It is not radical to state that businesses whether local or international involve some sort of exchange; whether goods for goods, services for services or goods for services and vise-versa. A business whether sole proprietorship or otherwise for reason of expediency usually finds itself in need of a go between aka Agent to represent it in certain affairs.
Depending on the jurisdiction in which the Agency contract arose, the rules governing such relationships while often times sophisticated are fraught with uncertainties. For example, under American Law, the Agent’s authority to act on behalf of his Principal depends on whether the Principal has conferred on him express, implied or apparent authority and the extent to which the Principal is bound by the authorized or even unauthorized acts of his Agent depends on whether the Principal is disclosed or undisclosed. Issues such as ratification and disclaimers of the Agents’ act often arise and where the Agent has faithfully performed according to the Principal’s desires the burden shifts on the Principal to ensure that the Agent is adequately compensated. Such compensation is usually contained within the Agency contract and a defaulting Principal may be hailed into Court or the Agent may place a lien on goods or services within his care until the Principal fulfills his obligations.
International Business Transaction is that body of trade which encompasses more than one sovereign territory. An Agent in a developed jurisdiction in pursuit of compensation earned in a domestic transaction may have recourse to the Law, even though recovery is still not an easy matter. However, issues of recovery of compensation become exponentially exacerbated when the matter crosses international boundaries; in pursuit of his compensation, issues of litigation, discovery, enforcement of awards etc. become further exaggerated should the Agent be crazy enough to attempt such a recovery; most Agents often give up at this point and let the chips fall where they may; an example may serve to highlight the Agent’s dilemma:
An Agent’s (The Agent) services has been contracted by a firm (The Principal), the mandate/instructions is for The Agent to liaise with a manufacturer (The Manufacturer) of blades for the supply of blades to be used in the making of The Principal’s signature line of women’s shavers. The specifications for the blades and the packaging requirements are also contained in the Agency contract. The Agent contacts a Pakistani manufacturer of fine blades whose products seem up to specifications; he obtains further guarantees from The Manufacturer that delivery will be on time and to specification.
On late delivery by The Manufacturer, it is further discovered that a fair percentage of the blades are blunt and another fair percentage were curved. The Principal has rejected the blades and is refusing to compensate the Agent for his services; on the other hand, The Manufacturer is refusing to replace the rejected blades (payment has been made anyway) neither is he willing to reduce cost for late delivery, what is the Agent supposed to do?
In a domestic transaction wherein all parties reside within a single Sovereign Jurisdiction, then it is just a matter of going against The Manufacturer in a Court of Law to compel cure for the defect; however since the transaction involves parties in different sovereign jurisdictions, the Agent may have no other recourse to compel performance than to engage in an expensive and protracted battle in local and foreign courts depending on what the dispute resolution clause contained in the contract agreement is; the best an Agent whose Principal has defaulted could hope for is to have the dispute arbitrated by a competent arbitration panel previously stipulated to by the parties.
A second more acute issue in Agency relationships and one for which this write-up is more concerned involves an Agent engaged in an International Business Transaction whose services may become redundant after Principal and Manufacturer are put in touch with each other; an illustration may serve to clarify the Agent’s dilemma in such instances:
An Agent’s services has been contracted by a firm (The Principal) a local Oil Merchant; The Principal’s mandate/instructions simplicita is for The Agent to source a credible supplier of crude oil to be picked up by cargo ship at any safe world port. An Agency agreement is promptly entered into between The Agent and The Principal; reimbursement is predicated on the successful completion of the mandate.
In pursuit of the mandate, The Agent contacts a Libyan producer (The Producer) of crude oil and notifies him of The Principal’s readiness to enter into an output contract. The Agent enters an Agency Agreement with The Producer and thereafter places both parties in direct contact. After a while, The Principal notifies The Agent that negotiations have failed and that Agency remunerations are now mute. Thereafter Principal and Producer re-initiate negotiations and conclude the transaction without The Agent.
