Penningtons Manches

UK 200 2014 position: 60

The worst of both worlds? High Court gives guidance on commercial agents’ rights on termination

In the recent case of Shearman v Hunter Boot Ltd, the High Court did not allow the principal (Hunter Boots) to rely on a clause that, on termination of an agency, entitled its agent to either an indemnity payment or compensation payment on the basis of which was the ‘cheapest’ option. The decision is of key importance to agents and principals.

The Commercial Agents (Council Directive) Regulations 1993 require that where a principal terminates an agency, in most circumstances it must make a payment to its agent. This payment can be calculated in one of two ways. The first, ‘compensation’, is a figure that reflects damage suffered by the agent as a result of the termination. The second, ‘indemnity’, reflects benefits, such as new customers or increased business, brought to the principal by the agent.

The regulations provide that the payment shall be calculated on the basis of compensation, unless the parties expressly opt for the indemnity method in their agency agreement…

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