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As time passes by, things change. This is as true in the context of an agency contract as it is for life in general. It is not unusual at all for changes to an agency contract to be needed to reflect ‘real life’ changes in circumstances or specific changes that a principal wants to put in place to exert more control over the agent.
These changes can cover any number of subjects, including:
How should the agent and principal deal with such changes? Can the principal simply impose changes on the agent or do both parties have to agree to the changes before they can take effect?
Under English law, the general position is that any changes, or variations, to an existing agency contract (or any other type of contract) have to be agreed by all of the parties to that contract in order be legally effective.
OK, so that means the agent has to agree to the changes? It does, but things can get quite complicated when we consider whether the agent has “agreed” to the changes in practice, particularly where there is not a written agency contract in place.
A well drafted written agency contract should include a clause which sets out the process to be followed if the parties want to make changes or variations to the agency contract. These clauses will usually specify that any changes to the agency contract will only be effective if they are set out in writing and signed by or on behalf of both parties. This gives certainty to the parties that only changes agreed in this way would be legally binding. If changes are made in any other way, such as verbally, those changes would not be effective.
However, the agency contract may also contain provisions which enable the principal to impose changes on the agent (usually in specific areas) without needing the agent’s further consent. In this scenario, the agent effectively gives advanced agreement to the changes by signing the agency contract which contains these provisions. This is something an agent will need to be particularly aware of when reviewing the draft agency contract before agreeing and signing it.
If the agency contract already permits the principal to make such changes without needing the agent’s consent, the variation clause mentioned above would not be needed.
Where there is no written agency contract in place, it would still be necessary to show that the parties have agreed to change or vary the terms of the agency contract.
However, the circumstances in which this could take place are potentially wider and a Court would consider carefully what evidence there is to show that the parties agreed to change or vary the contractual terms. That evidence could be provided in a number of ways, including:
The potential difficulty with non-written evidence is that there is scope for the parties to disagree about whether a change was agreed and the scope of that change. For example, the parties may have different recollections of what was discussed and agreed during a particular conversation and if there is no document produced at the time which confirms what was discussed and agreed, a Court could be left with the unenviable task of deciding which version of events it believes. This often comes down to which witness the Court finds to be more credible when giving evidence at trial, which creates a lot of uncertainty and can be very expensive for the parties to resolve. It is always preferable to have clarity on these things.
However, there are some limited areas in which the terms of the agency contract are fixed by legislation and cannot be changed, irrespective of what the agency contract itself says. This occurs where the Commercial Agents (Council Directive) Regulations 1993 (“the Regulations”) apply to the agency contract. The Regulations make clear that the following rights and obligations cannot be overridden by the agency contract:
There is also something of a grey area as to whether the agent’s rights to be paid commission under Regulation 7 of the Regulations can be excluded by the agreement of the parties (for example, where the parties agree that customer accounts can be converted to house accounts or the agent agrees to a territory reduction). There is a good argument that if the agent has acquired a new customer for the principal, under Regulation 7 they would still be entitled to commission on all sales to that customer even if that customer becomes a house account or is removed from the agent’s territory.
The grey area arises because it is not clear whether Regulation 7 can be overruled by the terms of the agency contract. Unlike the provisions outlined above, the Regulations do not explicitly state that the rights contained in Regulation 7 cannot be overruled by the terms of the agency contract.
Surprisingly, the Courts have not yet had to deal with this issue. The general consensus seems to be that Regulation 7 could be overruled in this way, but until we get a definitive view from the Courts there remains some uncertainty here.
From a legal perspective, a principal cannot impose contractual changes on an agent without the agent’s agreement. Any attempt to do so would be ineffective.
However, from a practical and commercial perspective the agent might be left with little choice but to agree to the changes that the principal wants. Given the economic impact of the Covid-19 pandemic, a principal might be faced with the unenviable situation of having to reduce costs in order to keep their business alive and having to terminate the agency contract if costs cannot be reduced. Alternatively, a principal may simply decide that they want to spend less on their agents. The agent would face the difficult choice of effectively agreeing to a pay cut or losing their agency (albeit that they would be entitled to compensation or indemnity). In that situation, the agent’s only realistic option might be to get the best deal they can and minimise the reduction in their earnings.
Kevin Manship leads the Commercial Litigation team at Peter Dovey and Co Solicitors and acts for principals and sales agents on all matters relating to commercial agency law. He advises across the full life cycle of an agency contract, including the negotiation and drafting of an agency contract at the outset of the relationship, the rights, obligations and remedies applicable as issues arise during the life of the agency contract, the impact of the Commercial Agents Regulations (where applicable) and the issues and claims which may arise from termination of the agency contract.
You can contact Kevin by email at email@example.com or by telephone on 07778 010574.