Termination of agency ‘Termination by act of the parties Termination by operation of law Termination of commercial agencies ‘The effects of termination INTRODUCTION In this final chapteron the law of agency, the various methads by which an agency relationship can be terminated will be discussed. Its important to note at the outset that the termination of ‘the agent's authority and the termination of the agency agreement sre two separate issues and, ‘as will be seen, the termination of one may not automatically result In the termination of the ‘other(athough inmany cases, twill. Consequently, its vital tounderstand theefects that can arise from a termination of agency, especially as, n certain cases, the right to terminate is not accompanied by the privilege to terminate, meaning that a wrongful termination (eq. in breach of contract) may result in the non-terminating party being awerded a remedy. Where the agent is 8 commercial agent, additional rights, rules, and safeguards apply, notably the commescal ‘agent's right te compensation or an indemnity. ‘Numerous methods exist by which the authority of an agent cen be terminated, but they can bbe loosely organized into two distinct categories: 1. termination by an act of the parties; or 2. termination by operation ofthe lav Figure 1 sets out the various methods of termination that can occur under these two categories. Scanned with CamScannerhal THE LAW OF AGENCY Scanned with CamScannerSHAPTENS TERMINATION OF AGED aa Termination by act of the parties ‘An agent's authority may be terminated by the act of one or botl of the parties. It should be noted that, whilst the acts discussed in this section will usially terminate the agent’s actual authority, the facts of the case might lead the court to conclude that the agent still has apparent authority to act on behalf of the principal. Termination by an actof the parties can arise ina number of different ways Termination by agreement Like any other contract, a contract of agency can be terminated upon the agreement of the principal and agent. Termination by agreement will also terminate the actual authority of the agent, ‘Termination by performance ‘The majority of terminations cecur through performance. Once the agent fully per- forms the particular task he was appointed to undertake, the agency agreement and the agent's actual authority will terminate.* Expiration of period of agency ‘The agency agreement might specify that the agent’s appointment will be for a fixed period only. In such a case, the agency agetement and the agent's actual authority will terminate upon the expiration of the fixed period? A notable exception to this ‘eccurs in the case of commercial agencies. Where a commercial agent is contractuc ally appointed for a fixed period and the contract continues to be performed by both parties following the expiration of that period, then the agency contract shall not terminate and shall instead be converted into a contract of indefinite duration.’ The significance of this will be seen when the notice periods required to terminate a com- GD There ptote mercial agency are discussed. eae In certain cases, a particular practice or trade custom might impose a particular ascyedarpp #8 expiry date-on an agency agreement. In such cases, the expiration of that date will ‘cause the agency agreement and the agent's actual authority to terminate, as the fol- owing case demonstrates. (iaisp Stark 2B FACTS: On 30 Jue, Lilwal the principal) authorized a. brokes, Grainger (the agent), 0 sell a ‘quantity of butter. On & July, Granger, without any intermediate communication with Ltwa, sold a quantity of butte to Dickenson, Lilwal refused to go ahead withthe salon the ground that Grainger was nat autharized te make W Dickenson sued Liwal. 1 See eg, Blackburn v Schafer (10) 2 Carp 341: Glow & Co v Lan Aberdare (1892) 9 TLR 12s Belly ‘Balls 1897}3 Che65 (Ch), 2 Danby v Couis Co (1888) 28 ChD 550 (Ch). 3. Commercial Ages (Council Directive} Regulations 983, eg M4. Scanned with CamScannerTHELAW OF AGENCY WELD: Lord tllenborough stated that Lilwel was able to prove that ‘accarding te the éstablisheg practice and usage ofthe trade, the authority ofthe broker (as between himselFand his principa) {osell expires with the day on which the authority s given! Accordingly the agency agreement _and Grainger’ actual authortyterminatedat the endof 30 June, and so Dickenson's action filed. Occurrence of a specified event ‘The agency agreement might specify that, upon the occurrence ofa particular event, the agency agreement will terminate, In such a case, the agreement and the agent's actual authority will terminate upon the specified event's occurrence. It has also been suggested that the agreement will also terminate upon the accurrence of an event that ‘would lead the agent to “reasonably infer thatthe principal does not or would not wish the autherity to continue:* Revocation and renunciation ‘As noted earlier, an agency agreement can be terminated upon the agreement of the principal and agent, but what if, as in the example below, only one party wishes to end the agreement? Can a principal or agent terminate an agency agreement without the other's consent? ora) al) CComCorp engages Bruce to acts its pant, An agency agreement is craves up which states that Arce will act a ConCorp’sagent for # period of tne year, with both parties having an option to renew the agreement. After six months, Bruce’s actions have significant increased ComCorp’s customer base, but Bruceinforms ComCorp that, with immedkate effect, he will nolonger actas ins agent. ComCorp states that Bruce must remain asitsagent until the contract period expires and, if he refuses, CamCorp will abtain an order for speci performance requiring him to ‘continue to act as ComCorp's agent. ‘Asa contract of agency is one for personal services, the courts have indicated that they Will not compel performance via an order for specific performance.