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Agency Agreements

In 2006 a tennis tournament sponsor sued Venus and Serena Williams for non-attendance at their event. The sponsor claimed that the tennis stars were obliged to attend by virtue of a commitment to that effect made by their father. The case rested upon whether the girls’ father had authority to bind them contractually, even without their express consent, and demonstrates the manner in which an agency relationship (which gives one party authority to act for another) can have effect, even if the parties involved do not expressly name their relationship as that of principal and agent. The case also highlights the necessity in a commercial setting to correctly identify an agency relationship and, where appropriate, to create a formal agreement embodying and regulating the manner in which the association is intended to operate.

IS AGENCY AN APPROPRIATE MARKETING ARRANGEMENT

There are a multitude of reasons why a business may find an agency relationship beneficial, but typically such an association can prove of value when setting up or seeking to represent your business in a new market or abroad. Moreover use of agents will tend to keep costs low by allowing payment on a commission basis rather than an employment salary.

Other possible alternatives to agency such as distributorship, franchising or the use of subsidiaries when marketing goods or services through representative intermediaries may be considered depending upon the individual circumstances of the operation.

When weighing up the pros and cons of each form of marketing arrangement one must consider the impact that such classification might have on the relationship with the intermediary and particularly:
Responsibility to the ultimate customer;

The rights and duties of the parties;

What classification the business will hold in the event of representative insolvency;

The effect of domestic or European competition law.

THE WRITTEN AGREEMENT

Whilst a written agreement is not required in order to create a standard agency relationship, it is needed in order to create a commercial agency. However, regardless of the classification, it is advisable to commit certain terms of an agency to contract in order to ensure that all parties involved understand the relationship. Some of the terms you will need to agree are:

EXTENT OF AUTHORITY

At the heart of the agency relationship is consent – the principal authorizes the agent to act on his behalf and to bind him. However, there are a number of different ways in which that authority can be given – for example expressly, impliedly, by custom, by ratification or by necessity. Expressly given authority may be regulated in the written agreement between agent and principal and such an agreement may be used to restrict the agent’s authority as required.

COMMISSION LEVELS

The agency agreement will make it clear what commission will be payable to the agent and how it will be calculated. It will specify terms of payment, such as time payment will become due, how payment will be made, what will happen if payment is late and what will happen if the end customer does not eventually proceed. It is sometimes agreed that the principal will indemnify the agent for any liabilities he may incur in the course of his actions as agent and if this is the case, it will need to be embodied in the agreement as well.

EXCLUSIVITY

An agent may act on an exclusive basis for the principal or he may be appointed as one of many agents representing that principal. If an agent has some form of exclusivity it is important to specify the extent of the exclusivity he enjoys. This will most often be made according to territory, with the agent being given exclusivity over one particular geographical area.

TERMINATION

The agreement will need to specify the minimum period of notice to be given by either party in order to bring the relationship to an end and such notice period will need to conform with minimum periods prescribed by law. The agency may also terminate immediately upon the happening of certain events – such as agent bankruptcy.

DUTIES

Although law can imply certain duties, it is advisable to outline the exact duties and responsibilities of the parties. These may include on the part of the principal: the duty to provide agent with information; advertising material; samples as required etc and on the part of the agent: the duty to exercise good faith; comply with principal’s lawful requests; keep proper accounts and account to the principal for the money he receives in his capacity as agent.

CONFIDENTIALITY

The agreement will also need to cover confidentiality and, where appropriate, restrict the agent to keeping confidential all of the information he may receive or learn concerning the principal’s business in the course of the agency.

The agency relationship can be complex and great care should be taken by a business seeking to investigate new forms of marketing arrangement in order to ensure that an agency is the appropriate form for promoting the business in the direction and manner intended by the parties. Where an agency is the appropriate vehicle, a written agreement can be used to clarify, focus and extend the rights and duties imposed by law.

Michael Chambers and Co. LLC’s team of commercial lawyers is expert in supporting and advising businesses seeking to exploit new marketing arrangements. If you wish to discuss how your business can use agency to explore new markets then please contact us.