Commission agreement dispute

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Commission agreement dispute

Our client was an SME database company with substantial IP & IT assets. They sought our advice to resolve a dispute with a PLC customer who had failed to pay commissions after using our client’s customer database. The PLC used its market power to withhold payment for as long as possible. We stepped in.

How we resolved the dispute in our client’s favour

We were instructed, and:

The facts of the commercial dispute

The PLC customer operated in the telecommunications sector. The PLC used our client’s contact database to promote its service. However, before our clients instructed us, some months earlier the PLC attempted to terminate the commission agreement and withheld commission payments received from customer sales.

The commission agreement

We reviewed the commission agreement, and discovered the PLC had not validly terminated the agreement. The commission agreement detailed termination requirements. Our client retained the power to appoint an auditor, who could inspect the PLC’s accounts to ascertain the commission payments due. Once the auditor provided a commission figure, the commission became an undisputed debt. The agreement also contained post-termination clauses that enabled our client to continue receiving commission payments despite the PLC’s alleged termination.

Cost-effectively resolving the dispute

Clearly the PLC wanted to terminate the commission agreement. The PLC had withheld payments for just under a year. We advised our client that continued enforcement of the terms of the commission agreement would cause more harm than good. Our clients legal & administrative costs, plus the management time, could not be commercially justified. With this in mind, we discussed case tactics.

It came to light that the PLC was subject to a takeover bid. We used this sector knowledge to advise our client that the PLC would want to settle. The PLC would have had to disclose our client’s dispute to a prudent acquirer during the due-diligence process.

Tactics to obtain commission payment

We used the terms of the agreement to our client’s advantage. We raised the following issues:

  • The agreement had not been validly terminated;
  • Therefore the agreement continued;
  • As would the post-termination conditions even if the PLC attempted to terminate.

This was a key negotiating point. The PLC did not want to be tied to lengthy commission agreements with no certainty as to the financial cost.

Planning ahead for the dispute

We planned ahead and instructed an auditor to prepare a commission figure to become binding on the parties. The PLC reluctantly agreed. Once the auditor’s certificate was received, the commission payments became undisputed. Next we served a statutory demand on the PLC, which brought the PLC to the negotiating table.

The PLC did not want the statutory demand to become public knowledge. It would damage their goodwill, potentially reduce the value of their intangible assets, and ultimately the PLC’s valuation.

Reaching a deal over commission payments

Following service of the statutory demand, we agreed to withdraw the demand preventing the PLC from having to defend the demand if the PLC paid the arrears and agreed to pay our client a pre-payment of 24 months’ commission. In exchange, we offered to release the PLC from its obligations of the commission agreement.

Exit documents

Following negotiations, we prepared a settlement agreement that released the PLC from its post-termination obligations. The settlement agreement gave effect to the confidentiality clauses of the commission agreement and enabled our client to receive 24 months of expected commission payments as an accelerated sum, together with the commission arrears.

Securing accelerated payments

Our resolution enabled our client to use the accelerated payment funds to market its services to other PLC’s in an attempt to procure further business. We are now instructed to draft a bespoke commission agreement following agreed heads of terms with a competitor of the PLC.

John Deane is a partner in the commercial dispute team at Gannons. John advises SME’s on a host of contentious matters. The expertise extends to ensuring that matters do not become contentious in the first instance, which will help save costs.