* It follows from this that, unless the agency is irrevocable (discussed at p 183). the principal say revoke the authority ofthe agent at any time, and the agent may renounce the authority granted to him by the principal at any time. The effect of revocation/renun- ciation is to terminate the agency agreement and the actual authority of the agent bul, depending on the facts, the agent may continue to have apparent authority until such time as the third party has notice of the tevocation/renunciation. However, whilst the parties may have the power to revokefrenounce the agent's authority: they ‘may not have the liberty to exercise that power’ meaning that the revocation! es 4 (4815) # Stark 128, 30, 5; Pelee G Watts, Bowstendl & Repalds on Agency (20th edn, Sweet & Maxwell 2014) [10-002]. 6 Chinockv Sinbwry (860) SL] Ch 409. 7. Francis Reprols, "When is an Agents Authority Irrevocable!” in Ross Cranston (ed), faking ‘Conimiercial Law: Essays in Honour of Roy Goode (Clarendon Press 1997) 259. Scanned with CamScannerCHAPTER 9 TERMINATION OF AGENCY ead renunciation may constitute a breach of contract (eg. where a fixed-term contract of agency is revoked/renounced before the fixed period has expired, as occurred in the ComCorp example), ‘The revoking/renouncing party must provide the other party with notice of the revocation/renunciation.’ If the agency contract does not specify a period of notice, then reasonable notice must be provided, with the facts of the ease determining what is reasonable, Where the agent is also an employee of the principal, then the min- imum notice periods laid down by s 86(1) of the Employment Rights Act 1996 will apply. Where the agent is a commercial agent, the tinimum notice periods estab- lished by reg 15(2) of the Commercial Agents (Council Directive) Regulations 1993 25 argutaton wayot a or Ireevocabie agencies ‘The right to revoke is not absolute, as both case law and statute provide that certain relationships of agency are irrevocable. In such cases, the death,’ dissolution, mental incapacity, bankruptcy, or insolvency” of the principal will not generally terminate the agent's authority. The principal will be unable to revoke the agent's authority, unless the agent consents to the revecation.!* Where the agent docs not provide such consent, then any attempt to terminate the agent's authority will be ineffective and will be likely to.amount toa breach of contract. Statute can provide that certain agencies are irrevocable, with two notableexamples ‘occurring in relation to the granting of powers of attorney: 1, Where a power of attorney is expressed to be irrevocable and is given to secure # eeseet levee ike aged Ga pore (hu coal as penta ok obligation owed to the donee, then 60 long as the donee has that interest af the obliga- ton remains unchanged, the power shall not be rovoked by the danoe (the principal) without the consent of the donee, or by the death, incapacity, or bankruptcy of the donor or, ifthe donor is a body corporate, by its winding up or dissolution," 2. Any lasting pawer of attorney created under the Mental Capacity Act 2005, and any ‘enduring power of attorney created under the now repealed Enduring Powers of Attorney Act 1985, cannot be revoked due to the subsequent mental incapacity of the donor (the principal)."” ‘The common law also provides for a number of irrevocable agencies. First, where the ‘agent's authority is granted by deed, or for valuable consideration, for the purpose of ‘securing or protecting an. interest of the agent, then that authority cannot be revoked as long as the interest continues to exist, unless the agent consents to the revocation. Tt should be noted that the interest must be independent of the agency—it follows that Protecting the agent's ability to earn remuneration or commission from the agency Will not render that agency irrevocable. The following case provides an example ‘of an agency agreement that was coupled with an interest that rendered the agency inrcvocable. 4 Re Oriental Bank Corp ex p Guilfem ia (1885) LR 28 CAD 634 (Ch), ‘9. Leparev Version {\BL3) 2 VEEB 53. 