INTRODUCTION
1.The issues of commercial agent rights and obligations and remedies against the principal under the Commercial Agents (Council Directive) Regulations 1993 based on the EC Directive on Self-Employed Commercial Agents. The very term ‘commercial agent’ is derived from contention European systems and is not known to English commonlaw. However the Regulations incorporate the European concepts into English law and are based on general principles of agency. Agency agreements and relationships are critical in carrying out smooth, efficient, trustworthy commercial transactions and contribute to the economic growth. Agency relations are part of very specialist marketing forms, such as franchising, and so on. Protecting principals, agents, and third parties require a workable, legally predictable, and efficient legal framework.
2.It is natural for relationship between agents and principals to break down, given its contractual nature. In the scenario involved in this proposition, the typical scenario of the agent being allegedly denied his agency rights, commissions, payments, and other terms are engaged. It requires analysis of whether agency rights of Oliver are breached, whether he can establish this for termination of his agreement, and pursue any claims against the ABC Ltd.
PART 1
Possibilities of termination of agreement by Oliver with ABC
Overview
1.The issue here is regarding agency agreement between Oliver and ABC Ltd. Oliver is a well-known commercial agent who works for ABC Ltd and create new businesses for the latter. He works on commission basis. The business of ABC Ltd is going smooth. Recently, ABC Ltd has hired a new sales director, which has led to issues between Oliver and ABC Ltd. However, SMANTHA has engaged Oliver and instructed him well on various instances such as rendering weekly sales reports including weekly sales meeting in person. However, ABC Ltd showed different behaviour in paying out Oliver such as three months commissions to the tune of £45,000 is due. Similarly, Oliver has faced allegations upon siding with a competitor of ABC Ltd. He faced an issue regarding his commissions and was reduced factory days. Oliver desires to end this relationship following 3 months’ notice period. The following questions are discussed accordingly in light of The Commercial Agents (Council Directive) Regulations 1993 (the Regulations).
Substantial breach of contract
2.A commercial agent is generally allowed to end his relationship in respect of revocation of agency. Under R15 of the Regulation a commercial agent may end or terminate the agency agreement with immediate effect regardless of any notice, provided that the principal has committed a material breach of contract. A material breach occurs when the principal fails to perform an essential obligation of the contract or acts in a way that substantially undermines the contract’s purpose. Similarly, as per the given facts, there are various factors that lead to material breaches of contract.
3.The first significant issue is of payment of commissions which is not provided by the ABC Ltd. The facts show that Oliver has not been paid for three months of his commissions to the tune of £45,000. As per R5 of the Regulations, a principal must pay commissions owed to the agent, whether or not the contract continues. Non-payment of commission is a serious breach that directly affects the commercial agent’s remuneration, which is at the heart of the agency relationship. Consider an important case of Sutherland v Tuckwell wherein the English court reinforces this notion, where the court held that non-payment of commission or delayed payments could be considered a fundamental breach of contract, thus allowing the agent to terminate the agreement.
4.Another factor of material breach is of making changes to employment terms of Oliver on a unilateral ground. In the case of Sainsbury's Supermarkets Ltd v. McNicol, significant changes to the terms of the contract without mutual consent, particularly in the duties expected of the agent, can be seen as a breach of the contract. By instructing OLIVER to make substantial adjustments to his working arrangements, ABC LTD may have violated the terms of the agreement, thus giving OLIVER the right to terminate immediately. Similarly, the sudden changes in OLIVER’s working conditions, including the requirement to attend weekly in-person sales meetings at ABC LTD’s headquarters (a 4-hour round trip), as well as the new demand for weekly rather than monthly sales reports, may also constitute a material breach.
