Wednesday, January 21, 2009

Agency Agreement Chaos

Agency Agreement Chaos

What should Mr. Singer have done to protect himself?

Mr. Singer is being put through the ringer on this kitchen appliance product from Singapore due to possible lack of an actual agency agreement which might have provided greater protection, clear definition of role as agent and territorial exclusivity.

On his order of $100,000 of inventory was Mr. Singer actually signing an agency agreement which would represent him as a bona fide purchaser? Was his contract a consignment arrangement? It does not appear so. It does appear that he purchased products for a wholesale price, possibly an elevated wholesale price, otherwise his competitors in Montreal could not make substantial profits by under-cutting him. It appears he is simply re-selling on the retail market with the difference making up his profits. It appears that he is neither making limited principle payments nor afforded any protection through any form of commissions-based sales agreements. This appears to be a stocking distributor arrangement.

What definitions were included in Mr. Singer's purchase of the Singaporean export products? Was a sales territory explicitly stated in the contract or simply confirmed verbally? If it was written into his purchase agreements did it include all provinces of Canada? If not, Montreal sales of the same units may be entirely legitimate especially if no agency agreement was actually signed. If he is paying wholesale prices are general fees, percentage of sales commissions or commissions per unit of sale absent from the sales agreement? This would be a hint.

Mr. Singer should have ensured that he was being hired as a commissioned sales agent or export management company rather than what he currently appears to be, a stocking distributor, who takes possession of goods and then earns income on profit margin without exclusive rights in Canada.

His agreement should have clearly identified parties such as the Singaporean exporter, and Mr. Singer as exclusive sales representative in Canada. This agreement should have included effective dates which were satisfying to both parties and highlighted Mr. Singer's exclusive sales rights in Canada. A termination clause would also have been in Mr. Singer's interests as it would need to accord with Canadian regulations and laws in his interest. Clauses and and description of required performance would provide protection for Mr. Singer in the case of territorial rights infringements as well as define his duties to maintain exclusivity. All require written rather than verbal confirmation.

It is quite possible that without clear identification of parties the Singaporean exporter possesses several divisions, subsidiaries or other legal entities operating without clear cooperation in the sale of this particular product. Remedial action might be taken which would ensure construction of an agreeable agency contract between Mr. Singer and the Singaporean exporter once the scope of infringement of verbal terms is widely known throughout the parent company. However dependent upon legal considerations this may not be a requirement. He should ask," please."

It is also possible that exclusive rights are against monopoly or competition laws in Canada under the Competition Act and the Singaporeans might impose strict limits on Mr. Singer's competitive or complimentary products agency as well as pricing controls, imposition of higher stocking requirements or larger sizes of minimum orders in return for exclusive sales rights which might make $10 of profit look tasty. Mr. Singer might also need to provide sales projections, competitive activities reports, economic climate reports and names of customers - all leg work he might not feel like doing. In addition through agency terms Mr. Singer might benefit from possible cost sharing on advertising, promotion and trade show costs to maximize his profits. At the moment his only option is to reduce his profit margin and enter a pricing competition with his Montreal rival. (All according to Jagoe, Export Sales and Marketing Manual 2007)

Also there is no mention of taxes paid on this product. Clear profits spell tax fraud. Profits can only count after "EAT" or earnings after taxes. If Mr. Singer is claiming pure profits he might be violating Canada's Bank Act which might discourage him from making any litigous claims on the Singaporeans. Considering this, has Mr. Singer even legally registered as a government approved import agent in Canada? Further the product being sold in Montreal while possibly the same product, might not even be proprietary to the Singaporean exporter. As in, Mr. Singer might be unknowingly distributing a product which may infringe on third party patents or trademarks which would be enitrely his own fault as he apparently has not confirmed the principal regarding indemnity of the product.

It simply appears that through not doing his homework Mr. Singer has gotten himself a distributorship rather than an agency agreement without any binding terms on the part of the seller and is facing a case of parallel importation and may also be breaking a number of Canadian laws in the process to boot- through simple inexperience and gross incompetence a costly combination costing him about 80% of his supposed profits.

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