10. Aap Hctom (11S) 4 Camp 228, 1, According It coold be argued that to describe sch agencies erencable’ ie isending, othe "qcocy can be revoked providing that the agent consent, ‘12 Powersof Attoraey Act 1971, s4(l). "2, Menta Capacity Act 2005513 and Sch, Scanned with CamScannerFACTS: AL {the pincipal) owed Forster (the agent) £231. JL granted Forster'2 power of attorney, \sbicvalewed Foster tose certain plecesof property awed by J. Foster Could then hep the proceedsofthesaletosatsy the debt owed by J Forster sold the pregenty for EWS andreceived £20 from the purchaser by way of deposit. Jt then purported to revoke the power af attorney. ELD: The revocetion was invalids the agency was revocable, Lord Tenterden Cd stated that this case did nat involve: | 8 simple authority to sll and surrender the premises; but an authority coupled with an {nterest:for Forster as 1 apply the proceeds in iquidaton of debt due ta himself. and there are several aves in which it hasbeen held that such anauthosty €annot be revoked” Second, where, in the course ofan agency relationship, the agent becomes liable toa thitd party, and the principal is lable to indemnify the agent for such liability, then the ipal cannot revoke the agent’s authority without the agent's consent. Ifthis were not the case, a principal could avoid indemmnifying the agent by simply revoking the agent's authority. The fllowing case provides an example of this form of irrevacable agency. ~, %,) Read v Anderson (1883-84) LR 13.QBD 779 (CA) FACTS: Anderson (the principal) instructed Read fhe agent to place a number of bets an is behall. Although the bets were placed on Anderson's behalf Read was instructed to place them im his own name, which be did. The result was tha, according to trade custom, Read became personally abet the bookmakers forthe bets placed. Read ploced a number oflesing bets.on ‘Anderson's behaland sought obtain an indemnity from Anderson forthe amounts wagered. Anderson refused to inderfy Rea and states that Reac'sautherty had been revoked, Read insted proceedings to recover the inderaity. HELD: Read's claim succeeded and Anderson was required to indemnify Read for the bets placed, Gowen L sated that i wi net be denied that fa principal employs an agent 10 do Something which bylaw invokes the agent na legal aby, the principal cannot draw back andileave the agert te bear the itil athisowm expense’ Whilst Anderson wasnt labe in law toindermiy Read (2ecause ot the ine gambling debts were not enforceable, the Court stated that Read would have suffered significant darage to his reputation ithe did nat make. | good on» lost ber. Accordingly, Read ‘places himeeina pasion of pecuniary cficuity atthe elendant’s request, who impliedly contracted. to ineeraily hin from the consequences vihih would ensve Inthe ordinary course of his business fram the step which he had taken’ COMMENT: Although Jteod v Anderron and similar cases are discussed alongside cases of ltrevorable authority, ic has been argued that they are not really cases involving irrewocable: authotity as they da-pot cancer the agent's authority to bind his principal to a thied party. ‘Instead, it has been argued that such eases are an example of the rule that the right "0: Comperstion or anindemmity doesnot extend to unauthorized acts ofan agent"*—a view that appears to havebeen judicial accepted.* He (S019 KC 7H, 734,18, (MBA) LEIS QBDTTI(CAISS, 16. bid 1. PeierG Wats, Boast & Repnol on Agency (Othe, Set & Maxwell 2034) 10-010] 1B, See eg Temple Lae! Protectan Ll» QBE fasurance (Esrope) Lin [2005] EWCA Civ 453, [2009] 1 (C1C553 [3] (Moor Bick Scanned with CamScannerSMPTE emma OF ASeNCY Termination by operation of law Unfortunate events may befall the principal or agent—one af them may die, or become mentally incapacitated or insolvent or, in the case of a bady corporate, it may be dis- solved. What effect do such events have upon the agent's authority? In such cases, the opétation of aw will usually terminate the agency agreement, irrespective of whether the parties desire the agreement to continue. Termination by operation of law can coccurin several ways. Death ‘The death of either the principal ar agent will terminate the agency relationship, irre spective of whether the surviving party had notice af the ather’s death.” Where the principal dies, the actual authority of the agent will cease (unless itis irrevocable), and itis likely that his apparent authority will end too.%* meaning that the agent may alsa be liable for breach of authority or breach of warranty of authority if he continues to act.” As the following case demonstrates, the agent will also lose the right to any compensation or commission that he was entitled to for acts that occurred after the principal's death, (2) ampanari v Woodburn (1854) 15 CB 400 FACTS: Campana (the agent] agreed to sell painting belonging to Woodburn the principal, in return for which Campanari would receive £100. Woodburn died and the palating was subsequently sold, ata time when Campana was notawareof Woodburns death. The sale was confirmed by the administratrx of Woadbuen’s estate, but she refused to pay Campanan the £100, Campanaiiinitiated proceedings. HELD: The death of the principal terminated the contract of agency and TtJhe contract, ater the deathof the intestate, wasnatand could not be confirmed according tots terms." Accordingly, Companaciwas nat entitled tothe £100, Dissolution ‘The mere cessation of the agent's business will not, in itself, automatically result in the termination of a contract of agency: Whether this also opplies to cessation of the principal's business is unclear, although authorities indicate that the agency re~ lationship will not be autornatically terminated unless it renders the principal unable to perform its obligations. What Is clear is that, where the principal or agent is & = 19, Blades Free (1820)2 BAC 167, 20, Watson » King (1815) 4 Camp 272 21, Yonge» Taymbee (910) 1 KB 218 (CA). It has been suggested (ee e.g. Raphael Powel, The Law of ‘Agency nd edn, Pitman 1961) 389} that such liability could be avoided viaa term im the agency con ‘tract, but no case law authority exists for this lew 22, (184) 15 CB 400, 408 (Wlliams ]). 