Monthly Archives: November 2016

Commercial Agents – Agreement Interpretation

When a couple get married there is a warm glow of optimism but sometimes the warm glow wears off and the couple end up in a bitter divorce. It is something similar with an agency relationship.  In both cases those involved end up wishing they had thought more carefully before they made the commitment.  This was probably the sentiment of the parties to a case which was heard in the High Court in June 2016.

The case involved a Mr Monk and an Irish food company called Largo Foods Limited. Mr Monk was engaged to provide input into how best to market Largo’s snack food “Velvet Crunch”.  After a couple of years, in January 2011, the parties entered into a written agreement.  When the agreement ended, Largo disputed that Mr Monk was an agent at the start of their relationship, but conceded that he was in the period after the written agreement was entered into.  This concession was made notwithstanding that the written agreement described the arrangement as one of consultancy. If Mr Monk was an agent, then because the agency involved goods, he was a commercial agent under the Commercial Agents (Council Regulations) 1993 (“the Regulations”).

The clause in the January 2011 written agreement dealing with how long the agreement was to last read:

“The consultancy arrangement will operate for a three year period subject to the completion of a successful review in January 2012. Assuming both parties are satisfied with the arrangement following this review, both parties will commit to a further two year consultancy period.”

Although a clause in an agency agreement dealing with how long the agency is to last is a fundamental one, it would seem safe to assume that when they entered into the agreement neither Mr Monk nor Largo gave much thought to the clause which is deceptively straightforward.

In January 2012 Largo terminated the agreement mainly because it did not think that it would get value for money in continuing it. The termination caused Mr Monk and Largo to look more closely at the agreement and query what the clause meant. Mr Monk argued that the clause meant that the agency would only come to an end if there had been a review which allowed him a fair opportunity to put his case and that Largo had to conclude in good faith that Mr Monk’s performance had on an objective basis been unsatisfactory when compared to the sales projections which the parties had discussed around the time when the agreement had been entered into.  Largo contended that the clause gave both themselves and Mr Monk the unfettered right not to continue with the agreement after one year.  If Mr Monk’s interpretation was correct, it opened up the possibility of his claiming damages for what he would have earned during the remaining 2 years of the agreement. In the event the Court decided that Largo’s interpretation was the correct one meaning that their termination of the agreement was lawful.

In the course of putting forward his case on what the clause meant, Mr Monk argued that Largo could only terminate the agency agreement if it did so in good faith. First of all he argued that the obligation of good faith was implied at common law. The Court rejected this. He had another string to his bow and this was that the Regulations provide that “in his relations with his commercial agent a principal must act dutifully and in good faith.” This meant that there was no need to argue that a duty of good faith was implied at common law as the Regulations expressly stated that it applied.  However, the Court thought that there was a big difference between a principal’s dealings with an agent for the purposes of performing an ongoing agency agreement and a clause which dealt with the termination of the agency relationship.  This led the Court to conclude that the duty of good faith expressly mentioned in the Regulations did not apply to the exercise of the right to terminate an agency.

Mr Monk was left with a claim for pipeline commission under Regulation 8 and for compensation under Regulation 17 of the Regulations. At the end of the trial, Mr Monk put forward a compensation claim under Regulation 15 which was just short of £1.8 million. The Court awarded him £275,000. In addition it awarded him just over £74,000 for his Regulation 8 pipeline commission claim. The Judge had cause to comment that unrealistic awards of compensation would not serve the longer term interests of commercial agents as a group, but simply deter principals from retaining them.

The lesson for commercial agents is firstly to look very carefully at the wording of any agreement which they are asked to sign at the start of the relationship and secondly to put forward realistic claims for compensation at the end of the relationship.