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Jul 10, 2023

Agency agreements – what happens when your agent goes rogue?

Building relationships with customers is time consuming and often capital intensive. Because of this, businesses often rely on agents to market and sell their products. This is not only a great opportunity for business growth, but it also affords the directors of a company with time to focus on other aspects of the business.

An agent acts on behalf of a company when marketing and selling products to, or negotiating and setting up deals with, a third party and then usually drops out of the picture. Naturally, this approach will carry a degree of risk which must be carefully managed.

Why would we appoint agents?

A commercial agent is often appointed when a business is looking to expand to new markets or territories. The agent will usually have key specialist experience in a particular market, country, or sector that a business may not itself possess. The agent, in this case, will have express authority to enter into commercial agreements with new clients, negotiate terms of deals with third parties, and ultimately enter binding legal contracts with clients and third parties on behalf of the company.

How should we appoint agents?

First things first, a written agreement should always be entered into between the company and agent. The agreement should also cater for what the agent can and cannot do, where and when the agent must perform its obligations, and the level of skill to be exercised by the agent.

Apart from the terms of the agency agreement, an agent of a business or company will often owe fiduciary duties under common law, similar to how a company director would, and regardless of whether these are accounted for in a written agency agreement.

Examples of duties placed upon agents include the duty:

  • to act in good faith;
  • not to make a personal profit or accept a bribe at the company’s expense;
  • not to put themselves in a position where their duties and interest may conflict with those of the company; and
  • not to act for their own benefit or for the benefit of a third party without the informed consent of the company.

Issues with appointing agents

A company can find itself liable for the actions of its agent. We often see issues arise when a company has entered into an agency agreement, but it later comes to light that the agent is unreliable, untrustworthy, deceptive, or misrepresents to a third party what they can do on behalf of the company.

If an agent has been negligent in carrying out its duties under the agreement, they could be liable to the company (for breach of the agency agreement) or to any third party (for breach of any contract between the third party and the company, which the agent caused the company to enter). An agent’s fraudulent acts may also attract civil and criminal liability.

How to manage the exposure caused by rogue or authorised agents

A business should always:

  1. Carefully review language of the agency agreement. Does the agent need to report to the company at certain stages of a deal or negotiation? Does the agent need to show the company any evidence of contracts entered into? Provisions such as these may restrict the company liability for any negligent acts taken by the agent.  
  2. ‘Future proof’ their agency agreements. If in the event a company must take court action against a rogue agent who has acted in breach of any implied authority, the agency agreement should set out a list of binding customs or practices that an agent may perform ordinarily in their role. Lawyers usually work closely with companies and their executives to incorporate a list of binding customs or practices into an agency agreement, instead of leaving the matter for the Court’s determination.

Judicial remedies in case of a dispute

The main civil remedy in English law is an award of damages. Damages are available, as of right, to a successful claimant in a breach of contract claim. In the case of a claim for breach of agency agreement, equitable remedies may also be available to a company, and these primarily include injunctions, an account and payment by the agent of monies it received in breach of the agency agreement, and equitable compensation which is designed to restore to a company the value of any unauthorised profit made by the agent.

Whilst it would be preferable for the company to manage its relationships with, and mitigate any exposure generated by, any agents, this cannot always be achieved. If the company must seek the Court’s assistance to enforce its rights, there are many powerful judicial remedies available to the company.

For any questions related to the topics discussed in this blog, please contact Kerri Wilson or a member of our dispute resolution team.

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