I woke up this morning, to a new public health slogan “Hands, Face, Space.”
And focussing on the face leads me to discuss face coverings – this is a new market that has gone from niche and specialist to mass-market in a matter of months. As preparations for the Winter start, the demand for face covering and more technical personal protection equipment is ramping up further.
Watching a new market place appear out of nowhere is quite the spectacle, a bit like the “Gold Rush” without the leather chaps, baked beans and guns! Demand has outstripped supply, creating shortages and pushing up prices. Existing suppliers will look to expand production and new suppliers wade into a market with huge demand and rising prices. The middle-men arrive to help the parties navigate the new market, trying to marry-up suppliers and customers. But with order volumes and cash-values under discussion that are life-altering, there is a lot of suspicion and distrust and questions arise about the roles and responsibilities of such intermediaries.
What do these middle-men do?
Legally speaking they are agents, either of the buyer or the seller. Specifically, as an agent, they are not parties to a contract of sale and purchase and have no role or responsibility to the parties for the nature, quality, price or delivery of the goods.
The role of an agent is to ensure that a contract occurs. More often, the agents will act for sellers and will be involved in sales and marketing of goods and services. They will have market contacts and will make it their business to find leads and to make introductions. For this, they are paid a commission on the sales. Agents never take ownership of the goods. If a middle-woman is taking title, even momentarily, she is not an agent but a distributor or wholesaler and is a party in the supply chain.
Sometimes, agents will be given the power to enter into contracts on behalf of their principal. The agent is still not a party to the contract but will agree contractual terms that the principal is obliged to meet. It goes without saying that these powers need to be awarded carefully and with strict guidelines in place. The award of powers would be central to an agency agreement.
What is good for a seller’s agent is equally good for a buyer’s agent, except this time, the agent will seek out suppliers and is likely to be incentivised through cost-saving. Once again, the agent may be given powers to enter the buyer into a contract and those powers will need to be carefully defined.
Commercial Agents Regulations
Principals who appoint agents to negotiate or negotiate and conclude contracts for goods (not services) may find the appointment falls under the Commercial Agents Regulations 1993 (the Regulations.) The scope of the Regulations is wider than principals might otherwise want, and anyone considering appointing an agent should check whether the Regulations apply. The Regulations impose statutory duties on the parties, notwithstanding the terms of the agreement and whether or not the agreement is formalised into a written form. It is perfectly possible to appoint an agent casually to see if they can find new customers or suppliers and be bound be the Regulations for ever more.
Of particular note in the Regulations is the right to a termination payment for the agent, upon termination of the agreement, including natural expiry. These payments are highly contentious and should be thought of in similar terms to a redundancy payment. There are two possible methods of calculation and can result in termination payments of one or more years of the previous commission. A failure to specify which method of calculation defaults to a compensatory model that is very often the more expensive of the two.
Final Word on Circumvention – from the agent’s perspective
An ever present concern when agents become active in a marketplace, is that they will find a large customer and the parties will somehow exclude them from the eventual sale and purchase agreement, or conclude an agreement that somehow circumvents the agent, for example entering a small initial sale with commission payable and then concluding a large order later and not paying commission. The requirement under the Commercial Agents Regulations to act in good faith towards an agent is a robust shield to this kind of behaviour. But where the Commercial Agents Regulations do not apply, agents are strongly advised to enter a non-circumvention agreement (or ensure such clauses are included in a broader agency agreement) before they disclose information about their sales leads.