Written by Steve Sidkin
18 March 04

The Commercial Agents (Council Directive) Regulations 1993 (as amended) provide for a commercial agent to be entitled to compensation for damage suffered as a result of termination of the agency agreement.

Prior to Pure Fishing it had been the case that this entitlement under the Regulations had been widely interpreted.  Accordingly the Court of Appeal in Light v TY Europe had held that it applied even where the agency agreement ended by effuxion of time.

Despite this it is clear under the Regulations that this entitlement will not exist where the agency agreement has been terminated by the principal because of the agent’s default.

In Pure Fishing the principal claimed that the agents were in material breach of the obligations contained in their agency agreements.  As a result it decided not to renew those agreements.  Unsurprisingly following termination the agents claimed compensation under the Regulations.  In its defence, Pure Fishing argued that payment of compensation was precluded by Regulation 18(a).  This Regulation provides that compensation is not payable to the agent where the principal has terminated the agency contract because of the agent’s default which would justify immediate termination.

The Court of Appeal analysed Regulation 18(a).  It held that the natural meaning of “has terminated” meant that there had to be some unilateral action by the principal to bring the agency agreement to an end.  Accordingly a simple decision not to renew a contract (even where the agent was in material breach) was insufficient to come within the ambit of Regulation 18 (a).  As such the claimants still had an entitlement to compensation under the Regulations.

In view of this decision by the Court of Appeal, it is the case that a principal will be far better advised to formally terminate the agency agreement before its expiry date where there has been a material breach by the agent rather than simply allow the agreement to expire and then refuse to renew it.

For more information about the Court of Appeal’s decision in Light v TY Europe please see our case summary on the case.

This briefing note is for general information. For advice in applying this general information to your specific circumstances, please contact Stephen Sidkin or any members of the Fox Williams’ agentlaw team. (www.agentlaw.co.uk).

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