The End of the Affair

by Alain Cohen
Director, Ashby Cohen Solicitors, London

When a relationship comes
to an end the effects can
be traumatic for both sides
– but it needn’t be. In the
field of commercial agency
there are certain times
when both the Principal and
the Agent have come to
the conclusion that the
arrangement between
them should cease.
The decision to end the relationship can arise for
a number of reasons. For example it could be
because the Agent simply wishes to retire, or
things have just not worked out and the
arrangement is not commercially viable for either
side. Whatever the reason it is in both parties
interest to bring the matter to a mutually
satisfactory conclusion. In order to reach this
goal it is important for both parties to be realistic
as to what the financial arrangements should be.
Whilst the courts have laid down guidelines,
specifically in the House of Lords case of
Lonsdale v Howard and Hallam Ltd, a common
sense approach is required.

Clearly an Agent who now wishes to retire and
who has worked for a Principal for the last thirty
years, leaving hundreds of active customers
behind in an expanding market can expect, and
the Principal should recognise, that the
compensation payable will be at the high end of
the spectrum.

The question is what is the range of that
spectrum. To determine this range one has to
consider the factors that effect the value. This
involves forensic analysis which takes into
account several aspects including the market
place, whether it is growing or declining, the
number of years the Agent has operated, the
number of customers he has gained and leaves
behind, the commission levels that have been
paid over the years, the economic climate and
other factors particular to that agency such as the
level of repeat orders for the products.
In effect the compensation should reflect the
value of the business that is left behind or another
way of putting this is the value the Agent could
sell his business for in an open market to a willing
buyer on the assumption that it had continued
and was transferable. In our example that buyer
would be buying the future income stream and
there is no reason why the Agent should not
receive four to six times net earnings (i.e. the
average annual commission say over the last two
or three years less expenses). This is subject of
course to the agency agreement not limiting the
payment to the indemnity cap under the
Commercial Agents Regulations.

Looking at the other end of the spectrum if the
retiring Agent leaves behind only a few customers
with very little value in a declining market, or the
Principal intends to discontinue the business
carried out by his Agent altogether then the
compensation payment will be very little if
anything at all, although the Agent would still be
entitled to commission during his notice period
and on transactions (mainly attributable to his
efforts) which concluded within a reasonable
period after the agency ended.
At the end of the day it is in neither side’s interest
to incur unnecessary legal or other costs in
wrangling over value. A pragmatic and sensible
approach will end the affair with the minimum of
pain.

Article written by Alain Cohen of Ashby Cohen
LLP, a leading law firm operating in all areas of
employment law, partnership law and in
matters arising out of the Commercial Agents
(Council Directive) Regulations 1993.

Ashby Cohen Solicitors Ltd
18 Hanover Street
London W1S 1YN
Tel: 0207 408 1338
Email: info@ashbycohen.co.uk
www.ashbycohen.co.uk

Disclaimer: This column does not contain legal advice and is for general guidance only. Agentbase, Ashby Cohen and the writer accept no liability in connection with the general guidance given in this column.

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