As case law has demonstrated, it is essential that there is clarity in the relationship between the principal and agent in a commercial agent relationship. The Commercial Agents (Council Directive) Regulations 1993, implementing the EC Council Directive on self employed commercial agents, brought into the UK significant rights for commercial agents which did not previously exist. However issues remain over the interpretation of aspects of this.
As ever, the issues crop up when the relationship between the parties ends or something goes wrong. In terms of the Regulations, a commercial agent is entitled to payment of either an indemnity or compensation when the agency contract terminates. This is intended to recognise the agent’s work in establishing and developing the goodwill of the principal’s business for which the agent should be recompensed on the termination of that relationship.
In a recent case, the agent argued that it was entitled to indemnity in terms of the Regulations as a consequence of the termination of a relationship with a customer of the principal which had amounted to 92% of the agent’s business up until that point. The issue however, was that the agency contract, specifically anticipated this occurrence and allowed the principal to terminate the agent’s appointment in respect of its activities for that particular customer in the event that the principal’s relationship with that customer, was itself terminated.
It was held that given the terms of the contract and that it otherwise continued the agent was not entitled to indemnity in these circumstances. The point is made in the decision that if the agent had wished to obtain a right to indemnity on the termination of their activity in respect of this one customer, then it would have been open to them, at least in theory, to have required a separate agency contract for that one customer. In that event, the termination in similar circumstances would have created the right to indemnity.
In terms of the Regulations, the agent is entitled to be compensated rather than indemnified, unless their contract says otherwise. The amount of the indemnity is capped at one year’s commission based on the average of commission paid over previous years. Compensation is the alternative and is payable in respect of the damage which the agent suffers as a result of the termination of his relations with the principal. The Regulations specify the circumstances in which the agent is entitled to indemnity or compensation but issues arise in the calculation of compensation, in particular as the Courts have been taking different approaches in the assessment of the amount of the compensation, having regard to the particular circumstances of each case, balanced against the attraction of a tariff-based approach as utilised under the French system.
Such uncertainties can be removed by ensuring that the contract between the parties is clear and unambiguous. Contact bto if you require further information.