What are agency agreements?

And what can go wrong?

Agency agreements are legal contracts where one party (the principal) grants authority to another party (the agent) to act on their behalf in certain matters.

These types of agreements are both commonplace and essential. They can be found in franchised businesses, or where businesses appoint agents or distributors to market and sell their products in specific regions or markets. They enable businesses to expand their reach through representation by agents.

Agency agreements establish a fiduciary relationship between business and agent, entrusting the latter to act on behalf of the former.

What’s in an agency agreement?

An agency agreement outlines the terms and conditions under which an agent will represent the principal. It typically includes details regarding the scope of authority granted to the agent, commission structure, duration of the agreement, and responsibilities of both parties.

What can go wrong with agency agreements?

Despite clear contractual terms, disputes may arise due to various reasons:

Breach of Contract. One party fails to fulfil its obligations as outlined in the agreement, such as non-payment of commission or failure to deliver goods or services.
Scope of Authority. Disagreements may arise regarding the extent of the agent’s authority to act on behalf of the principal, e.g. an agency exceeding authority or acting outside the scope of the agreement.
Commission Disputes. Disputes often arise concerning the calculation, payment or entitlement to commissions. Ambiguities in commission structures or discrepancies in sales records can exacerbate such conflicts.
Termination Issues. Disagreements may occur regarding the termination of the agency agreement, especially if the terms for termination are not clearly defined.
Fiduciary Duties. Agents should act in the best interest of the principal. Conflicts of interest or self-dealing, can compromise fiduciary duties, and the agreement.

What does the law say?

In England, commercial law is robust yet nuanced. Commercial agency agreements are governed by the Commercial Agents (Council Directive) Regulations 1993 (“the 1993 Regulations”). The Regulations confer special rights to “commercial agents” and set out duties which should be considered and adhered to when such relationships are in place.

What legal recourse and resolution is there?

Resolving agency agreement disputes involves various legal avenues:

Mediation involves a neutral third party who can facilitate negotiations between both parties enabling them to reach a mutually-acceptable resolution.
Arbitration. If the agreement includes an arbitration clause, disputes may be resolved through arbitration. A neutral, trained arbitrator listens to both sides and makes a judgement.
In the absence of dispute-resolution mechanisms or where negotiations fail, parties may resort to litigation and court proceedings.

How can I avoid disputes in the first place?

To avoid agency agreement disputes, ensure the following is in place:

Clear Documentation. Comprehensive and clearly-drafted agency agreements can minimise ambiguities and mitigate potential disputes. Clauses addressing termination, commission structures, and dispute-resolution mechanisms are particularly important.
Compliance with Regulations. Parties must ensure compliance with relevant laws and regulations governing agency relationships, such as the 1993 Regulations.
Timely Action. Prompt action in addressing disputes can prevent escalation and preserve business relationships. Seeking legal advice at the earliest sign of conflict is advisable.

Conclusion

Agency agreement disputes pose significant challenges for businesses, requiring careful navigation of contractual obligations, fiduciary duties and legal remedies.

By understanding the common sources of disputes, exploring alternative dispute-resolution mechanisms, and adhering to legal best practices, parties can effectively resolve conflicts and safeguard their interests in agency relationships.

At AWB Charlesworth Solicitors we have extensive experience in dispute and litigation matters. If you need legal advice at any stage, contact:

David Tear | 01274 037073 | david.tear@awbclaw.co.uk