Resolving a dispute after terminating a commercial agency

If you use commercial agents to market and sell your goods, then it is important to monitor their performance to ensure they are delivering the growth you seek. Where they are not, you will undoubtedly want to take steps to address this which may include terminating the arrangement to bring it to an end.

In this case, care will need to be taken to ensure that termination is handled properly and that the process followed complies with any contractual requirements and with the Commercial Agents Regulations 1993 where these apply.

Failing to follow the correct procedure could land you in hot water and may result in you being pursued by the agent for compensation.

As Sanjay Chandarana, commercial dispute resolution solicitor and partner at Ingram Winter Green explains:  ‘Most commercial agency disputes arise where the arrangement is caught by the 1993 regulations and there is disagreement between you and the agent about the extent to which the statutory provisions apply given the terms of your contract.  This is because while some of the regulatory provisions are mandatory and cannot be contracted out, others only apply if alternative arrangements have not been agreed.’

When do the regulations apply – a quick overview

The regulations apply to any arrangement governed by English law under which a commercial agent has been appointed to operate in England, Wales or Scotland for the purpose of negotiating or concluding contracts for the sale or purchase of goods.

Where an arrangement covered by the regulations is to be terminated, provision is made for the agent to receive:

  • one month’s notice for every year the agency has been in existence, up to a maximum of three months (with shorter periods provided for under a written agreement deemed void);
  • a termination payment, which must be calculated on a compensatory basis to reflect the value of the agency to a hypothetical buyer unless a contract is in place providing for it to be calculated on an indemnity basis instead to reflect the value of increased goodwill attributable to the agent’s efforts; and
  • commission on transactions concluded during the agency and on those effected following its cessation which are (i) mainly down to the agent’s efforts during the agency and concluded reasonably soon after it ended, or (ii) linked to an order placed by an existing customer while the agency was still active.

The requirement to give notice and to make a termination payment cannot be avoided unless the agent has committed a fundamental breach of contract (known as a repudiatory breach) entitling you to treat the arrangement between you as coming to an immediate end.

Notice periods

Disputes about notice periods most frequently arise where a fixed term agreement has initially been negotiated, which provides for termination to occur upon expiry of the term or by the giving of a prescribed period of notice where the arrangement is otherwise to roll over.

Difficulties occur where the prescribed notice is less than the statutory minimum because, as the regulations make clear, when a fixed-term contract is allowed to roll over it will automatically convert into a contract for an indefinite term to which the statutory notice rules apply.

Termination payments

Disputes about termination payments tend to centre on one of two things:-

  1. Whether there is a valid contract in place which overrides the default position under the regulations stipulating that a termination payment must be paid on a compensatory basis; and
  2. Whether the agent has lost the right to seek a termination payment as a result of failing to notify you within one year of termination of their intention to seek such a payment.

Commission

Disputes about commission are usually focused on the extent to which the agent is entitled to payment for post-termination transactions, particularly where these are dependent on the agent being able to prove that the transactions in question are mainly down to their efforts while the agency was still in effect.

Repudiatory breach of contract claims

Disputes about whether a serious breach of contract by the agent is sufficiently serious to amount to a repudiatory breach are also common.  These are arguably one of the more difficult types of dispute to resolve given the need to consider whether grounds for treating the contract as repudiated exist, thereby entitling you to take the contract as being at an immediate end.

Grounds for repudiation usually include where the agent is:

  • in breach of a fundamental term of the contract (known as a condition);
  • in breach of a non-fundamental term, but one which through its non-performance has the effect of frustrating the commercial purpose of the contract or depriving you of substantially the whole of its intended benefit; or
  • refuses to perform their obligations under the contract.

Options for resolving agency disputes

If a former agent has taken objection to the manner in which the termination process was undertaken you must consider their complaint and your options.  For example, where the issue is the length of notice given, it may be that the matter can be addressed through an exchange of correspondence given that the rules to be followed are clear and where a mistake is made a payment in lieu may be required.

Where the issue centres on the calculation of post-termination commission and whether one or two particular transactions should qualify for inclusion, then it may be that the involvement of a mediator is required – particularly where there is an appetite for settlement but negotiations have reached deadlock.

In other cases expert determination may be the way to go, for instance to resolve a technical question about the interpretation of sales figures integral to the calculation of a termination payment or to determine whether grounds establishing a repudiatory breach of contract can be established.

The instigation of court proceedings is also an option, although it tends to be a last resort given the costs involved and the unpredictability of litigation.

Our dispute resolution experts will be able to advise on the options and the most appropriate course of action once we understand the particular circumstances of your case.

For further advice on resolving a commercial agency dispute, please contact Sanjay Chandarana on 02 7845 7400 or via email at sanjaychandarana@iwg.co.uk.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.