The exposure of sub-agents

March 4, 2015

One of the biggest areas of dispute between a principal and agent can arise when an agent has a large territory which the principal considers is not producing the results it expects. 

At the outset of the relationship an agent will normally look to secure the largest territory possible but can one party long term properly service the United Kingdom, Europe, or the World.  In practical terms, it is relatively simple for a principal to performance manage an agent with a substantial territory into a breach of the agency agreement.  Unless the agency agreement expressly provides for it, attending one or two trade fairs a year is not going to be enough.

But an agent can make a large territory work.  How?  Sub-agents.  A sub-agent takes on part of the territory in return for a split of the commission earned.  This division of responsibilities can maximise the performance of a territory for an agent, which should - at least in theory – result in a happy principal.   

The benefits of this division for the agent and, to a certain extent, the principal are obvious. However, within this structure the sub-agent may face the greatest exposure.  While the sub-agent has no direct contractual relationship with the principal, any changes to the relationship between principal and agent are very likely to trickle down to the sub-agent. 

A sensible agent will always ensure that the obligations it owes to its principal are reflected in its agreement with a sub-agent. But, for instance, if:

  • certain customers are designated house accounts by the principal; or
  • the commission rate is reduced,

then these changes will have a substantial impact.

The case law involving sub agency is relatively limited.  It was confirmed in the case of Light v Ty Europe, that a sub-agent has no direct claim against the principal under the Commercial Agents Regulations for compensation and by extension any other rights arising under the Regulations such as notice and post-termination commission.  The Court in that case considered that a sub-agent would be able to claim a stake in the statutory compensation (or by implication indemnity) paid to the head agent.

Any claim of that nature relies upon the head agent bringing the claim in the first place.  If it does not for commercial reasons (for example, links to the principal or a new agreement having been reached with the principal) then the sub-agent could find itself again exposed.

There has been no reported court decision within the UK or at the European Court that a sub-agent has the status of a “commercial agent” - the touchstone to entitlements under the Regulations - against the head agent in its own right.  It follows that if a sub-agent is not a commercial agent then the sub-agency agreement is simply a commercial agreement, where the sub-agent’s only entitlement could be contractual notice or a claim for damages if reasonable notice of termination has not been given. Ironically, however, such reasonable notice could exceed the statutory notice under the Regulations given to a commercial agent.

Also, sub-agents should take care in situations where the principal wishes to part company with the head agent but retain the sub-agent.  For example, where the sub-agent is performing well but the head agent overall is not.  Any direct discussions with the principal could be a:

  • breach of duty; or
  • contract; or
  • both.

A sub-agent could ask for the head agent’s consent to talk direct – but – the head agent may, for obvious reasons, be unwilling to agree.

All this makes the position of the sub-agent more uncertain and less protected then a head agent.  Practical ways to combat this could be to have a written agreement with the head agent – although without a written agreement the scope of claims which “could” be brought against the agent may be wider (an agreement may expressly state that the sub-agent is not a commercial agent).  But more importantly, any business in the position of a sub-agent may want to endeavour to have a portfolio of different agencies – some as head agent so that its exposure is at least limited on some fronts!


Related pages:

Agency, Distribution and International Trade more

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