The High Court has considered how and when an agency agreement comes to an end in the absence of a clear termination date.
The claimant acted as the defendant’s exclusive agent, and attained orders in the United Kingdom and Republic of Ireland. The defendant sought to terminate the agency agreement as it wished to sell its goods without the agent. But no clear cut termination date was agreed. This was because the defendant did not want to rule out the possibility of continuing the agency in the event that it could not find an adequate showroom and staff to enable it to sell the goods ‘in-house’.
On 27 November 2007, the claimant notified the defendant that it intended to pursue its entitlement to compensation under regulation 17(1) of the Commercial Agents (Council Directive) Regulations 1993 (the “Regulations”). Under regulation 17(9) of the Regulations, an agent loses its right to compensation if it does not give such notification to the principal within one year of the termination date. The defendant argued that the notification had been made after one year following the termination of the agency agreement, on the basis that the agency agreement had come to an end no later than 31 October 2006, and so the claimant had lost its right to compensation.
The Court, as a preliminary issue, had to determine what the effective termination date of the agency was.
A ‘commercial agent’ is defined in regulation 2(1) of the Regulations as someone who has ‘continuing authority to negotiate the sale or purchase of goods on behalf of another person’. The Court held that the concept of negotiation was a wide one. It included activities such as dealing with, managing, or conducting a sale. There was clear evidence that the claimant had some continuing commercial activity post 31 October 2006. In particular, there was correspondence showing that the claimant continued to deal with order confirmations from customers, customer queries, and discrepancies in paperwork. Evidence also showed that the claimant had requested promotional material and chased payment from customers.
The Court held that the continuing commercial activity demonstrated that the claimant had authority to negotiate sales after 31 October 2006 and so the claimant fell within the definition of a ‘commercial agent’ for the purposes of the Regulations. The effective termination date of the agency agreement was held to be mid January 2007 and so the notice given on 27 November 2007 was within 12 months of the termination date.
The key issues to consider in light of this case are:
- that an agency agreement does not necessarily end when an agent stops taking orders if the agent continues to carry out other duties such as dealing with customer queries;
- there is no substitute for formally documenting the termination date in a clear manner; and
- an agent should always be aware of the time limit for making claims for compensation or an indemnity under the Regulations.
Duncan Jones is a Trainee Solicitor in the Dispute Resolution Department of Fox Williams LLP and a member of the agentlaw team
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