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Contracting out: The Commercial Agents Regulations

01 January 2013

As most agents and principals are aware, the Commercial Agents Regulations 1993 provide a great deal of protection, and agents can bring claims of substantial value when the relationship goes wrong. In light of this it is surprising how little effort is put into ensuring that sufficient protection is obtained from a written contract from a principal's perspective seeking to limit payments on termination and from an agent's perspective ensuring the protection provided by the Regulations remains in force.

Invariably, both principals and agents do generally wish they had done more to protect the contractual position when the relationship goes wrong and they end up in dispute.

A key question is to what extent the parties can agree to contract out of any of the protection provided by the Regulations. When a relationship breaks down there are generally two main claims other than a claim for outstanding commission owed during the contract. These are:

  • A Regulation 17 claim, which is payable by the principal to the agent on termination (compensation for the value of the agency business unless an indemnity is agreed).
  • A Regulation 8 claim for commission for orders received within a reasonable period after termination of the contract, which were "materially attributable" to the agent's efforts (for example, the agent secured the customer in the first place and the orders received are repeat orders). Generally, in most sectors, this entitles agents to in excess of six to nine months further commission after termination.

Regulation 17

On the Regulation 17 claim, which can be substantial, the principal cannot contract out of paying monies under Regulation 17 but they can substantially reduce the sum paid by effective drafting. DWF has dealt with a claim valued at £17 million, which if the contract had been drafted appropriately, would have reduced to one quarter of this sum (£4.25 million).

So even when the provisions under the Regulations state expressly that the parties cannot agree to disapply them, there are still steps that can be taken to effectively improve the position.

Regulation 8 - Can we derogate? Yes we can...probably

Regulation 8, which entitles an agent to commission on orders received after the termination of the agency contract, is silent on the point of whether the parties can contract out of this protection and the law is unclear as to whether the parties can validly agree that it does not apply.

Whilst much of the focus of agents and principals is often on post-termination compensation/indemnity payments under Regulation 17, Regulation 8 claims can be significant, potentially running to six or seven figures, depending on the nature of the goods sold.

So this is an important issue for both principals and agents alike, as it may be possible for a principal to avoid paying and an agent to lose a substantial claim under Regulation 8 simply because the agency contract states that the agent is not entitled to commission on orders received after the date of termination.

There are good arguments on both sides as to whether the parties can contract out of Regulation 8 but on balance some academic commentators believe that it is more likely than not that a principal can contract out of Regulation 8 payments.

Ensure you have protection in your contract

Given the fact that the wording of the contract can and does have a substantial effect on the level of protection provided to the parties and therefore the level of the claims that the parties have when things go wrong, more time and effort should be spent ensuring that protection is in place on these issues. Specifically on Regulation 8, principals should always include a provision in their contracts which states that an agent is not entitled to commission on orders received post-termination and agents should always try to resist such a provision.