Many businesses appoint commercial agents to help expand into new markets. But what happens when an agent appoints someone else to help them?
Our Commercial Agency Lawyers explain the difference between commercial agents and sub-agents and explain:
- What commercial agents and sub-agents are
- What rights each has, especially upon termination
- When the Commercial Agents (Council Directive) Regulations 1993 apply
- How contractual arrangements differ
- What limited recourse sub-agents might have upon termination
What is a commercial agent?
A commercial agent is a self-employed intermediary who negotiates or concludes sales or purchases of goods on behalf of a principal.
By way of example:
PrincipalCo is a UK-based manufacturer of fabrics. It appoints AgentCo as its agent for England. AgentCo negotiates sales contracts with local retailers directly on behalf of PrincipalCo and is paid a commission on the value of sales generated.
Since AgentCo acts directly for the principal, it is protected by the Commercial Agents (Council Directive) Regulations 1993 (the Regulations) and is entitled to receive compensation or an indemnity payment upon termination of its agency contract.
What is a sub-agent?
A sub-agent is appointed by the main agent to carry out some or all of the agent’s activities. The sub-agent may sell the principal’s products but has no direct contractual relationship with the principal.
Let’s look at another example:
AgentCo wants better coverage in England, so it appoints SubCo as a sub-agent to manage sales in the area. The contract is between AgentCo and SubCo. SubCo reports to AgentCo, and not to PrincipalCo. Its commission is paid by AgentCo, and not by PrincipalCo.
Since SubCo is not directly appointed by the principal, it is not a commercial agent under the definition of the Regulations, and therefore it is not entitled to compensation or an indemnity payment upon termination of its sub-agency.
Applicability of the Regulations – summary
Recourse available to sub-agents
In summary, upon termination of a sub-agency:
- Sub-agents cannot claim compensation or indemnity from the principal under the Regulations.
- Sub-agents may be entitled to bring a claim against the agent where:
- The sub-agency agreement includes express termination payments or notice provisions; or
- The agent acts in breach of contract for example if the agent terminates the sub-agency without providing the requisite period of notice.
A share in the agent’s claim?
If an agent’s contract is terminated by the principal, that will usually result in the agent terminating the sub-agent’s contract. In the circumstances, it is only the agent who can claim compensation or an indemnity payment.
The sub-agent has no recourse against the principal because it does not have a contract with the principal. But might a sub-agent have an entitlement to a share in the agent’s claim?
The court has suggested that whilst sub-agents are not protected by the Regulations, they may be able to establish a stake in the managing agent’s post-termination payment.
The problem for sub-agents, however, is whether they would be able to compel the managing agent to bring a claim against the principal and/or whether the agent would be bound to exercise its rights in the sub-agent’s best interests.
Absent express terms of the contract, these may be difficult arguments to bring.
Conclusion
The distinction between commercial agents and sub-agents is important as it determines who gets paid what, who is legally protected, and the consequences of termination.
Unless and until there is a further development in the law, sub-agents are not protected by the Regulations and are not entitled to post-termination payments, and sub-agents should be aware of this when negotiating contracts with agents.
Contact Our Commercial Agency Solicitors
Our team of experts are ready to assist on all aspects of commercial agency law. We are always happy to have an initial no-obligation chat to help guide you in the right direction. Please do not hesitate to contact us below.
0161 941 4000
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Robert Brothers
Senior Associate
Rob has 7 years of experience acting as a Dispute Resolution solicitor. Rob has specialist expertise in professional negligence disputes, shareholder and partnership disputes, complex contractual disputes, intellectual property, reputation management and commercial agency claims.
About Robert Brothers