Most principals are aware that when an agency is terminated they will be liable to pay the agent a termination payment under Regulation 17 of the Commercial Agents (Council Directive) Regulations 1993. This can be a very substantial sum, and in our experience, this can unfortunately result in principals considering ways they might seek to avoid such payment. Agents should be aware of this possibility and how to deal with it should it arise.
The good news for agents is that a principal can only exclude payment of an indemnity or compensation under Regulation 17 in very limited circumstances. The right to exclude such payment will only arise where the agent is in default of his obligations under the agency contract, and that default justifies the immediate termination of the agency contract.
This leads to the question “how serious does the agent’s breach need to be to justify termination with immediate effect?” The courts have considered this question in various cases with some interesting decisions. Each case must be considered on its facts, and ultimately it will depend on how serious the breach is.
Comments made by an agent
A common cause of complaint from principals is about comments which have been made by agents which they regard as damaging to their business. In the case of Crocs Europe BV v Craig Lee Anderson  EWCA Civ 1400 the court considered comments which had been posted by the agent’s employees on the internet. A link was sent to the agent’s other employees and to third parties, including some of the principal’s customers and distributors. The website was later taken down.
Crocs argued these comments amounted to a fundamental breach of the agent’s duty which entitled it to terminate the agency contract with immediate effect without paying compensation.
The agent said the comments were a joke about the principal’s failure to respond to orders; the principal claimed the comments disparaged the products which it had appointed the agent to sell and entitled it to terminate the agency contract with immediate effect
The court found in favour of the agent in that case. It found the website had not disparaged the principal’s goods. The comments had referred to Crocs’ inability to meet delivery obligations, a state of affairs that was well known. The judge held that while the agent had breached the contract, the breach was not so serious as to justify immediate termination, and the agent had therefore not lost its right to compensation.
Failure to report
Individual instances of failures to report to a principal are unlikely to suffice to exclude a termination payment, but repeated instances might be, especially if they are accompanied by other serious breaches (Nigel Fryer Joinery Services Limited v Ian Firth Hardware Limited  EWHC 767 Ch). Agents should therefore be careful to ensure they comply with their reporting obligations on an ongoing basis.
Undertaking work for other agencies
An agent who undertakes work in respect of other non-competing agencies or other competitive agencies but with the consent of his principal, is unlikely to be in breach of duty unless the agency agreement specifically forbids the agent from such conduct or requires the agent to provide its services exclusively to his principal.
An agent who acts for a competitor without the authorisation of his principal is likely to lose his right to a Regulation 17 payment since such conduct is likely to justify immediate termination. Agents should therefore ensure they always carry out their sales activities within the terms of their agency.
Expiry of a fixed term agency
In the case of a fixed term agency which is due to expire, a principal may lose its rights to exclude a termination payment if it does not take steps to terminate the agency on the grounds of breach, but instead lets the agency expire (Cooper & Others v Pure Fishing (UK) Limited  EWCA Civ 375). Agents whose contracts have simply expired should seek immediate advice if the principal later seeks to exclude the termination payment on the grounds of grounds of repudiatory breach.
Specific clauses in an agency contract
Where there is a clause in an agent’s contract which entitles the principal to terminate with immediate effect upon the occurrence of specific events, it is unlikely that such a clause will operate to avoid a termination payment under Regulation 17. The agent’s conduct will need to be considered in the context of the requirements of Regulation 18.
The court has held that Regulation 3 does no more than set out the obligations of an agent, and a breach of those obligations does not automatically terminate the agency contract. Even where the agent’s a duty is a fiduciary one, a breach of that duty does not automatically or necessarily amount to a repudiatory breach of the contract.
The key question for the agent whose agency has been terminated and the principal is seeking to exclude a termination payment is how serious, in all the circumstances, has the agent’s conduct been?
Some of the factors which may influence the court’s decision on whether the breach was so serious as to entitle the principal to terminate with immediate effect are:
- In the case of comments made by an agent or an agent’s employee, were they made in an obviously jokey way?
- Was the circulation of such comments limited and temporary?
- Is there evidence of harm suffered by the principal?
- Does the breach go to the root of the agency relationship?
- Was it a one-off incident?
- Did the incident involve bad faith on the part of the agent?
- Did the incident involve a real risk of harm to the principal?
- Did the agent shown an intention to abandon the agency contract?
The court’s decisions understandably tend to favour the position of the agent even when it appears the agent’s conduct can be called into question. This is consistent with the purpose of the Regulations which is of course to protect commercial agents.
Myerson are specialists in Commercial Agency Law and have significant experience in advising both agents and principals. If you have an issue with termination payments or any other contentious agency issue then the litigation experts at Myerson are happy to discuss your situation in a no-obligation telephone call to assess your claim, give preliminary advice and suggest a way forward. Should you wish to speak with a member of our Commercial Agency team then please contact 0161 941 4000 or email email@example.com.