Lak of evidence
5.On the facts, Oliver has been accused of meeting with a competitor, which seem unfounded in nature. He has also been accused of leaking price sensitive information. In Reid v. Hackney Borough Council (2000), the court held that unjustified accusations against an employee or agent could amount to constructive dismissal, particularly when they affect the agent’s ability to perform their duties. Given the allegations on Oliver without evidence shows bad behaviour of SAMANTHA and ABC Ltd. These actions seem damaging to the reputation of Oliver. These create a situation which may allow Oliver under R15 to terminate the agreement without any notice. As per R 2(1) of the Regulations, an agent is not treated as an employee rather than he is self-employed and has an authority to negotiate as per Parks v Esso Petroleum Co Ltd. However, SMANTHA treated him as an employee given the instructions, which shows a case of unfairness and constructive dismissal of Oliver.
Operational Changes: A case of ending agreement with ABC Ltd
6.It is the duty of principal to act in good faith manner with the agent. Similarly, agent must be communicated and informed well regarding any change, document, and transactions. However, in respect of Oliver, ABC Ltd did not provide any information or communication about reducing his factory working days from 5 to 3. In Spruling v Bradshaw case the court emphasised that the agent must be communicated well and informed about his duties, in case of failure on the part of principal, the agency relationship could be compromised. Similarly, the lack of transparency about this change would have directly impacted OLIVER’s ability to generate new business, undermining the fundamental basis of his role. This lack of communication could therefore be regarded as a material breach of the contract.
Possibility of Early termination by Oliver
7.It has been clearly mentioned that early termination may be considered upon material breach of agreement. As per R 15 of the Regulation, a commercial agent may end this per material breach. There is an exception to three months’ notice when there is substantial violation by the principal. On the facts, the principal i.e. ABC Ltd has clearly breached it by not paying commissions to Oliver and changing his roles without informing him.
8.The regulations typically protect commercial agents having weak position especially when they depend on principal for remuneration or commissions. Similarly, in Holister v National Farmers Union Mutual Ins Society, it has been expressed by the court that commercial agent may end the agency relationship if the actions of principal are very harmful to the extent that the relationship seems untenable and could not provide room for the continuation of the contract. According to Asma Vranaki commercial agents tend to be in a bad position if they are under the principal such as seeking commissions from business. In addition to this, there is case of Cramer v the National trust wherein the court said that small action or omissions could be viewed collectively to justify breach of the contract, and provides for immediate or early termination to agent. In the said case, there was a minor committed by principal with regard to agency agreement, the court found for fundamental breach and allowed immediate termination of agreement.
Similarly, Oliver may seek wrongful termination in respect of non-payment of commissions for three months, which is highly extended period. This is considered a classical connotation for the termination of agency. According to Christoper failure of payment to agent is substantial thing in principal agent relationship, and is considered material breach. Thus, Oliver may be entitled to seek wrongful termination for not receiving his due commissions. It is relevant to mention here that position of Oliver is bleak given lack of commissions, unilateral changes in his duties, and unfounded allegations without substantial evidence may likely result in immediate end of the agency agreement.
PART 2
Oliver has been treated in varying manner by the new sales director compared to his prior working arrangement with the ABC over 10 years. He has been subjected to weekly instead of monthly sales reports; he has to attend weekly sales meetings personally involving a four-hour round trip; his commissions have been withheld for past three months; and he has been accused of meeting with competitor and leaking price information by Samantha without any evidence. The contract requires giving a three-month notice period for termination of the agency agreement. However, Oliver wishes to terminate now and seeks to lodge claims for his treatment by the ABC. This part explores the content, nature, and scope of the remedies he has access to.
Firstly the issue of termination will be explored and claim related to it. The terms of the agency agreement show that he has to give a three months notice period. Many agency agreements provide fixed term contracts or be for an indefinite term. The Regulation 15 provides for minimum notice periods for terminating agency contract when it is concluded for an indefinite period. Given that Oliver has been an agent for 10 years, it is likely he had an indefinite contract.
Regulation 15 provides that the minimum period for agency for third and subsequent years is three months, unless otherwise agreed the notice should explore at month’s end. The only effect on reg.15 where notice period is provided in contract is that the periods cannot be shortened, but only increased. There are multifarious issues involved in termination based on agent or principal’s breach, and consequences for the parties. The termination of agency does create risks for the principal and there are mandatory payments on termination under the regulatory framework. The agent’s indemnity cannot be withheld even in case of compensation alternative. This is even in the case of discovery of breach by the agent during the notice period that would otherwise have entitled the principal to without the indemnity.