223 Trift NareeriesvSninds Etcetera Ltd [2000] BOC 98 (Ch), affirmed [2001] BCC 457 (CA). 24 ibid. Scanned with CamScannerier ES Sine ee SD Mercia arya derives doent tte npocty nrendernians Brcesed p13 partnership, limited liability partnership, or compeny, and itis wound up or dissolved, ‘or wherea sole proprietorship ceases o carry on business, the contract of agency will be terminated.” In order to recover damages, the agent will need to prove that either the principal's action in dissolving the business amounts to breach of an express term, ‘the contract contained an implied term providing that the principal would not de- prive the agent of the opportunity (o earn his commission. The courts are extremely ‘reluctant to imply such a term. Bankruptcy and insolvency Generally, the bankrupteyfinsolveney of the principal terminates the agency relation- ship”* (unless the agency is irrevacable) and revokes the agent's authority. The bank- ruptcylinsolvency of the agent does not terminate the relationship, untess it prevents him acting as.an agent, or renders him unfit to perform his duties.” Mental incapacity In this context, a court will assess a person's mental capacity by asking was the person ‘at the time the act was done of sufficient capacity to understand the nature of the act?" Where the answer is no, the person will lack mental capacity, Where an agent becomes mentally incapacitated, then the agent's authority will be terminated on the ground of lack of competence. ‘Where a principal becomes mentally incapacitated, the agency agreement will be terminated, a5 will the actual authority of the agent (providing that the authority was not irrevocable),** irrespective of whether the agent knew of the incapacity.” Such result could be extremely harsh on any third parties who contracted with the principal through an agent, but are unaware ofthe principal’ssubsequent incapacity. A measure of protection has been afforded to third parties in two ways, First, the principal can ratify the agreement if he reacquires mental capacity. Second, as the following cast demonstrates, an agent's apparent authority may continue even after the principal becomes mentally incapacitated. 2) ermine FACTS: Mr Nunn (the pringipal) had glvem his wife the agent) authority to deal with Drew, and held her out as is agent. Mr Nunn became insane and, whilst his insanity continued, ‘Mis Nunn ordered goods fom Drew. Drew was unaware of Mr Nunes insanity, Mr Nunn steaequited his Sanity, and refused t0 pay for the goods. Drew initiated proceedings and Mr Nunn contended that Mrs Nun's authority automatically terminated when he ‘became insane, 25, Paificomal General Instance Co id Hazel! 1997] BCC 400 (0). 26 lit Targuond (1881) 7 App Cas 784°C), 27 MeGallyAusialian Meat Ca bad (1870) 18 WR 188. 2 Bophtonv nig (1872-75) LL3 PRD 66,72 (Si james Hane. 9. Drew vl {1879) 4 QD 661 (CAN, 230, Yonge Toynbee [1910] £ KB2IS (CA). Scanned with CamScannerCHAPTER 9 TERMINATION OF AGENCY {ant HELD: The Court held that Mts Nunn continued to have apparent authority to deal with Drew and 50 Drew was entitled to recover the cost ofthe goods, BrettL) stated: ‘The defendant became insane and was unable to withdrew the authority which he had ‘conferred upon his wife: he may be an Innocent suiferer by hee conduct, bu the plaintif ‘who dealt with her bona fe is alsoinnocent,and where oneof twapersons beth innocent must suffer by Une wrongful act of a third person, that parson making the representation ‘which, as between the reo, was theerginal cause! the mischief, mustbe the sufferer and ‘must bear the loss. Here It does not le in the defendant's mouth to say that the plan Shall be the sufferer" COMMENT: The decisian his been «iticiced, pilacipally on the ground that it seems to state that in order for apparent authority to cease, the mentally incapacitated principal ‘mWst inform any rotevant thir partes ofthe agent's lack of authority, Despite this, the rule ‘hat apparent authority can continue unsil such time.as the third party becomes aware of the principals mental Incapacity remains good law. in Drew, it was even suggested obiter shatthe rule could apply to cases where the principal dies and the third party is unaware of ‘the death. Frustration ‘A contract of agency can be frustrated in the same manner as an ordinary contract. ‘Thus, the agency relationship will be terminated wherethe subject matter of the agency was destroyed,” ot where a subsequent event causes performance to become impos- sible, unlawful,” or radically different from what the parties originally contemplated." Termination of commercial agencies ‘The Commercial Agents (Council Directive) Regulations 1993 establish additional rules regarding the termination of commercial agency agreements. Termination by notice ‘As noted earlier, either party can tetminate the agency agreement by providing notice, and the 1993 Regulations preserve this rule in relation to commercial agency contracts that are concluded for an indefinite period.”