Oct 122021

DBA was advised by its accountant to set up a limited liability company for tax reasons. Barnett Fashion Agency Limited (“Limited Company”) was established in 2003 and DBA stated that all of its agency contracts were transferred to Limited Company. No conversation ever took place between the two parties about the assignment. Nigel Hall also raised no objection when invoices were issued on behalf of DBA “Commerce as Barnett Fashion Agency Limited”. The recent decision by Barnett Fashion Agency Ltd against Nigel Hall Menswear Ltd is a clear reminder to agents that the process of transferring an agency contract to a new entity is not an easy one. This transfer is common when an individual entrepreneur (agent) decides to create a limited liability company to manage the agency`s activities. In case DBA did not have the opportunity to claim damages. While DBA (the partnership) theoretically had a right against Nigel Hall, the period provided by the rules to assert such a right (1 year) had expired and DBA had therefore lost its right to damages after Nigel Hall terminated the agreement. The High Court held that the assignment by the agent of an agent contract to a limited liability company was not sufficient to enable the limited liability company to claim compensation under Section 17 of the Commercial Agents Regulations (“the Rules”). All invoices relating to the commissions due were submitted to the defendant in the form of “David Barnett Associates trading as Barnet Fashion Agency Limited”.

No discussion took place between the parties regarding the assignment of the commercial representation contract, but the defendant raised no objections to the new invoices and continued the trade under the commercial representation contract. It can only be attributed to the utility and not to the burden of a mediation contract. To transfer the entire agreement to a limited liability company (or other entity), all three parties would have to enter into a novation agreement. This requires the agreement of the client. DBA first sent the defendant duly paid invoices. Mr. Barnett was then given accounting advice and ordered to set up a company to provide DBA`s agency services. Barnett Fashion Agency Limited (“the Claimant”) was established in 2003 and DBA stated that it transferred all of its agency contracts to the Claimant. Nigel Hall argued that the Limited Company was not entitled to assert such a right, given that the agency contract was concluded with DBA (the partnership) and not with the Limited Company.

The Court of Justice has agreed. It decided that even if DBA had assigned the rights to the agency contract to the limited liability company, this would not have resulted in the transfer of the entire contract. The only right DBA could assign to Limited Company was the right to receive commissions from Nigel Hall. It can only be attributed to utility and not to the expense of an agency contract. To ensure a valid transfer of the entire commercial agent contract, the benefit and charge should be assigned by the three parties (i.e.dem limited partner, agent and limited liability company of the agent) who agree to novation of the original contract. In 2005, the relationship between the parties broke down and the contract was terminated by the defendant. Barnett Fashion Agency Limited v Nigel Hall Menswear Limited provides agents with a useful reminder of the need to ensure that the benefits and burdens of the contract are transferred when considering the transfer of an agency contract to a new entity. The claimant was entitled to compensation in the amount of £190,000 for the depreciation of the agency contract in accordance with the rules.

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