Compensation and indemnity claims – did you know….

Please see below a few points that could be very important in deciding whether an agent’s claim for compensation or indemnity under the Commercial Agents (Council Directive) Regulations 1993 (“the Regulations”) is successful.

Are there specific deadlines that have to be met when bringing a compensation or indemnity claim?

There are actually two key deadlines that agents need to be aware of when bringing a claim for compensation under Regulation 17 of the Regulations:

  • Within 1 year of the date of termination of the agency contract, the agent must notify their principal that they intend to bring a claim for compensation.
  • Within 6 years of the date of termination of the agency contract, the agent must start Court proceedings against the principal, bringing a claim for compensation.

The result of failure to comply with either of these deadlines is that the agent loses their entitlement to bring a claim for compensation against their principal.

NB These deadlines also apply to claims for indemnity under Regulation 17.

Does a principal have to terminate for breach to avoid a compensation claim?

Regulation 18(a) of the Regulations states that compensation (or indemnity) under Regulation 17 is not payable by the principal where “…the principal has terminated the agency contract because of default attributable to the commercial agent which would justify immediate termination of the agency contract pursuant to regulation 16“.

Regulation 16 says that the Regulations do not affect any laws of the UK which provide for the agency contract to be terminated with immediate effect because one party had failed to carry out all or part of their obligations under the agency contract or where exceptional circumstances arise. UK contract law permits parties to terminate contracts where the other party to the contract has failed in some very serious or major way to do what they were supposed to do under the agency contract.

Logically you might think that, when terminating the agency contract as a result of this type of breach, the principal would be required to explain the breach or breaches by the agent which the principal relies on as the basis to terminate the agency contract. While that would be the safest course of action to take, it is not always necessary. There are Court decisions where the principal has been able to avoid compensation or indemnity liability where the agent has been in breach of their contractual obligations but the principal has not mentioned those reasons when terminating the agency contract. In those cases the principal has satisfied the Court that the “real reason” for terminating was the breach by the agent and has therefore been able to rely on Regulation 18(a). This is a more difficult route for a principal to take, but it can be done.

What happens if the agency is terminated within an initial trial period?

The European Court of Justice has confirmed that an agent remains entitled to claim compensation (or indemnity) under Regulation 17 even if their agency contract is terminated during what is described in the contract as a trial period.

However, it is worth noting that if an agency contract is terminated at such an early stage the value of any claim for compensation or indemnity is likely to be very low.

 

Kevin Manship, Legal Director
Blake Morgan Solicitors LLP, One Central Square, Cardiff, CF10 1FS
Email: kevin.manship@blakemorgan.co.uk

Direct Tel: 029 2068 6126
www.blakemorgan.co.uk

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