have restrictions on
the agents which is permissible under
Competition Law but also check any post
termination restrictions.
What has been the experience of the
last two years in the UK? What are the
factors to look for when things may
have gone wrong or the relationship
has changed?
This may be due to the global downturn, the
changes of the nature of the market
generally or specific customer changes? Or
is it due to the changes in markets, suppliers,
Important to be clear about when
currency, transport or the economy
commission is payable and for which sales, as
generally?
well as the pricing mechanism to be
employed. A principal can not avoid paying
Are you considering a direct sales force,
an agent where the sale is not completed
perhaps because of the use of the Internet or
due to the fault of the principal.
better to have your own sales force because
you have additional staff who are under
During the course of the arrangements
utilised in the Netherlands or elsewhere? This
it is important to manage the agent.
may avoid redundancy costs for a principal in
How? By regular communication and
the Netherlands or elsewhere?
tracking sales and records
Format of reports.
Use of standard terms and conditions. Note
that Dutch terms may not be applicable for
the UK market. What about consumer sales?
Back office administration and sale ensuring
good communication with the agent as to
when sales effected and paid and when
commission will be payable.
Consider use of English bank account. Make
sure that the agent is paid in the currency of
the customer.
Alternatively you may be considering
reducing the territories or the maintenance
of those areas to avoid costs and commission
to agents? Perhaps there has been an
increase in the principal's costs base
reducing margins and sale prices?
goods or supply?
What to do if things go wrong or you
wish to terminate?
Consider the agreement or, if no agreement,
collect together records of the appointment
including all emails and letters (which will be
disclosable in English Court proceedings discovery).
Review all of the financial information,
including sales, during the term of the
agency agreement. Note any agreement that
existed prior to 1993 then that period will be
counted for the period for calculating
compensation.
Consider what has gone wrong with the
relationship with the agent. Is this because of
change of communication style, the
economy or is there a fundamental failure to
perform?
Before considering the ultimate step of
terminating the agreement, is it possible to
renegotiate the terms? For example an agent
who is on an exclusive basis may be prepared
to renegotiate a different rate of commission
on the basis that he becomes a non exclusive
agent. However, care needs to be taken to
ensure that this is not treated as a
termination of the agreement, giving rise to
an automatic right to compensation or
indemnity.
Remember that in all negotiations, any
compensation or exchange of
correspondence or emails should be marked
"without prejudice and subject to
agreement". The English Court rules as to
discovery and negotiated settlements. Are
there any mediation provisions in the
agreement to allow third party mediation or
arbitration to avoid costly Court
proceedings?
If all fails then consider giving notice to
terminate the agency agreement (note the
provisions which are mandatory under the
Regulations providing for minimum periods
of notice). At the same time as giving notice,
In other cases there is a change of principal
it may be appropriate to consider making an
who acquires a business in the territory
offer to settle the agent's claims that will
where the agent is located but which has its
otherwise arise or alternatively wait until the
own direct sales force.
agent brings the claim. Note that the agent
has one year in which to bring a claim or give
Alternatively the agent may be under
performing suffering from financial problems notice of making a claim (Regulation 15 of
the Regulations).
or may be suffering from the quality of
Clear Legal Advice
Cambridge Chelmsford Ipswich Norwich
www.birketts.co.uk
The circumstances in which a claim for
compensation or indemnity may be
made by an agent
Under the Regulations, an agent is entitled to
be paid compensation or be given an
indemnity by virtue of termination by the
principal for any reason other than a default
by the agent justifying immediate
termination. This includes even where the
principal has terminated the agreement by
notice or where the agent has justifiably
terminated on the basis of circumstances
attributable to the principal or if a contract is
for a fixed term and comes to an end by
effluxion of time or illness or retirement or
even on the death of the agent (Regulation
17 and 18). Unfortunately for the principal as
in the Netherlands these are mandatory
provisions which cannot be avoided or
excluded prior to the agency contract
expiring to the detriment of the agent
(Regulation 19).
Unlike the Netherlands, English law provides
that an agent will either be entitled to be
compensated for the loss of the agency
arrangements or be given an indemnity by
the principal. Under Regulation 17(2) the
agent will receive compensation unless the
contract specifically grants entitlement to an
indemnity.
Compensation used to be considered to be
equivalent to the approach in the French
system until a recent case decided that the
correct way to compensate the agent for
damage is to value the agent's business.
This will look at the way the agent has
suffered as a result of the termination that
both deprived the agent of commission
which "proper" performance of the contract
would have procured but for the termination,
and which did not entitle the agent to
amortise the costs and expenses it had
incurred during the agency arrangements at
the request of the Principal (Regulation 17(67)). In other words, to compensate the loss
suffered by the agent resulting from the
termination. Unlike France which normally
grants the equivalent of two years gross
commission, the new decision in the case
Lonsdale (trading as Lonsdales Agency). -vHoward and Hallam Limited 2007 (House of
Lords) shows that the Court's approach now
is to quantify the loss by asking what a willing
buyer able to perform the contract would
reasonably be paid at the date of the
termination for the rights the agent had
been enjoying. This means a much more
involved investigation into the actual loss
suffered by the agent which in turn means
that if there are declining sales in the current
market, the agent's compensation will be less
than it might have been in previous years.
The alternative is the indemnity route which
is equivalent to the approach in the
Netherlands. This is where the agent has
brought the principal new customers or
significantly increased existing business from
which the principal continues to derive
substantial benefits and that such payment is
equitable having regard to all the
circumstances, including the related loss
commission.