* The Regulations go further and provide 31. 1879 4 QBD 6 (Ca) esr. 232, ibid #68 (Brett Le Seppose that a person makes a representation which afer is death is acted pon by another in ignarance that his dea has happened in ry view te estate ofthe -dsceazed will be bound ta make good any loss, which may hate occured Uhragpbactng upon that ‘representation’ 3. Rhodes» Form I876) Li | App Cae 256 (HL 3M. AMoriall y ied [917] 2 KB 7 (KB). 35. Davis Contractors Lid v Fareham UDC [1956] AC 696 (HL). 36, Commercial Agents (Council Directive} Regulations 1993, reg 15). Regulation 15(8) provides that ‘this nls ederm agency controts that have heen converted ino agency contracts for an nde nie pti by vit of eg 1 sce 137), Hao provides thatthe caer ied period vill ao be aken into secosnt when determining the notice period a Scanned with CamScannera THELAW OF AGENCY for minimum petiods of notice based on the length of the contract of agency, with reg 15(2) providing that: I Agents (Council Directive) Regulati 1993, reg 1512) The pesiad of nati shal be-— (a) 1 mont for the st yer ofthecontac {b) 2months forthe second year commerce {) 2 months forthe thi year commenced and forsubsequent yess; andthe partesmayrnot agree on ary shorter periad of naice. Asthese are therminimum notice periods, it follows that the parties cannot agree on shorter notice periods, but can agree on longer notice periods if they so wish. Where the parties do agree on longer perieds, then ‘the period of notice to be observed by the principal must not be shorter than that to be observed by the commercial agent.” Neither the Regulations nor the parent Directive specify the appropriate remedy for breach of reg 15, and it is therefore likely that the courts will resort to domestic prin- ciples of law to determine the appropriate cause of action and remedies™—in practice, this will allow the innocent party to seek damages for breach of contract, but the ter- ‘ination will appear to remain valid, Immediate termination ‘Where reg 18 applies, the minimum notice periods discussed earlier will not applyand citherparty will beable ta terminate the agency agreement immediately. Regulation 16 states that: 1993, reg 16. These Regulations shallntaffectthe application f any enactment orrule oflavrwhich provides fo¢ the immediate termination of theageney contract— (2) because ofthe failure of one party to carry out al or part of his obligations under that soniactioe () where exceptional circumstances arise. Paragraph (a) is clearly referring to a breach of contract, although of course te" ‘mination would only be valid if the breach was repudiatory.” It has been argued that 7s op 158, 38. See the Sets cise of Roy v Ar Pearimaw Lid 1959SC 459 (Court of Sesson)466(Loed Hamilton). 38-4a Crane why dn-Home Service Cad (2007] BWHC 66 (Ch. 2007 2 AUER (Gonna) $99 (4), Briggs] ‘Hates that. a8repards tbe enactment or rale of law’ refered toby paragraph teh of reg 16, "f]he obvious ‘candidate in English laws the doctrine ofrepusistory bessch’ Scanned with CamScannerCHAPTER 9 TERMINATION OF AGENCY ta! paragraph (s) could also refer to the doctrine of frustration, but the mere common belief s that frustration is covered by paragraph (b). The Regulations do not, unfortu- nately, provide any guidance as to what exceptional circumstances would give rise to the right to immediately terminate the agency agreement. The effects of termination ‘The termination of an agent's authority can have a significant impact upon not ‘only the agent, but also the principal and third parties, The effects of termin- ation will depend upon the facts of the case, the type of agent, and the method of ‘termination. Effect on agent's authority Generally, the termination of the agency relationship will also terminate the agent's actual authority. Where the principal revokes the agent's authority, then the agent's actual authority will not cease until such time as the agent receives notice of the revoration,*" Even after the agent has received notice, he may still be able to act on behalf of his principal if he has apparent authority and the third party does not have notice of the revocation of the agent's actual authority. FACTS: Loder (the principal), who was based in St Petersburg, conducted business in London through Higginbotham (the agent, and this was wellknown amongst the business eommunity Loder informed Higginbotham that their relationship of agency was terminated, Subsequently, Higginbotham contracted with Trueman to sella quantity of tallow, with the contact indicating that Higginbotham was acting on behalf of Loder (although this was an ertar and the agent Intended to contract on his own account), Truarnan never received the tallow and initisted proceedings against Leder for non-delivery ofthe goods. HELD: As Trueman was unaware that the agents autharity had been revoked, Loder remained lable For Higginbotham acts and s0 was lable or the non-delivery ofthe goods. Where the agency ends due to the death, insolvency, bankruptcy, or mental in- ‘capacity of the principal, then the effects om the agent's authority will differ. Where ‘the principal dies, the agency relationship and the agent's actual authority are ter- minated immediately (irrespective of whether the agent had notice of the principal's death), and it 1s likely that the agent’s apparent authority is also terminated.” It has been argued that similar reasoning should applyrin cases where the principal becomes insolvent or bankrupt. Where the principal becomes mentally incapacitated, the 40. Re Oriental Bank Corp xp Guilin (1885) LR 28 CHD 34 (CH). “4, See ala Curlew v Dirkbeck {0863)3 FSF 894 Blades Free (1828) 2 B&C 167. 