February 6, 2012

Commercial Agency Claims: Compensation or no compensation

If you are a principal in a business that relies on good relationships with its sales agents, you might be surprised to find yourself facing a compensation claim from an agent at the end of the agency agreement. Perhaps even more surprised when it was the agent who elected to terminate the relationship. That was exactly the situation our client faced even though they had offered a new agreement that wasn’t taken up by the agent.

The amounts the agent was claiming in compensation were significant and having to pay them would have resulted in substantial disruption to our client’s cash flow.

The laws surrounding the relationship between the principal and the agent in Commercial Agency law are unique. Each owe specific duties to the other, and when their relationship is terminated, the agent may be entitled to a claim in compensation even if the agency agreement has been terminated correctly and the principal has acted correctly throughout.

There was little previous case law on the particular point that was in dispute in the case, so determining how the Court might rule on the issue of compensation was a difficult call.

Phil Banks-Welsh, partner in the Dispute Resolution team comments, “Because we had a very thorough understanding not only of commercial agency relationships, but also of our client's business, we were able to provide pragmatic commercial advice quickly. The former agent dropped its claim and we avoided the need for any Court case. It saved our client a great deal of time and money on what could have been lengthy legal proceedings."

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