Rights of an Agent under Rules of Commercial Law and Common Law - Case Study Example

Understanding The Rights of an Agent under Rules of Commercial Law and Common Law I. Introduction Disputes between the agent and the principal in commercial transactions have been the subject of many lawsuits in the United Kingdom. As the agency contract between the parties expire and some issues crop up regarding the subject of the agency, the commission and compensation due and other matters that may involve the relationship between the agent and the principal. Although some of these issues may be settled by the parties among themselves, many of these disputes reach the court. When disputants elevate their case to the court for resolution, the provisions of the law including common law set by decisions of the court in landmark cases now come into the picture. In the United Kingdom, the Commercial Agents (Council Directive) Regulations 1993 and common law governs the relationship between the agent and the principal. Under the Commercial Agents (Council Directive) Regulations 1993, the rights and obligations of the agent and the principal are defined and the limitations set by these laws made clear. However, since not all people who enter to a contract of agency knows their rights, duties and functions, the agents and the principal often disagree with each other at some point during the engagement. Since the lack of proper knowledge of the laws and regulations governing the agents and the principal, commercial transactions often bog down. To avoid conflicts and disputes it is therefore very important for the agents and the principals to be aware of their right, privileges and responsibilities. To give us a clear picture of the how English laws set forth to regulate the relationship between the agent and the principal, let us discuss these rights as defined in the Commercial Agents (Council Directive) Regulations 1993 and common law. II. Sources of Rights and Powers of the Agent The rights and powers of the agent is derived both from rules of commercial law and common law. The Commercial Agents (Council Directive) Regulations 1993 defines a commercial agent as “…a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person (the "principal"), or to negotiate and conclude the sale or purchase of goods on behalf of and in the name of that principal…”1 In other words, as a representative of the principal, the agent has the right to represent the principal in accordance with the powers and authority granted upon him or her. Since the agent acts in behalf of the principal, he or she has the duty to look after the best interests of the principal. However, not all types of agency contracts are governed by the Commercial Agents (Council Directive) Regulations 1993. Note that under Part I Section 2 (2) of the Commercial Agents (Council Directive) Regulations 1993, these regulations do not apply to commercial agents who are working without compensation, those agents who are operating on commodity exchanges or are working in the commodity market and those agents who are working for the Crown as agents for the Overseas Governments and Administrations2. The definition of the term agent under the law often varies from its common usage. Note that the definition of agent under the Commercial Agents (Council Directive) Regulations 1993 only refer to commercial agents and not to other types of agents which are recognized under English common law. According to (Goode, 2004), there are different types of agents namely, the general/special agents, the mercantile agents, the del credere agents, the commission agents and the commercial agents which are subject to regulations under the Commercial Agents (Council Directive) Regulations 1993. Based on the decisions of the court in the case of Swiss Air Transport Co. Ltd v. Palmer3, general/special agents can be defined as persons who, in behalf of the principal, do different acts that are in line with the ordinary course of this business, trade of profession (LS. Sealy, RJA. Hooley, 2009). On the other hand, the mercantile agents can be defined as those people who negotiate for the sale of goods in behalf of the principal (Goode, 2004) while the del credere agents are those agents that negotiate contracts for the principal at the same time give guarantees to the principal that they will indemnify the principal in case the other party to the transaction failed to deliver what he or she promised (Goode, 2004). In other words, the agent in this case also serves as a guarantor who gives assurance to the principal that the subject of the contract will be delivered as agreed. While the mercantile agent gives assurance to the principal that the subject of the contact will be delivered as agreed, the powers of the commission agents are limited to selling and buying in behalf of the principal (Goode, 2004). The commission agents do not have any power to create privity of contract with regards to the third parties that they deal with in behalf of the principal (White, 2002). Under English common law, the parties need not sign a formal agreement in order for a person or an entity to be considered as an agent of the principal (White, 2002). To become an agent, it is enough that the person he given the actual authority by another to represent him or her in a certain transaction (Hely Hutchinson v. Brayhead Ltd4). For instance, A and B agrees that B should represent A is a certain transaction. By specifically conferring powers B to act his or her behalf, A creates an agent and principal relationship with B. In this case, A becomes the principal while B is the agent. Aside from expressly conferring powers to another person, an agent and principal relationship can also be created by conferring apparent authority and usual authority. According to the court in the case of Freeman & Lockyer v. Buckhurst Park Properties Ltd.5, where a person gives another the apparent authority to represent him or her in certain transactions, that person conferred with the power to represent becomes the agent of the principal. On the other hand, in the case of Watteau v. Fennick6, the Court said that where a person allows another to assume usual authority over the affairs of the other, that person becomes the agent of the other person. In this case, the powers of the agent is limited to executing the usually activities connected to the business of the principal, thus, where the acts of the agent goes beyond the usual business dealings of the principal, his or her action no longer binds the principal (Watteau v. Fennick7). Under English common law, the acts of a person in behalf of another may bind the other person if that person ratifies the acts of the other. According to the court in the case of Barclays Bank v. Breen8, even if the person who acted in behalf of the other did so without the express authority of the other, his actions may still be considered as legitimate upon its ratification. For instance, if A acted in behalf of B without the express or implied authority from B, A’s action may still be considered as binding upon B if B decides