What if my principal is in breach of our agreement?

by Emma Butcher
of Clarkslegal LLP

Most agents are aware that if
their agency agreement is
terminated by the principal they
are entitled under the
Commercial Agents (Council
Directive) Regulations 1993 to
payment of either
compensation or an indemnity,
depending on what their
agency agreement says.
An agent loses his entitlement
to compensation or indemnity,
though, if the reason for
termination is that he is in
breach of the agreement.

Often we are consulted by agents whose
principals have breached the terms of the
agency agreement.
Unhappy with the actions of his principal, it
is the agent who wishes to terminate the
agreement. Is the agent in this situation still
entitled to compensation?
The answer is yes, in principle, provided the
actions taken by the principal are so serious
that they amount to a fundamental breach
of the agency agreement.
Minor infringements of the agreement will
not be sufficient. The key question for the
agent to determine is what amounts to a
fundamental breach.

Some of the breaches our clients typically
encounter are:
Generally an agency agreement contains
details of the territory in which the agent is
entitled to operate, often with exclusivity
for that region. Unless there is express
agreement by the agent, an attempt by the
principal to unilaterally change the
territories in which the agent operates is
likely to constitute a fundamental breach of
the agreement.
The agent’s rate of commission is usually set
out in the agreement and any attempt to
revise this downwards or otherwise change
the basis on which it is paid to the detriment
of the agent is also likely to constitute a
fundamental breach.
A one-off failure to pay the commission due
to an agent, or late payment on one or two
occasions, is unlikely to be sufficiently
serious to entitle the agent to terminate the
contract. However, persistent delays or
failures to make payment resulting in a
significant debt arising may result in a
fundamental breach having been
Unilateral changes to administrative matters
such as reporting requirements are unlikely
to amount to fundamental breaches.

An agent whose principal is in breach of the
agreement is in a difficult position.
If the agent does nothing, and continues to
perform in accordance with the agreement,
then he risks ‘affirming’ the principal’s breach
and losing his right to terminate.
On the other hand, if he terminates the
agreement on the basis of what he
considers to be a fundamental breach, but it
is subsequently found that the principal’s
breach was not sufficiently serious, then the
agent himself will be in breach of the
agreement and will lose his entitlement to
compensation, and may also find himself
facing a damages claim from his principal.
It is therefore vital for an agent who thinks
his principal has committed a fundamental
breach to take urgent legal advice before
taking any action.

Reading RG1 3EB
Tel: 0118 958 5321
One Forbury Square, The Forbury

www.clarkslegal.com Emma Butcher

Disclaimer: This column does not contain legal advice and is for general
guidance only. Agentbase, Clarkslegal LLP and the writer accept no liability
in connection with the general guidance given in this column.
Please ensure that you obtain legal advice before acting in reliance upon
anything in this article. For example, please be clear that the answers given
in this column may not cover all possible angles, aspects, relevant
considerations and/or points of law and so that all or any information
which is given above needs in every instance to be referred for legal advice
for clarification and amplification, before being relied upon

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