Intermediaries putting firms at risk

Court case highlights the risks of dealing with customer representatives

Firms are being warned to beware when paying commission to third parties for introducing business, after a high court case.

The case, held last year, involved a UK design company running substantial design projects for a Middle Eastern customer.

 

The customer was introduced to the design company by an intermediary, to whom they agreed to pay introductory commission.

The court heard that neither the intermediary nor the design firm mentioned the commission to the Middle Eastern customer, which reached a massive 1.8 million.

Discovering that such an amount had been paid in commission, the customer sued both the intermediary and the design firm.

The case has important implications for small businesses that pay introductory commission, which, in a competitive market, may be a vital means of securing business.

Pierre Valentin, head of the Art and Cultural Assets group at Withers LLP, told startups: “Businesses need to check the relationship between the person asking for the commission and the customer whose business is being introduced.

“If there is a relationship between the two and it is one of trust, it is advisable to make sure that payment of the commission is disclosed to the customer.

“If it is not, the business paying introductory commission may end up having to pay twice, once to the introducer and then to the customer.”

Withers are urging businesses to take note of the case and understand that the customer must be told about any commission, even if it is taken out of its own revenues.

The case resulted in the intermediary paying back the commission to the Middle Eastern customer, involving the recovery of major assets purchased by the representative using the commission.

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