Commission agreement commercial dispute

  • Posted

Gannons resolved a commercial dispute over unpaid commissions to recover costs for our client.

Our client was an SME (Small or Medium Enterprise) database company with substantial IP and 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 to resolve the issue.

How we resolved the commercial dispute in our client’s favour

After we were instructed, our first step was to ensure that the PLC could not terminate the commission agreement without our client’s consent. Then we served a statutory demand on the PLC for the unpaid commission payments. Finally, we prepared a commercial settlement agreement for our client, that preserved costs, and entitled our client to accelerated commission payments.

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 commercial 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 client’s legal and administrative costs, plus the management time, could not be commercially justified. With this in mind, we discussed case tactics.

We discovered that the PLC was subject to a takeover bid. We used this knowledge to advise our client that the PLC would want to settle. The PLC would have had to disclose their dispute with our client during the due-diligence process.

Tactics to obtain commission payment

We used the terms of the agreement to our client’s advantage. We argued that the agreement had not been validly terminated and therefore, the agreement continued. The post-termination conditions would also continue, even in the event that the PLC attempted to terminate the contract.

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 commercial 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 – on the condition that 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 have since drafted 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.

  • Gannons acted swiftly and decisively to justly recover our unpaid dues

Related Expertise