Commercial Agency Agreement
An agency agreement may be exclusive or non-exclusive. An exclusive agency agreement involves the appointment by the principal of the agent for a period, for the sale of the principal’s products in a specific territory. In the case of an exclusive agency, the principal agrees not to appoint any third-party to be its exclusive agent.
A non-exclusive agency agreement is in broadly similar terms. It does not contain provisions in relation to the exclusive rights of the agent within the territory concerned. Some of the other duties in an exclusive agency agreement, including in particular the obligation to achieve minimum sales, may be modified.
The principal may reserve the right to sell to customers in the territory who have not been introduced by the agent, even in the case of an exclusive agency. In the case of a non-exclusive agency, the principal will have the right to appoint other agents within the territory.
Targets and Term
There may be provisions for a minimum target number of sales which must be achieved by the agent. They may be set out in a schedule showing the targets to be achieved in successive periods. The may be provision for review and checks in order to ascertain whether the sales target has been or will be achieved. The principal may be obliged to notify failure to meet targets.
If these are not met, the agreement may be terminable immediately or following a procedure. It may be provided that if there is a failure to meet the specified target by more than a percentage amount over an extended period, the principal may have a right to terminate the agreement.
The duration of the agency will be specified. There may be an option for one or both parties to terminate it on giving certain notice during a set period or periods. Generally, with termination options of this nature, their terms must be strictly complied with, in order that they are effective.
The agreement may have no specified period and may be terminable on notice at any time. It may become so terminable if the original term expires and it continues by ongoing mutual consent.
The principal may confirm that it will act in good faith in its financial dealings with the agent. It may undertake further obligations consistent with the nature of the commercial arrangements. These obligations may be set out in general terms followed by more specific particulars of the principal’s obligations.
The principal may agree to provide the agent with the requisite information in relation to the products as is necessary for the sales and the performance of any ancillary services. It may be obliged to furnish samples of the products, catalogues and publicity material in order to allow the agent to conduct its agency. The principal may retain property and all the rights in respect of all samples, et cetera.
The principal will furnish pricing particulars for the product and ancillary services. The agent must not seek sales at other prices. The principal may agree to execute orders transmitted by the agent. The principal may have the right to determine whether or not it will execute a sale.
The agent must negotiate all orders on the basis of the principal’s standard trading terms and conditions. The principal may be obliged to furnish a copy of the invoice particulars of the sale.
Calculating and Vouching Commission
Many of the principal’s duties will relate to the mechanisms for recording sales and the accrual of commission. The principal may be obliged to furnish a copy of the invoice particulars for each sale achieved by the agent. The principal may be obliged to notify the agent within a reasonable time of the acceptance or refusal of any commercial transaction negotiated or concluded by the agent or the non-execution of a transaction, which the agent has procured.
The principal may be obliged to give the agent a statement of commissions on a regular periodic basis setting out the elements relevant to the calculation of the commission. The agent may have the right to require the principal to furnish such other information as is necessary to check and verify the amount of commission. This may include extracts from the principal’s books and records.
The principal may be obliged to notify the agent as soon as he becomes aware that the volume of commercial transactions may be lower than the agent could have expected. It may be obliged to notify the agent if it will have any difficulty in effecting the volume of transactions negotiated by the agent. It may be obliged to notify the agent of supply difficulties, price alterations and changes in the terms of business.
Duties of the Agent
The agent will have extensive rights and duties during the term. The agent is subject to a duty of good faith. He must diligently and faithfully serve the principal. He must use its best endeavours promote the sale of the principal’s products in the relevant territory and not do anything to interfere with its development. The duties of an exclusive agent are likely to be more onerous.
The agent may be precluded from offering the products to any person outside the territory. It may be entitled to negotiate parcel sales to persons outside the territory. The right to commission may be subject to specific approval of the principal in this case.
The agent (in particular an exclusive agent) may be precluded during the agreement and for a period afterwards from selling or negotiating the sale of goods of a similar type to the principal’s products as might compete with or interfere with the sale of the products, itself or through another without the consent of the principal.
