Agency law is part of commercial law and regulates the relationship between a person, known as the principal and another person called the agent, who acts on their behalf in negotiating and concluding commercial and legally binding relations with third parties. Examples include directors acting on behalf of their companies and travel agents taking bookings on behalf of a holiday company.
There are advantages and disadvantages to be considered before appointing an agent. It is a complex legal area and disputes frequently arise. There are legal formalities that need to be complied with in setting up an agency. A clear agency agreement can help both parties understand their rights and responsibilities and avoid unnecessary conflict and potential expense. Important provisions that should be included in an agency agreement include:
- Commission and any other payments
- Arrangements for termination of the relationship
- Restriction of disclosure of confidential information
- What authority an agent has to act on behalf of the principal
Advantages and disadvantages
The most obvious advantage for a principal is not having to employ someone or provide office space or other work-related costs. The main disadvantage is a loss of control. Principals can find themselves civilly or criminally liable for the actions of their agent. The advantage in being an agent is that you can benefit from the principal’s network and reputation. However, beware that should you exceed your authority, whether deliberately or accidentally, you become severally or jointly liable for any wrongdoing or harm.
Disclosed or undisclosed?
While there are sometimes reasons that you may prefer to remain anonymous in commercial transactions it is vital to understand the implications of an undisclosed agency. Most agency relationships are disclosed, and the third party makes any contract directly with the principal. The agent is therefore not liable for any breach of contract, provided they acted within the scope of their agreement. A common example is an estate agency selling a property on behalf of a vendor. The sale is agreed between the seller and buyer and any claim is against the seller. By contrast an undisclosed agency is where the third party is unaware of the existence of the principal and the contract is concluded with the agent who may be sued for any breach.
The agent may be a self-employed person, company or partnership but not an employee. As such they are not covered by the usual employment laws. The EU Commercial Agents Regulations 1993 provide more protection for an agent than under common law. Some of the protections may be expressly excluded by an agency agreement and it should be remembered that while these regulations remain in force, any future UK government could repeal or amend them now that the Brexit transition period has expired. The regulations give the agent a right to indemnity or compensation upon termination of the agency relationship.
Duties and obligations
The agent owes a duty to the principal and these contractual duties and the scope of their authority should be set out in detail in the agreement. The agent should perform them with care and diligence. The agent’s fiduciary duties mean they should put the principal’s interests above their own in undertaking the contracted work. The principal is responsible for any losses incurred by the agent in the course of their work, provided it was within the scope of the agreement. The principal is obliged to remunerate the agent.
Disputes generally arise at the termination of the agreement and concern whether and how much indemnity or compensation is payable to the agent and whether adequate notice of termination has been given by the principal to the agent.
Our experienced team can assist with various areas of commercial agency law including:
- Advice on compensation / indemnity under Regulation 17
- Notice periods
- Commencing work: advice on contracts for principal or agent
- Valuing a compensation / indemnity claim
- Agent’s duties
- Principal’s duties
- The good faith obligation
- Hidden commissions
- Obtaining proper records of sales