Of course you could call The Agent an idiot for not demanding upfront payment of Agency fees; you could berate him for not signing a Non-Compete/Non-Disclosure/Non-Circumvent (Non-CDCs) Agreement previous to placing the Principal and Producer in contact with each other, but remember that there are no limits to the ingenuity of dubious contractors wishing to save costs by cutting off the Agent’s fees, Non-CDC Agreements are often worth less than the paper they are written on unless the Agent is a big firm with enough resources to enforce its terms and that is even where it is aware of the Principal’s double dealing.
If The Agent is a sole proprietorship or a small start-up for example, The Principals might make payment of Agency fees contingent on the successful performance/conclusion of the contract and could thus repudiate the Agreement at the slightest infraction; furthermore, as you may have surmised, Agents come a dime a dozen, the smart Agent will usually act first and question later, thus placing himself at the mercy of parties who are usually in business to maximize profit and save costs; the issue thus reverts back to the initial query: how, considering the stated circumstances does an Agent guarantee payment of Agency fees for service rendered?
While there are no full proof methods of ensuring reimbursement after performance, the following steps are highly recommended:
1. Deal with Principals you trust or Reputable Firms Only
A Principal with whom the Agent has a previously established relationship is less likely to double deal; on the other hand a reputable firm will try to avoid the embarrassment of a weeping Agent at its doorsteps.
Another good way of ensuring payment of Agency fees is to avoid bringing the Principal and Producer in contact with each other; this is a complex dance and may quickly degenerate into loss of confidence in The Agent’s ability; The Agent must ensure that any exchange of documents between the Principal and The Producer must be funneled through him; he must ensure that such documents do not contain any reference to emails, contact addresses/persons, telephone numbers etc. this could be done by redacting and rescanning before re-forwarding; Conference calls and meetings must only be arranged on strict understanding that no exchange of contact information including business cards are permitted.
To ensure that parties do not lose confidence in the Agent, the Agent should ensure that both parties are informed ahead of time that they will not be put into contact with each other until Agency payments are made; such a clause could also be incorporated in the Agency contract.
3. Appoint a Paymaster
A paymaster is charged with all financial payments associated with the transaction, he ensures that escrowed monies are transferred to individuals and companies that are mentioned in the contract. An Attorney in good standing is seriously advised under these circumstances.
4. Non-Compete, Non-Disclosure, Non-Circumvent (Non-CDC)
As earlier stated these clauses in the Contractual Agreement are only relevant where the party seeking enforcement is buoyant enough to seek redress in any Court of Law the world over and even then, The Agent has to be aware/know when The Principal and or Producer as the case may be may have circumvented him; this is not an easy matter to detect, it is advisable that The Agent maintain an insider on both teams to update him on goings-on concerning the contract; in the absence of such an insider, The Agent may have to pay a private investigator to keep him abreast of what is going on, this is usually a time and money consuming undertaking, however, concerning Non-CDC Clauses, it is always better to have one than to not.
Arbitration is fast becoming the forum of first recourse for Agents wishing to enforce their rights under an Agency contract. The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (The New York Convention) is the most significant achievement in Arbitration in recent years a true game changer; it applies to the recognition and enforcement of foreign arbitral awards whether originating from a duly constituted Arbitration panel or via referral from a Court of Law. Over 120 countries including the USA have ratified it and an Agent wishing to enforce his rights with the minimum level of stress and expenditure must ensure that any agreement between his Agency and the Principal/Producer MUST incorporate The New York Convention terms including placing the arbitration forum within close proximity.
It is better for an Agent to stick to parties with whom it has had previous dealings; however, considering the extent of global business trade, The Agent will be seriously limiting its earning potential and opportunities by sticking to a small circle of good old boys; for the more adventurous Agent wishing to branch out into the world, previous to establishing that trust relationship with a potential partner, in seeking to secure his rightfully earned commission, The Agent must at all times be suspicious of being side stepped and must take measures to ensure that such eventualities are reduced to the barest minimum.