Regulation 17 of the Commercial Agents (Council Directive) Regulations 1993 (as amended) provides that, when the agency relationship comes to an end, agents are entitled to be indemnified or compensated. Indemnity is only available where the agency contract provided for it. Compensation will be available to an agent for damage suffered as a result of the agency relationship being terminated. Damage is deemed to occur in certain cases, and each situation requires careful analysis to determine whether and to what extent the agent will be entitled to claim compensation.
Unfortunately, the Regulations do not contain any rules for how the compensation is to be calculated, and this has been the subject of conflicting court decisions. Depending on whether the agent can prove various matters relating to the performance of the agency agreement, it is likely that the agent may be entitled to substantial sums by way of compensation, in some cases worth two or three times the average annual commission.
Agents will not be entitled to compensation if the principal has terminated the agency contract because of default attributable to the commercial agent which would have justified immediate termination of the agency contract under the Regulations. An agent who has terminated the agreement itself will also generally not be entitled to compensation.
The agent’s claim for compensation, in most cases, is likely to be the largest claim which is made against a principal. It is therefore important that both the agent, and the principal, are aware of their legal positions on the termination of the agreement. This is one of the most difficult areas of commercial agency law to navigate, and there are pitfalls for both the agent and the principal to watch out for.