High Court Ruling Highlights Potential Pitfalls In Transferring Agency Agreements
The English decision in Barnett Fashion Agency Limited v Nigel Hall Menswear Limited highlights the difficulties in transferring agency agreements and the need for agents to take care - and most importantly legal advice - when they are considering changing their trading form, status, name etc.
Mr Nigel Hall owned and managed Nigel Hall Menswear Limited ("NHM") and in 2000 entered into an agency agreement with Mr David Barnett's partnership, David Barnett Associates ("DBA"). The parties agreed that their relationship was governed by the Commercial Agents Regulations 1993 which provides agents with certain rights, in particular the right to compensation for damage suffered as a result of termination of the agency agreement.
In 2003, following some tax advice (but no legal advice), Mr Barnett incorporated a company Barnett Fashion Agency Limited ("BFA") and purported to transfer all of his agency contracts (including the NHM contract) to this new company. He did not however, discuss or agree this transfer with any of his principals, the only change being that invoices were headed "David Barnett Associates trading as Barnett Fashion Agency Limited" and payment of commissions were now made to the new company.
In 2005 the parties had a disagreement and their relationship was terminated by NHM. As a result, BFA (the new company) raised a claim for compensation against NHM under the 1993 Regulations, arguing that they were due £190,000 being the sum of future commissions they would have earned if the contract had continued. However, NHM argued that BFA were not a party to the agency agreement and could not therefore claim this compensation (DBA being the actual party to the contract with NHM).
The High Court agreed with the defendant, ruling that the agency relationship was between NHM and DBA and therefore NHM owed no duties towards the claimant.
It was unclear what effect the incorporation of the new company had had; however at most the Court stated that only the benefits of the contract (in this situation the commissions) had been assigned to the new company. If the whole contract (the benefits, burdens and all) are to be transferred, then all three parties (including the principal) must agree to this transfer, using a novation contract.
The right to claim compensation under the 1993 Regulations is only valid for one year following termination of the agency and so, whilst Mr Barnett was pursuing compensation in the wrong name, the time limit expired and he lost this right altogether. The case therefore serves as an important reminder to obtain full legal advice before making any changes to your trading entity so that you do not limit your rights and remedies, and where you have already raised a claim, make sure it has been raised by the correct party!
Disclaimer
The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.
