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Commercial Agents Regulations – Compensation? Indemnity? or both?

The Commercial Agents Regulations have been around for over 20 years but there continue to be disputes over what the regulations impose on the principal. One of the basic tenets of the regulations is that on termination of the agency, the agent is entitled to either monetary compensation or indemnity from the principal.

Many countries within the EU impose one or the other on the agent and principal but the UK allows the agent and principal to decide which is to apply. Historically it has been thought that an indemnity would cost the principal less than an award based on compensation but some agency agreements were drafted on the basis that the principal tried to hedge their bets and state that indemnity would apply, unless the amount calculated under the compensation provisions would result in a lower payment to the agent, in which case compensation calculations would be used instead.

In a case that went to court last year, the court decided that such a clause was not enforceable – that the regulations required that a choice be made at the time the agency was entered into and that the principal could not opt for the best of both worlds.

However, it now appears that the court decided that because the principal had not argued for something called “severance” which is when a party to a dispute asks the court to strike out the offending words and leave the rest of the sentence intact. The case was Brand Studio Limited v St John Knits, Inc [2015] EWHC 3143 (QB) and the clause in question stated that indemnity should apply unless compensation resulted in a lower calculation. The principal’s lawyers argued that the part of the clause which specified that if compensation resulted in a lower payment then it should be used, should be struck out but the remaining part of the clause specifying that indemnity should be used as the basis for calculating the termination payment to the agent should remain. There are technical legal hurdles for a party to pass if it wishes to ask the court to sever part of a clause but in this case, those hurdles were passed.

If you are an agent or a business that uses agents subject to the Commercial Agents Regulations 1993 then you should review your agreement to see whether the agreement contains the sort of clause discussed above. If it does, it may well be worth taking advice on it.

For further information or advice on agreements please contact Nina Wilson or for advice on disputes please contact Kevin Rogers.