All aboard and online? How do agency relationships fit in with the new online sales playing field?

February 27, 2013

Over the past decade the way that we shop has changed.  Ten years ago you might have bought the odd thing online but this would have been a rare occurrence with the majority of purchases being made in store in person.  But fast forward to today and this has probably reversed. 

While there are still some things that people feel uncomfortable about buying online, the convenience, wider selection and ease with which products can be compared has lead to the boom in online sales.  Some of the more recent casualties on the High Street, such as HMV and Jessops, can link their downfall in part to this change.

Brand owners have made sure that they can take advantage of this development and ensured that they have a user friendly online site open 24 hours a day and 7 days a week for customers.  However, how does this fit in with their relationships with agents?  

When a principal grants an agent a territory, this is limited to a particular geographic territory, for example, London and the South East.  While a principal may retain rights to sell its products in the territory itself, what is the position if it hasn’t and the agreement is silent on this and/or does not reference the brand owner operating its own website?  Can the principal conduct its online sales without restraint? Alternatively can the agent claim commission for those sales given that there may be a reduction in orders placed by retailers?

As with all things, the starting point is considering what the agency contract says in relation to the appointment of the agent.  This will obviously be more complicated if the contract was made orally or by conduct and never put in writing.  However, even without a specific provision that the principal can operate its own website, the principal’s argument will always be that the grant of a territory to an agent is founded upon the agent being given some form of exclusivity over retailers not consumers.  Notwithstanding this, in order to avoid future disputes, principals should seek to include a specific provision allowing them to sell through their own website.

However, what is the position if the agent’s customers complain about the brand owners online sales and/or want to sell products on their own website.  Again, retailers complaints in this situation are in some ways akin to trying to hold back the tide.  While the principal has a duty to act dutifully and in good faith towards its agent and will be liable in damages if it fails to do so, this does not mean that the principal is stopped by agency law from taking commercially sensible decisions.  

However, a principal would be found to have acted wrongly where, for example, an agent forward sells a season to retailers at wholesale price and then the principal subsequently sells the products itself for less than this wholesale price, In this situation, the principal is likely to be in breach of its obligations to the agent.

With regard to online sales by retailers, as with many situations, once the brand owner has taken the decision to supply then in some ways the train has already left the station. Restraining the manner of sales is setting course for competition law issues - for instance, requiring that products are sold at certain prices rather than simply recommending and/or withdrawing/refusing to supply if these requirements are not imposed.  A brand owner may to a certain extent request review and approval of the format of the online sales.  Equally, if a retailer is selling genuine brand owner products, while the principal may believe it can stop the retailer from using its logo, this ability is also limited.

Online sales are not only here to stay but will increase in the future.  But failure to adequately address the issue in the brand owner’s agency contract is only likely to lead to conflict with its agents.


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