What to do when a commercial agency dispute arises

21st March 2024

Commercial agents can play an essential role in promoting and selling products or services, and can help you crack a new market, but things do not always go to plan. Here are some key issues to consider in relation to commercial agency disputes.

Protect your business

One of the most important things to do when a dispute arises is to look at the immediate effect on your business and consider what practical steps you can take to minimise disruption. Even if you are in the right and the other party is in breach of their obligations, you have a legal duty to minimise the effects of that breach where possible – and this makes commercial sense too.

Consider whether you need to put in place alternative agency arrangements, if only on an interim basis, and be prepared to liaise directly with customers to ensure continuity of supply.

Understand the regulatory framework and your agency agreement

In terms of dealing with the dispute, first things first: you need to know where you stand. This will involve carefully reviewing your written agency agreement if you have one as well as understanding the regulatory framework.

The Commercial Agents (Council Directive) Regulations 1993 (“the regulations”) implemented a European directive on self-employed commercial agents. Despite the UK’s departure from the EU, the regulations are part of UK law and remain in effect – although there may now be a divergence from how the UK courts interpret the regulations post-Brexit.

The regulations apply to established, ongoing relationships where the agent habitually negotiates or concludes contracts on behalf of the principal – the business they represent –  and offer significant protection to relevant agents.

The regulations impact on key areas where disputes often occur, including:

  • Duties: what duties does the agent owe to the principal and vice versa?
  • Termination: did the termination comply with the notice period stipulated in the regulations? Was there a legitimate reason for termination?
  • Commission: are there disagreements about commission rates, calculations, or unpaid commissions?
  • Compensation for termination: compensation for termination may be payable on either the “indemnity basis” or the “compensation” basis – which applies and how will it be calculated?
  • Restraint of trade: Is the agent bound by post-termination restrictions?

It is essential to determine whether the regulations apply and if so how they impact on the rights and duties of the principal and the agent, so that you know where you stand. This will help determine the progress of the dispute and how it may be negotiated.

Gather evidence

Gather together evidence relevant to the dispute at an early stage and make sure you preserve it in case it is required in any court proceedings. This may include emails or other messages such as WhatsApp, order and delivery records and invoices. It is often helpful to pull together a basic chronology of events which references relevant documents. This helps ensure you understand the factual background clearly, including identifying any key gaps in your knowledge or supporting evidence. It may well be necessary to undertake some further internal investigation before responding.

Communication is key

Before resorting to more formal measures, attempt open communication with the other party. Clearly outline the issue and your desired outcome – you do not have to make any admissions of liability, but framing your expectations can be very helpful. Many disputes can be quickly nipped in the bud at an early stage and positive early communication can lead to a good commercial negotiation – whereas ignoring a dispute is only likely to lead to escalation.

Be flexible, be prepared to negotiate and consider Alternative Dispute Resolution

Most disputes arise because each party thinks – rightly or wrongly – that they are in the right. This can lead to entrenched positions and long running disputes. It is important to take a commercial view of the dispute, which takes account not only of the legal position – including the risk that the case might be decided against you – but also other considerations such as the cost of a dispute, the loss of management time, reputational issues and ongoing commercial relationships.

It will often be better to adopt a commercial approach and reach an early settlement to avoid the costs, stress and risks of litigation – this works best when both parties are willing to make concessions.

Alternative Dispute Resolution (“ADR”) is the name given to ways of resolving disputes other than through the court. ADR can be as simple as negotiating face-to-face, by telephone or correspondence, or it can involve more formal processes such as mediation, in which an independent third party tries to facilitate the parties reaching a deal.

The benefit of ADR is that you can often reach a win-win outcome, rather than the win-lose outcome of court proceedings, often saving significant costs at the same time.

Even if it is not possible to negotiate a settlement at an early stage and it is necessary to issue court proceedings, it remains possible and sensible to consider settlement at all stages up to and including trial.

Considering litigation

Court proceedings should be a last resort. However, if you are unable to negotiate a commercial settlement and if the value of the dispute justifies it, litigation might be necessary. Your solicitor will guide you through the court process, including preparing evidence and arranging representation to put you in the best position to succeed in your case – or negotiate a better deal.

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