Commercial Agents Regulations: Compensation Overview
JUNE 2010
Commercial agents are generally entitled under the Commercial Agents (Council Directive) Regulations 1993 (“the Commercial Agents Regulations”) to statutory compensation on termination of their agency, in addition to any contractual rights.
A commercial agent is defined quite widely as a self-employed intermediary (which includes limited companies) who has continuing authority to negotiate the sale or purchase of goods (note that the Commercial Agents Regulations do not apply to the provision of services only by an agent). On termination of the agency, the agent may be entitled to be paid either indemnity or compensation. Unless the contract specifies indemnity, compensation is payable.
Following the case of Lonsdale –v- Howard & Hallam Limited in 2007, an agent’s entitlement to compensation is based upon the value of goodwill in the agent’s business at the date of termination. In that case it was stated that goodwill should be valued as it would be in the sale of any business and what was important was the income stream which would have been generated, the best evidence for which would be the open market price which a purchaser would pay for the agent’s business. For this reason, disputes as to the amount of compensation payable normally require expert valuation evidence at a fairly early stage.
However, no entitlement to indemnity or compensation arises if the principal terminates the agency due to a repudiatory breach by the agent, or the agent himself has terminated (unless such termination by the agent was justified by circumstances attributable to the principal or on grounds of age, infirmity or illness of the agent in consequence of which he cannot reasonably be required to continue his activities). Apart from disputes as to the level of compensation payable, the most common area of dispute is probably whether or not the agency has been terminated due to a repudiatory breach by the agent .
The Commercial Agents Regulations govern the relations between commercial agents and their principals in relation to the activities of commercial agents in Great Britain and this is so whether or not the principal is resident in this jurisdiction. Similar provisions apply in many other EU states.
This is only a very brief overview. For specific advice regarding any aspect of commercial agency, please contact Craig Walker, a Partner in of Goodman Derrick LLP’s Litigation Department on 0207 404 0606
This guide is for general information and interest only and should not be relied upon as providing specific legal advice. |
