Ending an Agency - What to Pay - In Business Summer 2002

01 July 2002

What happens when an agency agreement is brought to an end? How much will a principal have to pay by way of compensation? Until now, when applying the Commercial Agency Regulations, the rule of thumb appeared to require a principal to pay twice the average of the commission earned for the last three years. This was a benchmark based upon principles of French law and was in addition to any other rights that the agent had under the Regulations.

A recent decision of the High Court has rejected this formula. In the case of Barret McKenzie v Escada the revised approach is to look at the value of the agency to the principal and the connections established at the time or immediately before the termination. Several factors must be taken into account including:

• How long the agency had been in existence and what was the client base before the grant of the agency and after termination.
• Whether there were regular repeated orders from a client base or one off orders from individual clients. Greater compensation would be payable if there had been a long-term increase in the client base.
• Whether the agreement was oral or in writing. This should not be a conclusive factor as many arrangements may be longstanding and yet have never had their terms reduced into writing. If the precise terms are known then these should be considered carefully.
• Was there any security of the agreement. The actual significance of this term is unclear.

These factors are not thought to be exhaustive and how they are to be weighed together is uncertain. It is clear that once the compensation is determined then the expenses of the agent in earning the commission must be deducted. The agent is not to receive a cost free windfall.

So what is left? The case has introduced uncertainty into any negotiations. From the principal’s point of view the compensation is likely to be lower than the two-year benchmark. Perhaps this new approach may mean that agents have less protection and principals will reconsider the use of agency agreements in their marketing arrangements.

For more information please contact Andrew Gough, Partner.
 

‹ Back

• © Furley Page LLP 2008
• | LLP
• | Terms and Conditions
• | Privacy Policy
• | Site Map
• | Accessibility