43. Woteom v King (818) 4Camp 272. 44, Rete G Wats, Bwatead & Reynold on Ageney (8tnedn, Swoct & Maxwell 2010) (1-021 Scanned with CamScanneragency agreement will be immediately terminated, as will the actwal authority of the agent, [rrespective of whether the agent knew of the incapacity. The agent's spparer, authority may, however, cantinue following the principal's incapacity. Effect on contract of agency Can certain terms within a contract of agency survive the termination of the agent authority? As the following case demonstrates, theanswer is yes. ‘Yasuda Fire & Marine Insurance Co of Europe Ltd v Orion M Insurance Underwriting Agency Ltd [1995] QB 174 (QB) FACTS: Orian acted 2s agent for Yasuda. A term of the agency contract stated that Yasuda had the right to inspect Otion’s books and records. On several accaslons, Yasuda sought to inspect the books, but ws nat permitted to do so on the ground that the books contained canfidertial Information concerning ather businesses that Orion was acting on behalf of Yasuda contended that this amounted to a repuadiatory breach and soit terminated the agency agreement, then sought a declaration from the court granting it access tothe records, as the baoks contained Information relating to eurrent business it had obtaned theaugh Orion's effors, Orion contended that the term allowing access tothe books ceasedto have any effect when Yasuda terminated theagieement. HELD; Colman | refering to an ear case ivelingan atblration laws, stated tha: tthe survival of the arbitration clause in the faceof an accepted repudiation is attributable tots havinga contractual functlonancillary to the subject matter of the contract, ramaly the resolution of disputes as to the partis rights and ebigations attibutable 1 pre- ‘existing events. There is, however, nothing in thespeeches to suggest that an arbitration ‘dause is the only kind of ancilary provision which could survive the acceptance of 2 ‘repudiation. Relying on this, Colman J held that the obligation to inspect the books was ancillary to the subject matter of the agency agreement, and could therefore survive the termination of the agteement. COMMENT: As discussed at p 10, this case alsa provides authority for the contention that certain duties of the agent can survive the termination of the agency agreement. Right to remuneration, compensation, and commission “The general rule is that, upon the termination of the agent's authority, any rights that ‘existed at the time of the termination will subsist. So, for example, if an agent is entitled to compensation, remuneration, or cammmission for acts undertaken prior to termén: ation, then this entitlement will survive the termination of the agreement, Following the termination, no new rights can generally be vested, meaning that the agent cannot usually elim for fature remuneration, compensation, or commission lost as a result of the termination, os the following case demonstrates. 45. Yonge Toynbee 1910] | KB2IS(CAL. 48, Drew wun (1899) 4 QBD 661 (CAR. 47 Heymanv Darwins L562] ACASG(HLLL 48, 1995} 98 174 (QB) 190. Scanned with CamScannerCHAPTIRG TERMINATION OF AGENCY Giga “Ahodes v Forwood (1876) LR 1 App Cas 256 (HL) FACTS: Forwood (the agent vras appointed as the sole broke forthe sale of caalfrom acollery in Uverpool that belonged to Rhodes (the principal). The agreement provided that it would las for seven years, ora lang 2¢ Rhodes contiawed to conduct business in Liverpool. After four yeuss, hades sold the collery and the agreement was terminated. Forwoad saught damages {forthe loss of future commission, arguing that there was an implied term that Rhodes would send coal1o Liverpool te be sold by Feewood. HELD: The action failed. Rhodes had not contracted, expressly ot impliedly, to keep Forwood supplied with coal nd therefore he was not liable to compensate Farmood forthe commission Jost due to the collery's closure and the resuting termination ofthe agency agreement In the following case, however, the Court of Appeal distinguished Rhodes and held the principal liable to pay damages for commission lost due to the termination of the agency. (%) Turner v Goldsmith [1891] 1. QB 544 (cay FACTS: A shirt manufacturer, Goldsmith (the principal, expressly agreed to employ a travelling salesman, Turner (the agent), for five Years. After only tris years, Goldsmiths factory was destroyed by fre and the business ws nat rested, Turner commenced! legal proceedings fer Joss of commission, HELD: The Court distinguished Rhodes and avaided Turner substantial damages. n falling to send Turner areasanable amount of elothing to sel, Galdsrash