Until very recently, it has been the case that two years’ earnings was thought to be the correct benchmark for the assessment of the compensation to be awarded to a commercial agent whose agency had been terminated. Although the Commercial Agents (Council Directive) Regulations 1993 (as amended) do not give any specific guidelines as to the amount of compensation which an agent is entitled to receive, the ‘two year rule’ has been applied in several cases, and is derived from the French courts’ approach to the assessment of compensation.
However, in February 2006, the Court of Appeal handed down its judgment in Lonsdale v Howard & Hallam Ltd. This case has clarified the law on the compensation to be awarded to a commercial agent on the termination of his agency, and has rejected the ‘two year rule’.
According to Lord Justice Moore-Bick, the ‘two year rule’ “does not involve any reasoned attempt to ascertain the true extent of the agent’s loss”. The court found that the correct measure of damages for compensation is the value of the agency business (including goodwill) at the date of termination of the agency.
The value of the agency business will obviously depend on many factors, one of which being the state of the principal’s business at the date of the termination of the agency.
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It depends. Your agency contract may for a fixed term (ie, ending on a definite date), in which case the contract can normally be expected to run for that entire period. The parties may, of course, agree to vary the term of the contract if the correct legal procedures are followed. A premature termination by one party of the contract is likely to have serious consequences and will, in most cases, allow the other party to sue for breach of contract, claiming damages for any losses suffered.
If the agency contract is for an indefinite period (or is a fixed-term agreement which has been converted to an ongoing contract), then either party may terminate it by notice in accordance with Regulation 15 of the Commercial Agents (Council Directive) Regulations 1993 (as amended). The minimum periods of notice are 1 month each year (or part year) of the contract up to a maximum of 3 months’ notice. Unless otherwise agreed, the contract must terminate at the end of a calendar month. The parties can agree that longer periods of notice will apply, but the period to be given by the principal must not be shorter than the notice to be given by the agent.
If the principal does not give the correct amount of notice under Regulation 15, then it will be liable to the agent for the commissions which would have been earned during that period, and must make a payment to the agent in lieu of giving notice.
The Regulations apply to all commercial agents undertaking activities within Great Britain unless the parties have agreed that the law of another member state of the European Union is to apply. Accordingly, most agents operating in the UK are protected by the Regulations, irrespective of whether or not the agency agreement is in writing.
Even though there is not a formal written agency agreement between you and your principal, there is still in place an agency agreement. It could be that there is a letter of appointment and other correspondence recording the terms of the agency. If there is no such documentation, there will be in place an oral agency, the terms of which will have been established by a course of dealing.
The Regulations operate so as to imply into the agency agreement certain terms. These include terms about:
It is possible to exclude some of these terms by providing for this in the agency agreement. In an oral agency agreement, these terms are unlikely to have been excluded.
This will depend on how much time has elapsed since termination. If you are a ‘commercial agent’ as defined in the Regulations then the Regulations will apply to your agency relationship whether or not you were aware of them prior to termination. However, Regulation 17(9) contains an important limitation: it states that an agent “shall lose his entitlement to the indemnity or compensation….if within one year following termination of his agency contract he has not notified his principal that he intends pursuing his entitlement”.
This provision is strictly applied. Therefore, if one year has not elapsed since termination, you should notify your former principal in writing as soon as possible and request a written acknowledgement. You are not required to provide any details of the claim at this stage. Once notification has been given, you could have up to six years from the date of termination to bring your claim. However, I would strongly suggest that you pursue all claims without delay, otherwise you run the risk of, for example, your principal becoming insolvent or vital evidence being lost or destroyed.
Note that this one year limitation does not apply to other claims you may have against your former principal, whether under the Regulations (for example for pre-termination or post- termination commission) or at common law.