to ratify the actions of A. Note that the in the case of Barclays Bank v. Breen9, the court said that a person or an entity may become the agent of the principal if the principal ratifies his or her actions. III. Rights of the Agent As representative of the principal, the agent has the right to be paid for his or her services. These rights are defined both under the Commercial Agents (Council Directive) Regulations 1993 and in the decisions of the Courts on cases involving the contract of agency. The agreements of the parties in the contract of agency regarding compensation are binding upon the parties and the principal has the obligation to give the compensation agreement upon. The absence of any stipulations in the agreement of agency as to the amount of the compensation due to the agent does not excuse the principal from paying the agent just compensation. According to Part III Section 6 (1) the Commercial Agents (Council Directive) Regulations 1993, where the parties failed to stipulate the amount of compensation that the agent should get from the transaction, the amount of compensation may be based on the amount of compensation that is customarily allowed in the place where the agent carries on his activities. In the absence of any customary practice that defines the amount of compensation for services rendered by the agent, the agent shall be given reasonable compensation based on the type of service that he or she rendered in connection with the transaction (Connal, R.C., 2007). Aside from a fixed compensation, the agent may also receive commissions from the agent based on the amount of the transaction that he or she has successfully concluded in behalf of the principal (Connal, R.C., 2007). According to the Commercial Agents (Council Directive) Regulations 1993, an agent may be entitled to commissions on commercial transactions that he or she facilitated in behalf of the principal, provided such transaction “has been concluded as a result of his action”10 or when such transaction was concluded by a third person or party of whom he or she had previously acquired as client for the principal for the same kind of transaction (Connal, R.C., 2007). The Commercial Agents (Council Directive) Regulations 1993 also provides that the agent may be entitled to commissions of transactions concluded during the period covered by the contact of agency provided that he or she has an “exclusive right to a specific geographical area or a specific group of customers”11 and that for the purpose stipulated in the contract of agency, customers from that specific geographical area or group entered into a transaction with the principal (Connal, R.C., 2007). The rights of the agent are not limited to what the rights stipulated under the Commercial Agents (Council Directive) Regulations 1993. English common law provides that the agent also has the right to remuneration, indemnity and lien. According to the court in the case of Henehan v Courtney12, the agent has the right to received just remuneration from the principal for the services that he or she performed in behalf of the principal. In the case of Turner v Goldsmith13 the court said that where the agent should be given the amount of commission as specified in the contract of agency despite the fact that his business burnt down. The rationale of the court in the case of Turner v Goldsmith14 is that the compensation due to the agent is not dependent on whether or not the business of the principal is earning or not but rather it is dependent on the contract entered into by the parties. In the same light, the court said in the case of Adamson v. Jarvis15 that where the rights of the agent was deprived to just compensation for the services he or she rendered, he or she is entitled to indemnity for the damages he or she suffered because of the incident. In determining as to whether or not the agent is entitled to indemnity, the court needs to consider the performance of the agents as the alter ego of the principal (Buddecke, 2007). When it comes to the right to lien, the court said in the case of Re Barret Apartments Ltd16 there needs to be an agreement between the parties to allow a lien on the property of the principal as assurance for the compensation of the agent before the agent can enforce any lien on the apartment. Where the parties agreed that the agent shall have a lien on the apartment it brokered for and in behalf of the principal, in the event where principal fails to give just compensation to the agent for the services that he or she rendered to the principal, the agent can enforce the lien on the apartment (Re Barret Apartments Ltd17). IV. Duties of the Of The Agent Towards the Principal The duties and responsibilities of a commercial agent are clearly defined under the law. According to Part II section 3 of the Commercial Agents (Council Directive) Regulations 1993, the agent has the duty to (a) negotiate contracts for the principal in an appropriate manner and to conclude the transaction in accordance with the instructions of the principal, (b) to communicate to the principal all the necessary information regarding the transaction, and (c) to comply with all the reasonable instructions given by the principal18. Since the agent has the power to affect the principal’s legal position, the failure of the agent to protect the interests of the principal constitute a breach of the contract of agency and such breach may result to the termination of the contract without prejudice to the right of the principal to file for a suit against the agent and recover compensation for damages suffered. We have to understand that the contract of agency is a two-way process and both the agent and the principals have rights and duties towards each other. In the event where any of the parties to the contract of agency failed to deliver his or her end of the contract, that party is bound under the law to compensate the party who suffered damages due to his or her actions. Bibliography Books and Journals 1. Connal, R.C. (2007), compensation under the commercial agents (council directive) regulations 1993, Vol.28, Pp.211- 214, at page 211 2. Goode (2004), Commercial Law, 3rd ed, London: LexisNexis 3. LS. Sealy, RJA. Hooley (2009), Commercial Text Cases and Materials, 4th edition, oxford, oxford press 4. Michelle Buddecke (2007) , Evolution of the Commercial Agent, Cork Online Law Review http://www.mercuryfrost.net/colr/editions/2007/COLR%202007%208%20Buddecke.pdf 5. White (2002), Commercial Law, Dublin: Thomson Round Hall Laws and Cases 1. Adamson v. Jarvis [1824-1834] All ER 120 2. Barclays Bank v. Breen [1962] 96 ILTR 179 3. Freeman & Lockyer v. Buckhurst Park Properties Ltd. [1964] 2 QB 480 4. Hely Hutchinson v. Brayhead Ltd [1968] 1 QB 549 5. Henehan v Courtney [1967] 101 ILTR 25 6. Re Barret Apartments Ltd. [1985] IR 350 7. Swiss Air Transport Co. Ltd v. Palmer [1976] 2 Lloyd’s Rep 60 8. The Commercial Agents (Council Directive) Regulations 1993 http://www.opsi.gov.uk/si/si1993/Uksi_19933053_en_1.htm#tcon 9. Turner v Goldsmith (1891) 1 Q.B. 544 10. Watteau v. Fennick [1893] 1 QB 346 Read More