For more than a decade, commercial agents have been entitled to seek compensation for the losses they suffer when an agency agreement is terminated by the principal. Recently, a case was heard in the Court of Appeal concerning the definition of what constitutes a loss and, in particular, whether the loss can include a loss of goodwill by the agent as a result of the loss of the agency.
The case concerned a manufacturer's agent who represented a shoe manufacturer between 1990 and 2003. The agent was paid £7,500 in compensation, but sought a further payment for the loss of goodwill resulting from the termination. The relevant regulations are silent on the question as to how the compensation should be calculated.
The Court judged that the legislation was intended to compensate agents for the full damage they suffer, not to pay them what might be fair and reasonable in the circumstances. That in turn required the Court to look at the totality of the damage suffered, which would include any loss of goodwill.
Says Fahmida Ismail, "The implication of this case is that terminating the contract of an agent may be more expensive than anticipated if the agent can demonstrate that goodwill which has been built up would be lost. Compensation should take account of any loss which would be suffered by the agent in the proper performance of the contract, not just in respect of future earnings. We can advise you on all contractual matters."
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