How to change an agency agreement

Introduction

As markets change or business relationships develop, there is often a need for a principal to vary the agency agreement made with an agent. But the existence for a need is one thing, satisfying that need can be another. 

The ideal position

The ideal position is that the agent has indicated that they too feel the need for the agency agreement to be varied. In this situation, the variation should be quite easily achieved. 

The principal can put forward the variation – be it, for example, geographical, in respect of particular customers, or changes in the commission structure. If the agent agrees then the variation is achieved. 

Best practice is for the agreement to vary to be in writing with the terms of the variation clearly set out. All too often what principal and agent believe they have agreed by way of variation (or for that matter, the terms of the original agency agreement) is not sufficiently clear. At this point the opportunity can arise for disagreement in the future as one party or the other seeks to take advantage of the uncertainty. 

There is another reason for the variation to be in writing – although it is often overlooked. There is a provision in the Commercial Agents Regulations which gives a right to each of the principal and agent to request from the other a signed written document setting out the terms of the agency agreement including any terms subsequently agreed.

It follows that a variation of the agency agreement (whether the agreement was in writing or not) which was agreed orally could easily trigger a dispute if subsequently one party exercises their statutory right and requests a signed written document. 

To add insult to injury – the Regulations make clear that this statutory right (as is the case with many other rights under the Regulations) cannot itself be waived! 

The less than ideal position

If the principal – or even the agent – wishes to vary the agency agreement and the other party refuses, is this the end of the matter? Not necessarily. 

The negotiated route

It is important to understand the reason behind the refusal.  With this understanding it may be possible to tweak the proposed variation or offer an inducement to agree the variation. 

When considering an inducement, it might be appropriate for the principal in particular to identify whether there is anything which may be offered that satisfies both sides from a financial or practical perspective.

The workaround

Most variations sought by either principal or agent will be concerned with the scope of the agency or the commission payable by the principal to the agent.

The scope of the agency may offer an opportunity for the principal to find a way of working round the refusal of the agent to agree a variation of the agency agreement. 

The scope of the agency agreement will be concerned with:

• The geographical area of the agency;
• the products which are the subject of the agency; and
• the channels to market which are granted to the agent. 

A careful consideration of the grant may highlight that:

1. It is not as broad as the principal might otherwise have thought; or
2. There are gaps in the scope which offer opportunity for the principal to exploit.  This is because what is not granted by the principal to the agent under the terms of the agency agreement will remain with the principal.

As a result in either case the principal may be able to work with the agreement as it stands.

Attempting to enforce

It is open to the principal to adopt the position of the US idiom “my way or the highway”. The difficulty with this approach is that a refusal by the agent to agree the variation followed by the subsequent enforcement of the variation by the principal will leave the agent in the position to claim that:

1. The enforced variation is unilateral – not consensual
2. As such, this amounts to a serious (repudiatory) breach of the agency agreement by the principal; which
3. The agent accepts so bringing the agency agreement to an immediate end and positioning the agent to claim its statutory rights under the Regulations and any additional contractual rights under the agency agreement itself! 

However, the principal may be able to achieve what is effectively a unilateral variation by stealth depending on the actions taken by the principal. 

By proceeding in a way which treats the variation as being in place and which is simply ignored by the agent may, over time, result in the position where the agent is deemed to have accepted the variation. But there is the risk that the agent is alert to what is being attempted by the principal and prevents the principal from achieving its objective.

Traps for the unwary

In 2018, the UK Supreme Court gave judgment in respect of a commercial dispute about whether a provision in the written agreement between the parties which prohibited oral variations was enforceable or not.

The Supreme Court decided that it was. As such, although the evidence showed that the parties had agreed orally to vary the written agreement, that oral agreement could not be relied upon because of the prohibition in the written agreement! 

Following on from that 2018 judgment, if a written agency agreement provides for certain procedures to be followed if the parties wish to vary the agreement, it will be important to fulfil those procedures. A failure to do so may be costly. 

Take home points

1. It is critical that the principal and agent understand the scope of the agency agreement.
2. If a variation is agreed in principle, then it should be documented. A failure to do so may lead to a dispute.
3. If a variation is not agreed, there are ways – particularly for the principal – in which the desired end result can be achieved, but each approach must be considered carefully.