For example, unless the agency contract expressly prohibits it, a commercial agent can delegate his duties to sub-agents. However, many principals prohibit the agent from appointing sub-agents, as the sub-agent is one removed from the principal, with the principal consequently one removed from the customer.
Still, there are numerous agency agreements which do not contain any such prohibition.
But what happens when the main agent retires or just wants to give up the main agency? What if the principal terminates the main agency because of some default on the part of the main agent, which justifies the principal ending it? Where does that leave the sub-agent?
Depending on the circumstances in which the main agency ends, the main agent may be able to bring a claim for compensation/indemnity against the principal – but can the sub-agent?
It’s all in the Regulations …
Notably, the Regulations do not make any mention at all of sub-agents, and the argument goes that if the Regulations had intended to cover the position of sub-agents, they would have expressly mentioned them.
In reply to the question “Are sub-agency agreements covered by the Regulations?” the government’s guidance notes, issued when the Regulations were introduced, state that: “Whilst the position is not clear, the Regulations are, in principle, capable of covering sub-agency agreements.”
Nevertheless, at the Court of Appeal in 2003, a case called Light and Others v Ty Europe Ltd decided that the sub-agents would be unable to bring a claim against the principal.
Briefly, the Court of Appeal case involved a principal who manufactured cuddly toys, a main agent who was paid a commission of 15 per cent, and sub-agents of the main agent who were paid a commission of 10 per cent.
The main agency was for a fixed period and ended. The main agent ceased trading, had no assets, and dropped out of the picture. The sub-agents brought claims for compensation under the Regulations against the principal, with the High Court agreeing that the sub-agents could bring a compensation claim against the principal. However, the principal appealed and the Court of Appeal reversed that decision.
Thus, a sub-agent would have to challenge a unanimous Court of Appeal decision if he wanted to bring a claim against the principal.
Can sub-agents bring a claim against the main agent?
The Court of Appeal case, which decided there had to be a contract between the sub-agent and the principal for the Regulations to apply also, in passing, touched upon the question of whether the sub-agents could bring a claim against the main agent.
The Court of Appeal commented, “The claimants were probably not [the main agent’s] commercial agents because they were not selling on its behalf, but I can see no reason why as [the main agent’s] agents they should not have been able to establish a stake in [the main agent’s] compensation claim. Whether they could have compelled [the main agent] to make such a claim is more problematical, but a combination of commercial pressure and resourceful lawyers might have done the trick.”
In other words, the main agent does not own the goods, they are owned by the principal, and the sub-agents negotiated the sale of the goods on behalf of the principal and not on behalf of the main agent.
If this argument were upheld, it would mean that a sub-agent would be left without a claim against either the principal or the sub-agent.
As indicated by the Court of Appeal’s comment, the courts are likely to construe the Regulations to give sub-agents “a stake” in the sum which the principal pays over to the main agent.
This pre-supposes that the principal makes a payment to the main agent and, even if he does, the sub-agent, in practice, will have to have strong nerves and deep pockets to try to establish his “stake”.