Given the economic fallout from the Covid 19 pandemic, some commercial agents in Ireland can find their agency terminated by principals or alternatively principals may seek to terminate such agencies. In such circumstance’s parties should be advised that the Commercial Agency Directive (Council Directive 86/653 EEC) was implemented in Ireland under the Commercial Agency Regulations 1994 and 1997.
What is a commercial agent?
A commercial agent is defined as “a self employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person, hereinafter called “the Principal”, or to negotiate and conclude such transactions on behalf of or in the name of the Principal”.
The Directive provides an entitlement to compensation for the agent where an agency is terminated by a Principal and this may arise irrespective of whether there is a contractual termination between the parties.
A commercial agent is one that is:
- has authority to act on behalf of another party;
- has authority to negotiate the sale and purchase of goods or negotiate/conclude such transactions for the Principal.
Article 17 provides an entitlement to compensation for an agent for damage suffered as a result of termination of relations with the Principal.
Article 15 of the Directive provides that an agent is required to a mandatory minimum notice of termination: –
In Ireland this is:
- one month’s notice for a one-year contract;
- two months’ notice for a two-year contract;
- three months’ notice for a three-year contract.
The parties may not agree a shorter notice period and it is difficult to avoid the application of the Directive.
It is important to note that the Directive applies to goods and not services and that the promotion and selling of services does not fall within the Directive.
Negotiation & Compensation
In Ireland negotiation is widely defined, in Kenny versus Ireland (2007) it was held it arises where a commercial agent brings a material level of skill or consideration conducting, managing or otherwise dealing with the sale.
Under Regulation 5, the agency agreement must be evidenced in writing (unlike in the UK).
Each member State under the Directive has discretion as to the method of calculation of compensation for termination of a commercial agency.
The Irish Courts have not yet fixed a domestic discretionary method of calculating compensation and it is not certain what approach will be adopted.
- The European Commission approach which was adopted in France is to pay two years commission averaged over the preceding three years.
- The UK rejected this approach (Lonsdale case, 2007) but provides for a valuation approach – what money would a hypothetical purchaser pay for the value of the commercial agency’s rights by reference to a reasonable expectation of future commission.
It should be noted that a notice period applies to any claim for compensation and an agent must notify a Principal of an intention to seek compensation within one year following termination.
Compensation is not available where: –
- termination is due to a default by a commercial agent;
- the commercial agent has terminated the agency agreement unless such termination is justified by circumstances attributable to the Principal or on grounds of age, illness and infirmity of the commercial agent;
- where the agent assigns its right to another party.
The key benefits arising under the Commercial Agency Directive for a commercial agent relate to:-
- commission and notice.
An agent’s entitlement to commission upon termination is a separate head of claim apart from monies owed in compensation.
The Commercial Agency Directive will apply unless the agency agreement has expressly provided for future commission.
Future commission looks to transactions which were concluded both during the contract period and transactions concluded after termination, if concluded within a reasonable time post termination and as a result of the commercial agent’s efforts.
In recent years companies have appointed sales representatives and other agents in order to grow their business and work in new markets without considering whether or not the individual or company is a “commercial agent” . As a result of this crisis and as more of these type of contractual relationships breakdown claims by commercial agents for compensation under the Commercial Agents Regulations will no doubt increase significantly.
Professional advice should always be taken before acting on any of the matters discussed. Please contact a member of our team should you wish to discuss this topic further.