Messy relationships - uncertainties at the start and end of the agency relationship

October 23, 2014

As might be said at a World Cup, messi instructions are best avoided. Agency relationships are no exception.  We frequently advise principals and agents in respect of contractual relationships which have either started on uncertain terms, or which reach their end on uncertain terms.

Principals and agents often negotiate, but do not sign, agency agreements.  When it comes to assessing the terms of the contractual relationship (which is usually at the end of the relationship when the parties have fallen out), the parties scratch their heads and ask:  does it matter that the contract isn’t signed?

An unsigned contract is not a pre-requisite for an agency relationship.  If the parties have been dealing as agent and principal, an agency agreement will have come into effect.  But the difficulty in such circumstances is deciding what the terms of that agency relationship are.  If a court is faced with an unsigned written agency contract, it will have to consider correspondence between the parties at the time when the agency relationship began to try and determine whether the parties had agreed to all the terms in the unsigned agreement at the time when they entered the agency relationship.  Trying to piece together the actual terms of the agency relationship in this way will add to the costs of any dispute between the agent and the principal. This is because before an agent’s claims can be assessed by the court, the court will need to decide what the terms of the agency relationship are!

It is therefore always a better idea to have a signed written contract in place before the parties begin to perform as agent and principal.  If the worst happens and you end up in a dispute with the other party, certainty of the terms between you will allow you to have a much better idea of where you stand.

Equally, uncertainty at the end of the agency relationship can leave parties unsure where they stand.  For example, what happens when a fixed term of the agreement expires but the parties continue to perform as they always have?

The Commercial Agents Regulations provide that a fixed term agreement which continues to be performed after the expiry date has passed is converted into an agency agreement for an indefinite period.  Accordingly to bring the agency relationship to an end, the agent or principal will have to give notice of between one and three months so as to end at the end of a calendar month.  Therefore, take the example of a fixed term agency agreement which has been going for over three years and is expressed to expire on 1 August 2014.  If the agent and the principal are still performing on 2 September 2014, either party which wants the agency relationship to end will have to give three months’ notice to the other party to end at the earliest on 31 December 2014. 

Accordingly if as a principal you want your fixed term agency agreement to come to an end at the end of the fixed term, you need to ensure that you are not still performing after that date.  It is a good idea to prepare well in advance of the expiry date, by making arrangements for the handover of the agent’s responsibilities in the weeks leading up to the expiry date. 

Although it’s easy to focus on the day to day demands of your business, it pays to consider these issues and get them resolved before matters become messy.  After all, messy agency relationships usually lead to disputes and need the involvement of referees.


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