had breached the Implled term ‘not to deprive Tumer of the opportunity to earn commission. ‘COMMENT:On what basis was @hades distinguished in Ahodes, i was a term ofthe contractthat the agent would be supplied with coal ftom the defendant’ caliry Converse, n Turney, there was no term inthe contract providing that the principal would supply the agent with clthing from the destroyed factory. The principal in Ture might have hed ether sources with which to supply the agent. Therefore, whether an agent can obtain compensation for monies lest due tothe termination wil depend very much on the construction of the contract—but one could ‘question whether the distinction is significant enough tosustain sucha different approach. ‘Tf the termination amounts to a breach of contract, then the innocent party may seek compensation for the breach, Where the agency is gratuitous, then damages for breach cannot be sought for obvious reasons, and the principal can terminate the agent’s suthority without facing any contractual lability, although the agent may be afforded a reniedy under the law of restitution. “Where the agent is also an employee, he might also be entitled to compensation for wrongful or unfair dismissal, Where the agent isa commercial agent, then special rules apply which govern the agent's right to compensation or an indemnity, which a discussed next, Effects of termination of commercial agencies. ‘Additional safeguards and rightsare provided in cases involving commercial agencies, with the most significant being the commercial ageat’s right to compensation. or an indemnity, Scanned with CamScannerGR Aight to compensation oran indemnity ‘Regulation 17 provides commercial agents with the right to compens: dderanity for damage sustained due to the termination of the agency contact. I is ‘worth noting at the outset the conflict that led to reg 17 covering bath compensation and indernnities, When the Directive that led to the 1993 Regulations was being dis. cussed a significant conflict arose between the French and German approaches to the issue, France advocated thatthe agent should be able to abtain compensation, whereas the German approach was based on the agent obtaining an indemnity. This conflict -wasresolved by allowing Member States to ckogse witether to allow the agent to obtain ‘compensation and/or an indemnity, and the UK decided to provide for both. As will be seen, when the calculation of compensation is discussed, the conflict inherent in eg ‘I7has alsa.come to affect the development of domestic law. Refore the extent of this right is discussed, it is important ta explain what forms of termination are covered by reg 27, but, unfortunately, the Regulations do nat pro- vide much guidance, aside from stating that the right to compensation or an in- demunity will apply where the ageney contract is terminated due to the death of the commercial agent.” Although not stated by the Regulations, it is clear that the ter- mination by the principal of an agency contract of indefinite duration will consti- tute a termination for the purposes of reg 17 on the ground that the ebjective af the Regulations’ parent Directive ‘plainly requires ir’ Where the contract is fora fixed peried, or the contract provides that it will terminate upon the agent reaching 4 certain age, it would be assumed that the right contained in reg 17 will nat apply because ‘the agent has teken on 2 fixed period contract and in doing so might be expected to have calculated whether oF nat he would receive adequate recompense fr his autlay’>' However, this is not the case and in Tigana Ltd v Decora Ltd. Davis ] stated that the word ‘termination’ simply meaat ‘the coming to an end’—a view thot has since been affirmed by the Court of Appeal ** Accordingly, the expiry of 8 fined period agency contract will constitute termination for the purposes of reg 17. unless it is subsequently renewed. ‘To understand why the Regulations provide commercial agents with the right 10 ‘Sompensation aan indemnity. consider the following exemple: i0N OF an in. Eg eer Comtcxp wishes to expand its customer sales base and engages Marjo te agent to cameass ‘Potential customers and pravide their detalls to Comtorp. In return for this, Manjot will be i commision foreach sale made. Marjo prvides Cornonp with a Pst of poteral new ‘stom, nbereupon Comcorp eimiestes the agency agreement and negotiates dzecy with these potest stoners, thereby puporting fo deny Manet the commision he crs ‘tobe entitled to. 4, Comal Agen (Counei Directive) Regus 1993, rep. 118, ‘8. FterG Wats, Bows Reyna n Agency (20 ed, Set &e Manvel 204) 1-042) i. ted (O-00GL $2, [2008] EWC 23 (QB) NN] ECC. [75 54. Light Europe Ld [203] EWA C1255, 2004 Li's Re 63, '55. Moore » Piretta PTA Ltd [1998] CLC 992 (QB). Scanned with CamScannerCHAPTER TERMINATION OF AGENCY lo ‘To prevent principals taking advantage of their commercial agents in this way, the Regulations provide commercial agents with the right to compensation or aa indem- nity upon termination of the agency agreement. In effect, principals have to buy their way out of the agenicy agreement. Regulation 17{2) provides that the commercial agent shall be entitled to compensation rather than an indemnity, unless the agency contract