Agency Agreement – Termination of a Contract

The Cost of Terminating an AGENCY AGREEMENT

In a previous article we considered in broad terms how the Commercial Agent (Council Directive) Regulations (‘the Regulations’) impose strict obligations on the relationship between principal and agent in contract law. In this article we wish to explore one part of the Regulations, regulation 17, in further detail.

What is regulation 17?

Regulation 17 is states that a commercial agent is entitled to a payment on termination of the agency agreement. ‘Termination’ means both termination by notice and termination on the expiry of a fixed term. Regulation 19 confirms that this provision cannot be contracted out of and is therefore compulsory in any commercial agency agreement.

What type of payment must the principle make?

The regulation defines two different types of payment; compensation and indemnity. The actual definition of compensation and indemnity are outside the scope of this article. However, it is important to note that compensation and indemnity in this context are concepts drawn from European contract law and do not have their usual meaning within English law.

Regulation 17 states that agents are generally due compensation at the termination of their agreement. The regulation does however allow freedom of contract and therefore the contract can provide that the agent will receive an indemnity rather than compensation. The contract must however be clear and elect only one option. In Shearman (t/a Charles Shearman Agencies) v Hunter Boot Ltd [2014] EWHC 47 (QB), the High Court held that a provision in a commercial agency agreement that provided an agent an indemnity or compensation in the alternative was void and unenforceable.

Termination of Contract – Can the payment ever be avoided?

The payment of compensation or an indemnity can only be avoided in the very narrow circumstances that are detailed in regulation 18. These are:

  1. Where the agent breaches the agency agreement and the principle is justified in immediately terminating it;
  2. Where the agent terminates the agreement himself, unless the termination is justified by the actions of the principle or alternatively the age infirmity or illness of the commercial agent;
  3. Where the commercial agent assigns his rights under the agreement to another agent.

It should also be noted that an agent’s right to compensation or an indemnity is unenforceable unless the agent informs his principle within 1 year of the date of termination that he intends to pursue his entitlement.

Are you a business that needs advice on commercial agency agreement? Or are you a commercial agent who feels that the Regulations of Contract Law have been breached? If so, the experienced company and commercial litigation team at Levi Solicitors can help you.

Arrange a call back with one of our team in Wakefield, Leeds & Manchester.