The agent can also rely retrospectively on the rule in Boston Deep Sea Fishing to justify the termination. The two mandatory provisions available for the agent to claim under Regulation 8 is commission on orders post-termination; damages for breach of contract if incorrect termination notice were given. However, these are not applicable to the case of Oliver. The problem arises in the heads of damages the agent can recover. English law does not allow double recovery. But Regulation 17(5) allows grant of indemnity along with seeking damages. Nonetheless where the Regulations apply it has been held by English courts that agent can claim common law damages even if she has received compensation or indemnity under the Regulations, especially where notice period provisions have not been complied and should be applicable where there is breach of agency. Hence, if Oliver receives compensation under regulation 17, he can still claim common law damages, such as for non-payment, and other possible violations.
However, agent can terminate the contract in violation of the notice clause by reference to circumstances attributable to the principal. These circumstances attributable to the principal in terms of reg.18(b)(i) would justify agent’s termination. The scope of this is not clear at case law. given how Samantha has been treating Oliver he will be able to terminate and not lose his remedies.
Secondly Oliver would seek to recover the sums and amounts due to him. He has not been paid 3 months worth of commissions amount £45,000.
The remedy for this is claim for compensation by default. The agent has right to compensation or indemnity after termination under Reg.17(1), and regulations do not stipulate the circumstances of termination giving rise to such a claim. It was left to the courts (English and European) to decide this on case to case basis. The circumstances in which such a right may not arise are also multifarious. This includes serious breach by the agent under regulations 16 and 18(a). This is based on breach of any rule of law allowing immediate termination where agent did not perform her duties. This applies also where the agent terminates the contract unilaterally without cause. However, where the agent has justifiable circumstances analysed before, he can terminate and not lose the indemnity or compensation claim.
The compensation will involve the unpaid sums and the loss of value of agency suffered by agent on termination. The valuation principles depend on assumptions that agency will continue, to be on net basis, future earnings to be discounted, and so on. Indemnity is a voluntary arrangement, in absence of this, compensation has to be decided and under reg.19 there can no derogation from this.
It must be noted that there is no minimum period before the remedies and rights under regulations 17 and 18 can arise. However, it must be noted that claim for compensation under the Regulations would be a claim recoverable by statue and not a contractual claim, per Mann J, who stated:
“A close study of the Regulations confirms that they are not themselves directly contractual. They are not superimposed on any existing contract as an actual higher or parallel contract and (as observed above) they are not implemented by means of an implication into the contract. They acknowledge the existence of the contract to which they relate as a separate legal concept (see e.g. regulations 1(3)(a) and 5(2)) and override it to the extent that there are frequent bars on derogation from the regulations.”
He further stated:
Any attempt to derogate from them would be likely to be via a contract, and the effect of the Regulations is to bar the operation of a contract in that respect. So the rights given by the Regulations are definitely not contractual as that word would normally be understood. This conclusion is supported by the speech of Lord Hoffman in Lonsdale v Howard & Hallam Limited [2007] 1 WLR 2055 at paragraphs 3 and 4 where he contrasts the claimant's "contractual entitlement" with his additional "statutory entitlement to compensation". When one goes on to read the rest of the speech, which deals with the manner of calculating "compensation", one can see how far removed from a contract this statutory entitlement is.”
Oliver must given notice for indemnity claim or compensation within one year of termination under Regulation 17(6). For English jurisdiction, Limitation Act 1980 will apply. McGee states that “..the Commercial Agents (Council Directive) Regulations 1993 ... require an agent to give notice of his intention to bring a compensation claim within one year of the termination of his agency, though the time limit for bringing the claim remains the standard six years.”
Therefore Oliver should terminate agency and seek damages and compensation for accumulated commission, loss of agency value, and get common law damages as well.
