Are you a Commercial Agent? It’s worth checking!
The Commercial Agents (Council Directive) Regulations 1993 sets out provisions intended to improve the position of commercial agents in relation to their principals and to harmonise different laws across Europe in relation to these sorts of agreements.
A commercial agent is a self employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person or to negotiate and conclude the sale or purchase of goods on behalf of and in the name of another person.
There are various exemptions to the rules applying the directive, which need to be considered on a case by case basis.
Many such contracts are for an indefinite period of time or for a fixed term that has continued. The regulations provide for minimum periods of notice for termination in the absence of any express provisions, i.e. one month for the first year, 2 months for the second year and so on and, unless specified, the notice must expire at the end of a calendar month.
Once an agency agreement has been terminated, the agent has a right to compensation or an indemnity if certain circumstances apply (for example, no entitlement arises if the agency is terminated due to a serious breach on the part of the agent, the agent terminates himself or the agent assigns the agreement with consent).
Any claim for indemnity or compensation must be made within a year of termination – this is critical and is overlooked by a lot of potential claimants and exploited by principals in avoiding claims.
In the absence of a provision to the contrary compensation will be available – the indemnity option must be expressly agreed.
The differences between the indemnity and compensation approach are important to understand as they can mean drastically different amounts being payable to the agent, primarily as there is a cap on the amount of an indemnity payment but no cap on the compensation payment.
The indemnity payment is capped at one year’s commission and the entitlement arises to the extent that the agent has brought in new customers or significantly increased business with existing customers. A fair assessment is carried out taking into account all the circumstances surrounding the agency and the parties’ conduct.
The compensation payment is calculated by reference to the damage the agent suffers as a result of termination of his relations with the principal and, as there is no cap, the prospect of a large payment increases considerably. In simple terms the loss is calculated as a figure for the loss of value of the agency, i.e. what would a purchaser be prepared to pay for the agency?
This is a complicated area of law and each case needs to be considered on its own individual merits.
In short, however, principals should be acutely aware of the terms of their agency agreements at an early stage. Are there written agreements in place? If not should efforts be made to implement written agreements to clarify the position between the parties? If the principal is considering terminating the agency and if the agent falls within the definition of a commercial agent, do the terms of the agreement provide for an indemnity and thus, arguably, more protection? If there is no agreement or no express agreement to the indemnity approach, then if terminated the compensation approach will be adopted.
If an agent, are you a commercial agent? If so and if your agency is terminated, you should consider the nature of your claim as soon as possible (within 1 year of termination) and assess the type of claim you have.
We act for both principals and agents and have been successful in both bringing and defending claims.
For further advice please contact Richard Gore on 0117 906 9424.