EU-wide regulations govern the relationship between self-employed “commercial agents” and their principals. A “principal”, under the Regulations, is a company or individual who appoints the agent.The regulations apply to both written and oral appointments.
The regulations may override the terms of the agency agreement in certain respects. This is because many of the provisions of the regulations are mandatory.
A “commercial agent” is a self-employed intermediary who has continuing authority to negotiate the sale and purchase of goods on behalf of another business, or to negotiate or conclude the sale and purchase of goods in the name of that business.
The regulations do not apply to agents who are authorised only to introduce potential clients while leaving the negotiation and conclusion of the contract to the home firm. The following categories are also excluded
- a person who, in his capacity as an officer, is empowered to enter into commitments binding on a company or association,
- a partner who is lawfully authorised to enter into commitments binding on his partners,
- a receiver, a receiver and manager, a liquidator or a trustee in bankruptcy.
Duties of Agent
The agent must act in good faith and look after the interests of his principal / appointing firm. In particular, he must make proper efforts to negotiate and conclude transactions where he is instructed.
The agent must communicate to their principal all necessary information and comply with reasonable instructions. In performing has activities a commercial agent must look after his principal’s interests and act dutifully and in good faith.
The agent owes fiduciary duties and duties of care to the principal. He must avoid conflicts of interest, He must account to the principal for monies paid and received.
Duties of Principal
In his relations with his commercial agent, a principal must act dutifully and in good faith. A principal must in particular:
- provide his commercial agent with the necessary documentation relating to the goods concerned;
- obtain for his commercial agent the information necessary for the performance of the agency contract, and
- in particular notify the commercial agent within a reasonable period once he anticipates that the volume of commercial transactions will be significantly lower than that which the commercial agent could normally have expected.
The principal must, in addition, inform the commercial agent within a reasonable period of his acceptance, refusal, and of any non-execution of a commercial transaction which the commercial agent has procured for the principal.
Right to Commission
Where there is no agreement in relation to remuneration, the remuneration is to be that customary in the business in which the agent works. Where there is no custom in the business and there is no specific agreement on commission, the remuneration should be reasonable in the circumstances.
A commercial agent is entitled to commission on commercial transactions concluded during the period covered by the agency contract:
- where the transaction has been concluded as a result of his action; or
- where the transaction is concluded with a third party whom he has previously acquired as a customer for transactions of the same kind.
A commercial agent is also entitled to commission on transactions concluded during the period covered by the agency contract:
- either where he is entrusted with a specific geographical area or group of customers;
- or where he has an exclusive right to a specific geographical area or group of customers; and
- where the transaction has been entered into with a customer belonging to that area or group.
A commercial agent is not entitled to if it is payable, to the previous commercial agent, unless it is equitable because of the circumstances for the commission to be shared between the commercial agents.
Commission is due when the principal has concluded the transaction or when it should have been concluded. Commission must be paid no later than one month following the quarter in which it became due. After termination of the contract, the agent remains entitled to commission on an order placed before termination.
The agent’s right to commission is extinguished if the contract is not executed and the principal is not to blame for non-execution. Commission actually received by the agent for such a contract must be refunded.
In order for the agent to ascertain commissions due, the principal must provide him with appropriate information statements within a prescribed time. He is entitled to all information available to the principal and access to the principal’s books for this purpose
The regulations provide for the termination of an agency agreement. If an agency agreement continues beyond its fixed term, it is converted into a contract for an indefinite period.
Defined periods of notice are required to be given in order to terminate the agreement. One month’s notice is required in the first year, increasing to two and three months in the second and third year respectively.
If the contract provides for a longer period of notice, this will apply. The principal’s notice period should not be shorter than that for the agent. The notice must generally expire at the end of a month.
The immediate termination of the agency agreement (i.e. without notice) is allowed if one party fails to perform its obligations under the contract or if exceptional circumstances arise.
The agent is entitled to be indemnified or compensated after the agency contract has terminated. Compensation may be payable, even if the agency contract was validly terminated at common law. These rights are similar to “unfair dismissal” rights and cannot be excluded. The parties can opt for a “compensation” or “indemnity” basis in their agency agreement.
The entitlement also arises where the agency contract is terminated as a result of the commercial agent’s death. The commercial agent loses his entitlement to an indemnity or to compensation for damage in the instances, if within one year following termination of the contract he has not notified the principal that he intends pursuing his entitlement.
No indemnity or compensation is payable to the agent where
- the agent is at fault so as to justify immediate termination on specified grounds
- if the agent with the principal’s consent assigns the agency
- the agent terminates the contract unless the termination is justified by the principal’s actions or the termination is justified because the agent is unable to continue due to infirmity or illness.
Basis for Compensation
If an agent is entitled on the “indemnity basis”, he is entitled to an indemnity to the extent that he has brought the principal new customers or significantly increased the volume of business with existing customers, and the principal continues to derive substantial benefits from the business with such customers. The payment on the indemnity basis is equitable in nature and is to be awarded having regard to the circumstances.
The agent’s entitlement on the indemnity basis is limited to a maximum of one year’s commission. It is calculated on the basis of average remuneration over the preceding five years (or less, if the period was less). The agent may also be entitled to claim damages for breach of contract.
Under the compensation basis, the agent is entitled to be compensated for damage suffered by the principal’s termination of the contract. Damage is deemed to occur where the termination deprives the agent of commission which proper performance of the agency would have earned for him, while providing his principal with substantial benefits linked to his activities as agent.
Damage is also deemed to be incurred where the circumstances have not enabled the commercial agent to amortise costs and expenses he has incurred in the performance of the agency contract on the advice of his principal. Unlike the indemnity basis, no maximum amount is provided.
An agreement restricting the business activities of a commercial agent following termination of the agency contract is a restraint of trade clause. A restraint of trade clause shall be valid only if and to the extent that:
- it is concluded in writing; and
- it relates to the geographical area or the group of customers and the geographical area entrusted to the commercial agent and to the kind of goods covered by his agency under the contract.
A restraint of trade clause shall be valid for not more than two years after termination of the agency contract.This does not affect domestic competition law and common law restrictions on the validity or enforceability of restraint of trade clauses or which enable the courts to reduce the obligations on the parties resulting from such an agreement.
McMahon Legal, Legal Guide Limited and Paul McMahon have no liability arising from reliance on anything contained in this article nor on this website.