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Commercial Agents Update

08 June 2010 #Dispute Resolution


Notice of claim for compensation - when does time start to run?

A crucial part of the Commercial Regulations that all agents need to be aware of is that you lose your right to compensation or an indemnity if you fail to serve notice of your intention to make a claim within one year of termination of your agency agreement (Regulation 17(9)).  If you fail to comply with the notice requirements in the Regulations you will lose your claim to an indemnity or compensation however strong your case may have been.

Generally, the best approach is to serve notice as soon as possible so that there can be no doubt that you have met the one year deadline.  Sometimes, however, the question of when exactly the agency agreement comes to an end is not entirely straightforward and, of course, it is only once termination has happened that the one year for giving notice starts to run under the Regulations.  This was the issue the Court was required to consider in Claramoda v Zoomphase Limited (2010).  The case involved an agent who sold a range of women`s clothing and had been told by her principal that the Spring/Summer 2007 season was to be the last season she would act as commercial agent.  That season came to an end in October 2006, but further commercial activity, including dealing with customer concerns about orders and discrepancies over paperwork continued until January 2007.  The agent served notice in November 2007 (i.e. more than a year after the end of the Spring/Summer fashion season, but less than a year after the other commercial activities came to an end in January 2007).

The principal argued that the agent`s "authority to negotiate sales", which is a pre-requisite of being a commercial agent under the Regulations, came to an end when the Spring/Fashion 2007 season ended in October 2006, meaning the commercial agency also ended on that date.  The Judge disagreed and decided that the commercial activity that took place after the end of the fashion season was indistinguishable from the earlier activity, and therefore the agent remained a commercial agent until January 2007 meaning her notice was within time. 

Usually the termination date of an agency agreement can be established easily from the terms of the contract, but this case provides a helpful reminder of the potential risks if you delay serving notice of a claim.

What happens if your agency agreement is subject to the law of a country outside the EU?

Often you will see Agency Agreements providing that the law of a country outside the EU, such as the US or Canada, governs the terms of the agreement.  Sometimes, the agreement will provide that disputes should be referred to arbitration, again outside the EU.  Since the Commercial Agents Regulations are the product of EU legislation, it is unlikely that the Courts in a country outside the EU will recognise a claim for compensation or an indemnity under the Regulations.  However, provided that you qualify as a commercial agent under the definition in the Regulations, the fact that your agreement is subject to the law of a non-EU country does not mean you lose your legal remedies.  Certain parts of the Regulations, including compensation / indemnity under Regulation 17 cannot be excluded by the parties.   Even though your contract may be governed by US Law, you would still be entitled to bring a claim in the English Courts for compensation or an indemnity provided you were recognised as a commercial agent under the Regulations. 

This is the point the Court was required to consider in Accentuate Ltd v Asigra 2009.  The agency agreement was subject to Canadian law with disputes to be determined by an arbitration held in Canada.  When the agent gave notice of their claim for compensation, the principal immediately served notice requiring an arbitration to be convened in Canada and not surprisingly the Canadian arbitrator held there was no valid claim for compensation because Canada does not recognise the Commercial Agents Regulations. 

The English Court held that the mandatory provisions of the Regulations, in particular Regulation 17, could not be excluded by the parties, and therefore the commercial agent remained entitled to sue the principal in the English Courts.  This was despite the principal arguing that the agent did not qualify as a commercial agent.  The agent was entitled to have his claim, including the question of whether he was, in fact, a commercial agent determined in the English Courts despite the existence of a Canadian arbitration clause.

When can a Principal avoid paying compensation following termination of a commercial agency agreement?

Regulation 18(a) states that a Principal is not required to pay compensation where he has terminated the agency agreement "because of default attributable to the commercial agent which would justify immediate termination of the agency contract".

This applies where there has been a serious breach of contract by the agent, known as a repudiatory breach, which entitles the principal to terminate the contract with immediate effect.

This happened in Nigel Joinery Services v Ian Firth Hardware (see above) where the agent disobeyed the principal`s instructions to provide weekly reports and to work exclusively for the principal (subject to notifying the principal of competing work).  Court decided this conduct, which amounted to sustained and persistent breach of contract, was a repudiatory breach of the contract, so Regulation 18(a) applied.

Indemnity clarified by the European Court of Justice ("ECJ")

In a German case, Turgay Semen v Deutche Tamoil GMBH, referred to the ECJ, the Court made two findings which are relevant for Commercial Agency Agreements which provide for an indemnity to be paid on termination.

  • When calculating the indemnity, unless otherwise agreed by the parties, benefits accruing to other parties in the principal`s corporate group are not considered to be benefits of the principal, so can be ignored for the purpose of calculating the indemnity.
  • The Court cannot automatically limit the amount of the indemnity to the amount of commission lost by the agent after termination.  In fact, there is no indication that the English Courts were contemplating this approach, but the clarification is helpful nonetheless.
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For further information about this or any other Dispute Resolution matter please contact Clarkslegal's dispute resolution team by email at disputeresolution@clarkslegal.com by telephone 020 7539 8000 (London office), 0118 958 5321 (Reading office) or by completing the form on this page.

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Chris Tayton

Chris Tayton
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