Agency and Agents
Agency and Agents
Agency and Agents
This guide was written on behalf of Invest NI by Cleaver Fulton Rankin Solicitors
1 What is an Agent?
An agent is a person instructed by another person or company to enter into legal relationships with third parties, usually customers, on the instructing partys behalf. The person or company giving the instruction is called the principal. For example, ABC Limited (the principal) appoints Joe (the agent) to sell wine to customers on the companys behalf. Provided Joe acts within the terms of his agency agreement, the company will be directly responsible to customers to whom Joe sells the products. The customer will have no legal relationship with Joe, as he is merely acting on behalf of the company. Joe would usually be paid by commission.
2 How does an Agent differ from a Distributor?
If ABC Limited had appointed Joe as a distributor, the company sells the products to Joe, and Joe sells the products on to his own customers. Joe, and not the company, would be directly responsible to the customers to whom he sold the products. Joe is not acting on behalf of the company, therefore there would be a legal relationship between the company and Joe, and a separate legal relationship between Joe and the customers. The customers would have no legal relationship with the company. The advantages and disadvantages of using agents rather than distributors are as follows: 3.1 Advantages The principal has greater control over the terms of sale and marketing. The principal can have greater control over the choice of customers and retains their relationship with them. Commission paid to an agent is generally lower than the margin earned by a distributor. Agency agreements may be cheaper to terminate if the Commercial Agents Regulations do not apply (see below). 3.2 Disadvantages The agent has a right to lump sum payments on termination of the agreement, regardless of his own breach of contract. A principal can be regarded as trading in a territory if he has an agent there, which raises tax issues. An agency agreement is more expensive to terminate if the Regulations do apply. The principal bears the financial risk (though this may be an advantage in some situations).
FOR FURTHER INFORMATION: CONTACT KATHY McCONVILLE, BUSINESS INFORMATION SERVICES T: 028 9069 8127 E: kathy.mcconville@investni.com
8 Restrictions
The principal can place limitations on the agent who will generally agree not to look for contracts outside of his geographical territory. It is likely that the agent will agree not to be interested in the production of rival goods in the territory.
10 Agents Duties
Both the common law and the 1993 Regulations impose duties on the agent. The agreement should outline the agents duties in detail. The agent must diligently and faithfully serve the principal and must work in his interests. The agent must also use his best endeavours to negotiate and conclude transactions. The agreement will impose the duty to make efforts to market and promote the products in the designated territory to current and prospective customers.
14 Commission
It is necessary that the level of commission is determined by the agreement. Usually the level is set at a percentage of the net invoice price of the products that the agent has sold on the principals behalf. Alternatively it can be a percentage of the amount of cash received by the principal that sales have generated. An agreement can make provision for a sliding scale of commission to be introduced and for there to be a fixed minimum amount set. If no level of commission is agreed upon then the Regulations set out that an agency should receive an amount that is normally paid to agents in the same geographical territory or, if no such custom exists, a reasonable amount. The agent is entitled to commission on transactions concluded in the period covered by the agreement if it was concluded: As a result of the agents action; or With a third party previously acquired as a customer by the agent for a transaction of the same kind. The agent is entitled to compensation on transactions concluded after the agency arrangement has terminated if: The transaction is mainly attributable to the agents efforts during the agreement and was entered into within a reasonable period after the termination; or
16 Intellectual Property
If the principal has intellectual property he wishes to protect (e.g. trademarks, logo, patent) then adequate protection should be arranged. If the principal is exporting goods to a foreign country it may be wise to register his intellectual property in that country. It may also be prudent to include a provision in the agreement that requires the agent to inform the principal of infringements on its intellectual property rights or on the intellectual property rights of a third party within the area. Generally the agent will be prohibited from acting in a manner inconsistent with the principals intellectual property rights and from doing any act that may invalidate these rights. The agreement should regulate the use by the agent of the principals intellectual property rights, such as a requirement of consent. An example of this would be the use by the agent of the principals trademarks on stationery. The agreement should prevent the agent from registering any intellectual property rights over the principals goods.
17 Confidentiality
The agreement must contain confidentiality clauses, however if the information is especially sensitive then more detailed individual contracts may also be required from the agents employees.
21 Time Limit
If a year has passed from the date of termination of the agreement and the agent has not informed the principal of its intention to follow up a claim then the indemnity becomes time barred and cannot be relied on.
22 Restrictive Covenants
There is no requirement for restrictive covenants to exist however it would be wise to include them in the agreement. An example of a restrictive covenant would be a restriction that is placed on the kind of goods being sold or the class of customers that the agency can sell to. The covenants cannot last for more than two years from termination, they must be concluded in writing and relate to the geographical area of the agents usual customers, and they must be reasonable from the point of view of both parties.
23 Assignment
It is likely that the principal will wish to retain the right to assign, i.e. to transfer the agreement to another person or company, but will wish to ensure that the agreement cannot be assigned by the agent.
This guide is provided to give an overview of the principal areas when considering Agency and Commercial Agents Regulations. Detailed legal advice should always be sought.
FOR FURTHER INFORMATION: CONTACT KATHY McCONVILLE, BUSINESS INFORMATION SERVICES E: kathy.mcconville@investni.com T: 028 9069 8127