The agent will usually have the obligation to give accounts of its activities periodically. It may be obliged to furnish for approval, its proposal and proposed expenditure for promoting the sales of the product in the territory concerned.
Status as Common Law Agent
Despite the designation as an agent, the exclusive agent may have no authority to bind the principal as such to any contract. It may be provided that no order is binding on the principal unless accepted specifically by it. The principal may have the right to refuse or accept or execute any order obtained. It may or may not have to give reasons. The agent may have no entitlement to commission in respect of an order so refused.
The agent may be obliged in all dealings to disclose that he acts as a commercial agent for the principal and not as a principal. He is likely to be obliged to transmit orders immediately to the principal, who may choose to execute them by supplying the goods to the customer (or not).
The exclusive agent may be obliged not to purport to have authority as a legal agent of the principal in his dealing with third-parties. He may be obliged not to make any representation, warranty or guarantee in relation to the principal’s products without the specific consent of the principal. He may not pledge the principal’s credit or hold himself as having any such authority.
The agent’s commission may be specified as a percentage of the net sale price of the products sold through transactions concluded during the term as a result of the agent’s action. They may also include sales with a third-party whom the agent has previously acquired as a customer for transactions of the same type or where the transaction has been entered with the customer in the exclusive territory where applicable.
The agent may be entitled to commission on all transactions concluded after termination where the above conditions apply and the order is received before termination. It may also be entitled to commission where the transaction is mainly attributable to the efforts of the agent and has entered within a reasonable period after the termination of the agreement. There may be provision for apportionment of the consideration in this where the agreement has terminated.
Provision may be made for the commission falling due. It may occur where the principal should have executed the transaction, the customer executes the transaction or the customer should have executed the transaction, commission may fall due within a specified date typically being a month after the end of the quarter in which the sale, the commission fall due.
It may be confirmed that commission is not payable if the contract between the customer and principal is not completed due to circumstances for which the principal is not responsible.
The provisions as to termination will be of practical importance. Apart from the provisions of the agreement in relation to the term (duration), either party may have a right to terminate the agreement by reason of the breach on the part of the other. Sometimes the principal may have the main or exclusive right to terminate for breach.
It may be provided that if there is a breach which is capable of being remedied which continues not remedied for 14 days, the right to terminate arises.
It may also be provided that the agreement terminates if the agent commits an act of bankruptcy, enters insolvent liquidation or ceases to have the capacity to perform the agreement.
Intellectual Property and Goodwill
The exclusive agent may be given rights to use the principal’s intellectual property comprising trademarks, trade names, copyright and designs relating to the principal’s products. It may be entitled to use the principal’s literature and promotional material. A licence to use the relevant material and the associated intellectual property is given for this purpose.
The agent may be obliged to inform the principal of any infringements or alleged infringements of its intellectual property. It may be required to advise the principal of any claimed breaches of copyright by a third-party. It may be obliged to assist the principal in defending its intellectual property rights against.
The agent may be required to acknowledge that it has no rights to the goodwill or it must subsist under the license. There may be covenants whereby the agent is obliged not to damage or adversely affect the goodwill or reputation of the principal.
Standard confidentiality provisions are likely to apply. The exclusive agent will be obliged not to disclose confidential information or know-how relating to the principal. The usual mutual exceptions are likely to apply in relation to such matters as those in the public domain, disclosure necessary for the purpose of the agreement and disclosures required by public authorities.
The exclusive agent is entitled to indemnity from the principal in accordance with the statutory provisions, which apply notwithstanding an agreement to the contrary.
The agent may be responsible for its own costs and expenses in performing its obligations under the agreement, except those specifically undertaken at the principal’s request and authorised by it in advance
Standard template clauses are likely to apply. Indulgence or failure to enforce strict compliance is not to be construed as a waiver or variation of the right of the innocent party under the agreement. Variations or waivers are likely to effective only if made in writing and signed by the principal.
It may be confirmed that the agreement is not assignable and is personal to the party. The governing law and courts with jurisdiction will be specified if there is any cross-border element.
The schedules to the agreement may provide for the key commercial variables. It may define the relevant products. Where there is exclusivity, it may define the relevant territory. It may define the targets.