A recent case has found that a Commercial Agency can exist after the effective termination date. Richard Bailey, an expert in the field of commercial agency considers the implications of this finding.
In this case the company (“the Principal”) wished to terminate their Agent for the UK and Ireland and take the operation in house, but had allowed the effective date of termination of the agency to remain vague. This was because the Principal did not wish to preclude the possibility of continuing the agency for another season if it was unable to get the necessary showroom or staff to run the account in house. Therefore the agency terminated some time between the end of October 2006 and the second week of January 2007. The Agent subsequently wrote to the Principal on 27 November 2007 stating that they intended to pursue their entitlement to a termination payment.
The Agency Regulations provide that the Agent must notify the Principal that they wish to pursue their claim for a termination payment within one year following the effective date of termination. The Principal in this case argued that the Agent’s claim was time barred as the effective date of termination was no later than 31 October 2006.
The Agent argued that although the primary agency duties might have concluded at the end of October 2006 there were secondary duties which continued on into January 2007. The Court held that although authority to act as an Agent for the Principal had been withdrawn on 31 October 2006, there was continuing commercial activity between the Principal and the Agent which demonstrated a continuing authority to negotiate. The effective termination date was found to be in mid January 2007 and the claim was not time barred.
This case highlights the importance of following a clear and unambiguous procedure on terminating a Commercial Agency. When a Principal wishes to terminate an agency, they must make sure termination is communicated clearly to the Agent in writing. Following this, all commercial relations should cease between the Principal and the Agent.
The Principal must terminate any agency in accordance with the agreement (whether written or otherwise) that governs the relationship. If there is no clear agreement, the Agency Regulations provide certain minimum rights for the Agent, such as minimum notice periods, minimum obligations owed by the Principal and Agent to each other, entitlement to commission on transactions concluded after the termination of the agency and that termination payments are to be calculated on the basis of compensation rather than indemnity. There are limited circumstances when the Principal will be entitled to terminate an agency without making a payment of compensation under the Agency Regulations.
On the other hand, termination of a Commercial Agency may be significantly more straightforward if there is a clear written agreement already in place. Although most of the rights of the Agent under the Agency Regulations cannot be contracted out of, the Agency Agreement can include clauses that the Principal can rely on upon the termination of the agency. These could include more onerous obligations on the Agent, specific targets and the right for the termination payment to be calculated on the basis of indemnity.
For advice on agency matters, please contact Richard Bailey by telephone on 01603 598 000 or alternatively by email to rbailey@steeleslaw.co.uk