This is our final article, part of our “COVID-19 – What Can You Do right now?” article series. This time the focus of the article is on Agency Agreements and working out the clauses within such agreements helpful to you in this unprecedented time of COVID-19.
We have set out three articles for you, Part I helps to explain your position on commercial contracts and force majeure; Part II for Supplier Agreements; and Part III for Agency Agreements.
Where you are an agent or a principal, it should be the case that you have an Agency Agreement in place. The capacity of each party to the Agency Agreement should be laid out clearly so that, where difficult situations like COVID-19 arise, each party knows what to do and where responsibilities lie.
Fundamentally, an Agency Agreement will set out the capacity in which each party is acting. It will (hopefully) explain clearly who is the principal (and therefore the party entering into the ultimate contract with the consumer) and who is the agent, (and therefore the party who simply sells the services on behalf of the principal).
On the question of responsibility to consumers, it will ordinarily be the principal that is the party responsible to the consumer, given that the contract for services will be between the principal and the consumer. The agent will be selling the services on behalf of the principal but will typically not be a party to that contract. It should therefore be the principal who is responsible for any amendments, cancellations or refunds in light of COVID-19. Such refunds (or credit notes) coming from the principal themselves. Therefore, any agents who receive requests or complaints from consumers in respect of such issues should promptly refer those issues to the principal for direction / resolution.
However, the Agency Agreement should be read closely to confirm this is indeed the case; as a blur in the line of capacities or responsibilities may complicate this issue and result in the agent taking on more responsibility than ordinarily assumed.
Force majeure clause
It is likely that your Agency Agreement includes a force majeure (FM) clause. This will set out party obligations when an event makes it impossible for the affected party to perform their contractual responsibilities. FM events are usually defined as acts events or circumstances beyond the reasonable control of the party concerned, but whether an event is considered as an FM event will depend entirely on the wording of the contracts FM clause. Please see our “Part I: COVID-19 – What Can You Do right now?” article for more information on how to understand your FM clause.
Where an FM clause in your Agency Agreement has been vaguely drafted; doesn’t cover (or doesn’t cover clearly) the scenario or event; or, doesn’t fully set out the consequences of invoking the FM clause, you may find yourself in the murky waters of the laws of frustration, contra proferentum… or even having to revert to a foreign lawyer in the absence of an E&W jurisdiction clause. Nick Parkinson has offered advice in such predicament in his article, found here.
When FM events occur (such as COVID-19) it is likely that the customer will be worried about the services they have bought under the contract with the principal and, although amendment, cancellation and refund responsibilities may lie with the principal, depending on the words of the Agency Agreement it may be the agent who is responsible for liaising with the consumer in respect of those issues. For example, the agent may be required to take calls from worried consumers or communicate policies on refunds and cancellations.
Before contacting consumers and dealing with consumer concerns, the agent must be sure that it is acting in accordance with the terms of its agency agreement responsible for doing so. If an agent acts outside of its scope of authority (i.e. by stating a refund will be given without the principal’s confirmation that this is the case or indeed by going so far as to pay a refund, in the first instance, without principal approval), it may find that it is in breach of its contractual obligations and possibly liable for those refund payments, as a result.
The fundamental reason for parties to sign an Agency Agreement will be for the agent to promote and sell services on behalf of the principal, typically in return for commission. However, if a FM event occurs, either having the effect of sales not being taken, consumers cancelling holidays already booked or, consumers receiving refunds, what happens to the commission (to be paid, or already paid to the agent)?
There are no general / common law legal rules about how commission will be handled, in such circumstances. It is ultimately the parties’ decision how any payment will work and so the terms of any given Agency Agreement will be crucial here. Whether the agent will remain entitled to commission in full, whether they will be entitled to commission on cancellation charges only or whether the entitlement will lapse altogether will depend on the drafting of this clause.
Please contact us if you would like to discuss this further.
This article was originally published on: 2 April 2020