Making and Unmaking … What Are The Limits?

Common variations are a reduction in the agent’s territory, a reduced rate of commission on some or all of the agent’s accounts, or more onerous reporting obligations. Agents often feel powerless to object to the imposition of the new terms.

Oral agreements can frequently give rise to misunderstandings between the parties, particularly when variations are involved. Questions arise as to what the parties actually intended, and the precise terms of the variation. This can lead to disputes, and may ultimately may lead to termination by the principal who considers the agent to be in repudiatory breach of the varied agency agreement. A lack of clarity surrounding a variation to the contract as an undesirable position for an agent.

Where an agent has a written agency contract it may contain a clause requiring any variation to the contract to be in writing. This is sometimes referred to as a “no oral variation clause”. Such clauses are common in written contracts but are often overlooked by the parties.

The reason for a principal not complying with the requirement to record the variation in writing may be two-fold. The principal may believe that just as the parties had the ability to agree to such a term when making the contract, they also had the ability to unmake it. In other instances, a principal who wishes to impose a variation to the detriment of the agent may simply choose to ignore the requirements of such a clause because of the difficulty in obtaining the agent’s agreement to the variation in writing. In both cases an agent may consider himself bound by the oral variation, but careful consideration should be given to the terms of any written agency agreement.

The validity of such clauses has recently been considered by the Supreme Court in the case of Rock Advertising Limited v MWB Business Exchange Centres Limited [2018] UKSC 24. The Supreme Court overturned the earlier decision of the Court of Appeal and held that such clauses are valid. This means that if a variation to the contract is not made in writing in accordance with the requirements of the clause, the variation is not binding even if the parties have orally agreed the change.

This is a welcome decision for commercial agents which will empower them in situations where the principal is seeking to impose variations to the terms of their agency against their will.

The reality is that a clause which requires any variation of a commercial agency agreement to be in writing is no more of a fetter on the agent or principal’s autonomy than any other provision in the agreement. The parties are simply required to follow the express terms of the agreement if they want to vary it. Failure to do so will invalidate any purported variation. This will mean that agents who have their territory reduced, for example, may have a future claim for unpaid commissions from the carved out territory. The sums can be added to the usual claims for compensation or indemnity at termination of the agency.

Agents who are negotiating terms of their agency at the outset of the relationship are advised to include a “no oral variation clause” within in any written agreement. It will restrict the ability of a principal to undermine the written agency agreement by informal means, which may be open to abuse.  A variation which is recorded in writing will give certainty to the parties and provides welcome protection for the agent further down the line.

For more information visit our Commercial Agency section.