The indemnity focuses on what the principal
has gained and continues to gain and benefit
post termination from the agents work
rather than what the agent has lost which is
the compensation route.
Unlike compensation, an indemnity is capped
which is why practice agency agreements
are drawn up by solicitors for the principal on
the basis of the indemnity route.
The cap, as in the Netherlands, is the
equivalent of one year's average annual
remuneration over the last five years or the
duration of the agency arrangements if
shorter (Regulations 17(4)).
Note that a grant of indemnity does not
prevent the agent from also seeking
damages (17.5) although in practice this is not
usually sought.
The position as for compensation and a
separate claim for damages is not entirely
clear.
What are the issues that a principal
might consider raising when faced
with a claim for compensation or
indemnity by an agent?
Are the items sold by the agent goods or
services?
Is the agent operating in the UK or the EEA?
What is the value of the business of the
agent? Look at potential sales going forward
as well as past sales. What would a willing
purchaser pay for the agent's business in the
current economic climate? If the agreement
is silent then compensation will be payable
(looking back at past sales and potential sales
but with no limit as to how much
compensation can be paid). Does the
indemnity route apply? In which case look at
what benefits the principal will continue to
derive from the agent's activities in the
future (but note that the amount payable is
limited). Arrange for a valuation before
agreeing to make a payment. Note that if
compensation is payable it is irrelevant that
the principal's business has ceased.
The agent will be unable to claim post
termination payment from the principal
unless, within one year following that
termination, it notifies the principal of its
claim and entitlement (Regulation 17(9)).
Does the agreement provide for a capped
payment? If it is expressly stated it must be in
accordance with the GB Regulations but this
may reduce the scope for negotiating the
agents claim? Because of the economic
circumstances in the UK, this may have
meant a reduced demand for the Principal's
goods and so even, through no fault of the
agent, this may mean that on the indemnity
basis a termination payment should be nil or
not significant since the principal will not
continue to benefit significantly or derive
substantial benefits from the agent's
activities and the contrary would not be
equitable. On the other hand, if
compensation is payable then this may also
mean that the value of the agent's business
is reduced and therefore the amount of
compensation is minimal.
Check that it is a commercial agency
arrangement and not some form of
employment or a distribution.
This will depend obviously on the duties and
the nature of the relationship and the
authority of the agent to sell on a continuous
basis.
Clear Legal Advice
Cambridge Chelmsford Ipswich Norwich
www.birketts.co.uk
Note that the principal must act in good faith
and so cannot impose or unilaterally change
the arrangements or new commission
arrangements. Failure to adhere to this and
obtain the consent of the agent will mean
that the agent will be able to treat the
principal's action as a breach of the agency
agreement and claim termination,
compensation or indemnity. Note that the
agent may also be protected by general law
(e.g. not to be discriminated against or
treated unfairly whether because of a
physical disability or other reason).
Double commission - important to have a
written agreement to prevent the agent
being entitled to commission even if the
principal sells or another agent sells in the
same territory to a customer that the agent
has not dealt with previously. This is why it is
important to specify the transactions in the
agreement.
If faced with court proceedings, check
whether or not there is a legal expenses
insurance policy which might cover the
agent's claim?
Ipswich
24-26 Museum Street
Ipswich Suffolk
IP1 1HZ
Beware of the high legal costs if court
proceedings in the UK. You will need to check
where proceedings can be started.
T:+44 (0)1473 232300
F:+44 (0)1473 230524
DX: 3206 Ipswich
E: [email protected]
The future
Consider alternatives to agency
arrangements such as a direct sales force or
a distributor or your own branch or
subsidiary?
The material contained in this guide is
provided for general purposes only and does
not constitute legal or other professional
advice. Appropriate legal advice should be
sought for specific circumstances and before
action is taken.
Likewise, is the agent entitled to commission
after the termination? In certain
circumstances the agreement may provide
that the agent is entitled to contracts that
were not yet executed but had been
introduced before the termination - it is
possible to exclude these. What are the
sharing arrangements with the other
agents?
When is the commission due for payment?
Normally only when the principal has been
paid by the customer but it will depend on
the precise wording of the agreements.
Likewise if the customer defaults but the
agent has been paid commission then there
should be some right of set off in the
agreement.
It is important to have proper accounting
mechanism to ensure that the agent knows
when it will be paid and to be supplied with
proper information about the arrangements.
Settling a claim
Important to ensure that any claim that is
settled between the parties is in full and final
settlement of any claims that may otherwise
arise under the Regulations or otherwise
under English law. See specimen settlement.
Norwich
Kingfisher House
1 Gilders Way
Norwich Norfolk
NR3 1UB
T: +44 (0)1603 232300
F: +44 (0)1603 230533
DX: 5230 Norwich
E: [email protected]
Chelmsford
Brierly Place
New London Road
Chelmsford Essex
CM2 0AP
T:+44 (0)1245 211211
F:+44 (0)1245 354764
DX: 89703 Chelmsford 2
E: [email protected]
Cambridge
Thirty Station Road
Cambridge
Cambridgeshire
CB1 2RE
T:+44 (0)1223 326600
F:+44 (0)1223 326629
DX: 131969 Cambridge 6
E: [email protected]
©Birketts LLP 2011.
Authorised and regulated by the
Solicitors Regulation Authority.
Birketts LLP is a Limited Liability
Partnership registered in England
under no. OC317545. A list of members
is open to inspection at our offices.
Check that it is a legally binding settlement
agreement.
Clear Legal Advice
Cambridge Chelmsford Ipswich Norwich
www.birketts.co.uk