Thirdly Oliver was treated in arbitrary manner. His work hours, personal meetings, reports, and other aspects were changed unilaterally. He was not informed about the reduction in the working days and hours. It must be noted that the Regulations seek to protect agent considering his weak bargaining position. These are part of the justifiable circumstances attributable to principal based on which he can opt for indemnity or compensation.
PART 3
Benefits of mediation for Oliver and ABC Ltd
The facts provide that there are difficulties between Oliver and ABC Ltd. This may necessitate the option of seeking mediation in respect of Alternative Dispute Resolution (ADR). The importance of mediation since the two have been in relationship for quite long, and resolving through mediation may be helpful since it involves third party consideration i.e. mediator, which facilitate the dispute. There is no need of going into litigation as the matter can be resolved through mediation in an amicable manner.
The importance of mediation for the parties is because of cost-effective attitude of it and is not expensive like litigation. Mediation provides cost effective and quick resolution. In Halsey v. Milton Keynes General NHS Trust case, the court of Appeal (CA) said that mediation is cost effective and helpful as compared to litigation. Similarly, it avoids financial and time lapses which is common in formal litigation proceedings. considering the position of Oliver, being commercial agent, there is a need to save money and resources as he is already seeking 3 months commission. Therefore, it is in the best interest of Oliver to seek mediation and resolve matters immediately.
Another important factor is of efficiency and prevention of delays. Mediation provides response in time as compared to litigation. It requires less time to reach to a settlement. There is no case of dragging in mediation and require less effort to reach to an amicable solution. The case of Stewart v T & N Plc highlights that mediation is useful for parties having long relationship and could come to a settlement in non time. In the case of Oliver there has been continued relationship of more than ten years, and who has also strike essential deals for ABC Ltd. In this way, mediation is helpful to decide and reach a settlement.
Mediation is useful to maintain secrecy of relationship especially business relationships. In proceedings related to mediation there is a mediator who facilitates, however, there is no case of disclosure of documents which later being used for litigation purposes. According to section 12 of the Civil Procedure Rules (CPR) confidentially must be maintained in mediation. It states that any communication between parties with regard to dispute must not be disclosed later or used for court. In fact, these are considered inadmissible. This is important for Oliver because he is more interested in protecting his reputation given his position as a great consultant in telecom industry. Similarly, he avoids public exposure.
For the sake of business relationships, mediation or ADR is considered more pragmatic as compared to litigation. In Reid v Hackney Borough Council litigation involves hostilty and such relations could lead to destruction of commercial relationships. It is also in the interest of Oliver to maintain good relationship without compromising his reputation. Since mediation preserves such relationship, it is essential for Oliver to consider it. This also provides flexibility to parties. In Carter v EMC Europe Ltd the court said that mediation allows parties to propose creative, and tailored solutions which cannot be presented by the court. Similarly, Oliver requires amicable and healthy solution either to end the agency agreement or restructure on the basis of his own terms, therefore, mediation is a pragmatic and effective way for him.
Disadvantages of mediation
Mediation is a more structured form of ADR compared to negotiation and clearly has advantages over other forms as analysed. However, for Oliver – who is in weak bargaining position and seeks final resolution to move on from his past agency relationship, mediation can be disadvantageous.
Firstly, although expert and skilled mediator can diffuse tensions and bring parties to settlement, there is no guaranteed resolution. This requires willingness of both parties and ability to focus on interests and not their positions. Despite the process, they may fail to reach resolution and have to revert to adversarial forms of resolution.
Secondly, there are time and cost considerations. Mediation is a time and cost consuming process. It would require parties to bring their best case, evidence, and require multiple sessions privately and jointly with the mediator.
Thirdly, there is potential for power imbalances. It can affect mediation process as one party may dominate negotiations and other may not. For Oliver this is concerning given that Samantha and ABC are more resourceful and shape the proceedings with greater access to knowledge and legal resources.
Moreover, given the lack of formal rules and procedures, and enforceability issues, it can further make the proceedings distorted, unfair, and allow ABC to capture the process more easily. There are no disclosure rules and powers that can allow ABC to withhold information, such as on its alleged ‘cash flow’ problems justification for not paying commissions.
