Stephen Sidkin, partner at Fox Williams LLP, talks about managing sub agents and managing risk.
Whether driven by the principal or the agent, the commercial logic for appointing sub-agents is usually clear: scale, coverage and growth. What is less obvious is how legal risk can accumulate once part of the relationship is pushed downstream. These risks may arise at appointment, but more often crystallise when performance disappoints, strategy changes or relationships unwind.
In an agency relationship, the commercial aim is meaningful coverage. An agent will often seek a broad territory, wide product range or defined customer group. Over time, however, the principal may question whether the agent can genuinely service what has been granted.
Sub-agency can make scale workable. By appointing a sub-agent for a defined scope, the agent can improve reach, responsiveness and local coverage. Properly structured, this may benefit all parties: better performance for the principal, improved service for customers and a commercial opportunity for the sub-agent.
But an agent does not automatically have the right to appoint a sub-agent. Under English law, agency is generally treated as a personal relationship. Unless the agency agreement provides otherwise, the agent is expected to perform its obligations itself. There is no general implied authority to delegate.
Authority to appoint a sub-agent should therefore be set out expressly, with any limits or conditions, such as principal consent or restrictions by territory, customer type or function. In contrast implied authority is difficult to establish and will usually arise only where delegation is genuinely necessary or customary in the relevant trade. Even then, courts are cautious, particularly where personal skill or discretion is central.
But what is important to recognise is that an unauthorised sub-agency may amount to breach of contract and justify termination. Even where appointment is authorised, the agent will usually remain fully responsible to the principal for the sub-agent’s acts and omissions. The sub-agent, meanwhile, has no direct contractual rights against the principal.
For sub-agents, risk concentrates at sub-agent level. The agent may mirror its own obligations in the sub-agency agreement, but that does not remove exposure. Decisions upstream can undermine the commercial assumptions on which the sub-agency was built. Termination, commission reductions or changes to customer allocation can damage the sub-agent’s business overnight, regardless of performance.
Statutory protection is limited. The Court of Appeal has confirmed that a sub-agent has no direct claim against the principal under the Commercial Agents Regulations, including for compensation or indemnity, statutory notice or post-termination commission. A sub-agent may be entitled to share in compensation recovered by the head agent, but in practice that depends on the agent.
In contrast a European Court of Justice judgment suggests goodwill generated by a sub-agent may be relevant to the head agent’s indemnity, and that sharing it may be equitable. Post-Brexit, however, this is only persuasive in England.
Sub-agency is an effective scaling tool. But authority, control and exit rights must be addressed expressly and early.