References
•Andrea Tosato, ‘Commercial Agency and the Duty to Act in Good Faith’(2016) 36(3) Oxford Journal of Legal Studies 661, 665
•Asma Vranaki, ‘Compensation for Commercial Agents’(2008) 71(2) The Modern Law Review 271, 273
•Bernhard Ganglmair, ‘Installment Contracts and Material Breach’(2018) 26 Supreme Court Economic Review 1, 4
•Boston Deep Sea Fishing and Ice Co v Ansell (1888) 39 Ch D 339
•Bowstead & Reynolds on Agency (23rd ed., Sweet & Maxwell, 2024) §1-004
•Carter v EMC Europe Ltd [2012] EWCA Civ 828
•Christopher R Yukins, ‘A VERSATILE PRISM: ASSESSING PROCUREMENT LAW THROUGH THE PRINCIPAL-AGENT MODEL’(2010) 40(1) Public Contract Law Journal 63–86.
•Conseils et mise en relations (CMR) SARL v Demeures terre et tradition SARL (Case C-645/16) EU:C:2018:262 (19 April 2018)
•Cramer v the National trust [2021] EWHC 1589
•Crane v Sky in Home Ltd [2007] EWCH 66 (Ch)
•D Christou, International Agency, Distribution and Licensing Agreements (6th edn., Sweet and Maxwell, 2011), §3-205
•Directive 86/653 [1986] OJ L382/17
•E McKendrick, Commercial Law (Penguin 2020) §5.01
•Gabriel Rauterberg, ‘THE ESSENTIAL ROLES OF AGENCY LAW’(2020) 118(4) Michigan Law Review 609, 611
•Hackett v Advanced Medical Computer Systems Ltd [1998] 9 WLUK 225)
•Halsey v. Milton Keynes General NHS Trust [2004] EWCA Civ 576
•Holister v National Farmers Union Mutual Ins Society [1979] IRLR 238
•J McGree, Limitation Periods (Sweet & Maxwell 2022) §2.003
•Jacob Bercovitch, and Allison Houston, ‘Why Do They Do It like This? An Analysis of the Factors Influencing Mediation Behavior in International Conflicts’(2000) 44(2) The Journal of Conflict Resolution 170, 173
•Lonsdale v Howard & Hallam Ltd [2007] UKHL 32)
•M. Hesselink, J. Rutgers, O. Bueno Diaz, M. Scotten and M. Veldmon, Principles of European Contract Law: Commercial Agency, Franchise and Distribution Contracts (CUP 2006) 45
•Marius Mehrl, and Tobias Böhmelt, ‘How Mediator Leadership Transitions Influence Mediation Effectiveness’(2021) 38(1) Conflict Management and Peace Science 45, 47
•McQuillan & another v McCormick & others [2010] EWHC 1112
•Parks v Esso Petroleum Co Ltd [2000] Tr LR 232
•Regulation 15(4); Moore v Piretta PTA Ltd [1998] CLC 992
•reid v Hackney Borough Council [2000] EWCA Civ 15
•Ronán Feehily, ‘Commercial Mediation: Commercial Conflict Panacea or an Affront to Due Process and the Justice Ideal?’(2015) 48(2) The Comparative and International Law Journal of Southern Africa 317, 319
•Rossetti Marketing Ltd & another v Diamond Sofa Company Ltd [2012] EWCA Civ 1021
•S Blake and J Browne, The Jackson ADR Handbook (OUP 2021) 45
•Sainsbury's Supermarkets Ltd v. McNicol [1999] 1241/5
•Software Incubator Ltd v Computer Associates Ltd [2016] EWHC 1587, discussed
•Spruling v Bradshaw [1956] EWCA Civ 3
•Stewart v T & N Plc [2000] EWCA Civ 362
•Sutherland v Tuckwell [2013]
•Volvo Car Germany Gmbh v Autohof Weidensdorf GmbH, Case C-203/09)