states otherwise, Accerdingly, the agent's right to compensation will be discussed first, with reg 17(6) providing that: thecommercial agent shall be entitled to compensation forthe demagehe suffers asa result ‘athe termination of his relations with hispincipal. Inorderto understand the operation of reg 17(6), two questions need to beanswered. “The first question is what types of ‘damage’ are compensatable under reg 17(6). A par- tial answer to this question can be found in reg 1717), which states that: damage shall be deemed to occur particularly when the termination takes place in either or both ofthe following circumstances, namely circumstances which— a) deprive the commercial agent of the commission which proper performance of the agency contract would have procured for him whilst providing his principal wrth sub- stantial benefits linked to the activities of the comueecial agent; or {bj have not coabled the commercial agent to amortize the costs and expenses that he had incurred in the performance of the agency contract on the advice of his principal. ‘The use of the word ‘particularly’ would indicate that reg 17(7) does not provide an ‘exhaustive list of the types of damage that are compensatable, and the High Court has confirmed that reg 1717) ‘does not delimit the kind of loss for which compensa tion may be awarded’ Accordingly, it appears that compensation will be availablefor other types of damage, providing that the commercial agent can establish a causal link between the termination and the damage sustained. ‘The second question is how compensation under reg 17 is calculated. As noted earlier, the concept of providing an agent with compensation upon termination of agency derived from French law. The question that arose was whether UK Law should follow the French approach to calculating compensation, or whether it could devise its own approach, Earlier cases™ adopted the French approsch on the ground that ‘the primary purpose ofthe Directive is the harmonisation of community law by requiring all member states to introduce rights and duties similar to those already subsisting In atleast two of the member states of the Community." ‘5. Tigun Ltd» Desore Ld [2003] EWHC23 (QB), [2003] BOC 23 (9) tari. ST.See ep King v T Turnock Led [2001} ECC 6 (Court of Session) great GB Ted Baton Leona Inc [eon] cL 125 (08) ‘54, ase» irda PTA. Ld 1998] CLC 992 (98) 994 (John Mitting QC, siting as Depaty High Court ine, Te judge was refng to German (rom where the incemy privisions derived) and France (rom verte compensation principles dived} Scanned with CamScanneru THE LAW OF AGENCY Later cases moved away from the French approach and stated that the UE sas free to devise its own method of calculsting compensation, a view that has since bees ‘confirmed by the Court of Justice when it stated: it mast be wbeerved that although the system established by article 17 of the Directive ic ma datory and peescribesa framewnrk....itdocs aot give any detailed indications as regards the method of calculation of the indemnity for termination of contract ... Therefore... withis the framework prescribed by article 17(2) ofthe Directive, the Member States enjoy a margin of discretion which they may exerci.” thas now been settled by the House of Lords that ‘the method of calculation is a mat- ter foreach Member State to decide'**and sa the UK is free to devise its own method of cakcalating compensation. Whilst such an approach will afford considerable flexibility, ithas been argued that such an approach ‘raises wider questions as to the effectiveness of this Directive asa tool for harmionisation of European private low’ Nevertheless, that laueis (forthe time being) settled and so the question to ask is what method of cal culation have the UK courts devised? “aN & ‘Lonsdale (t/a Lonsdale Agencies) v Howard & Hallam Ltd FACTS: Lonseae acted as a commercial agent for Howard & Hallam Ltd (WAIT). Hae ‘manufactured shoes, which Lonsdale then sold tp males om HEM bohal. Sales dectnes shatply—in 1997/9, Lonsdale earned almost £1,000 in commission, but by 2002/03, this had falen to £521, Hai ceesed trading an terminated Lonidal's agency by providing reasonable Fatice. HAH pid Lonsdale 17,500 in compensation under reg 17s, but Lonsdale contended that be wes ented to-119570 tis gre being based on the French method of eatelating ‘compensation. Lonsdale initiated proceedings against HEH, HELD: The Houve held that i was mot bound tO adopt the French approach fas discussed fatie, but could devise its own method oF calculation. Lord Hoffmann stated that ‘compensation should be calculated based on a valuation of the agency business, and 89proved Bowes Js statement that ‘one is valuing te agency adits connections hat have beenestebhed bythe agent atthe time. or immediatly bafore termination, and it really 2 question of compensating forthe national value of that agency in the open market® Far this purpose, the courts would asurme thal the agency would coatinue end would therefare 59. See eg Burtt MoKonae 6 Co Lad Eada (UK) Li 200] Ea 367 (QB); Tae Lv Devore Bet Peuo3 EW HC2) (QB anes) EEC 2, 60, Cae C.46888 Homeyvem Iformasion Corel Sy Mariela De Zot 008] ECR [02879 pns-36 6, tonsil ovale Agencies)» Homan + Hea td (2009} UKHL 32, [2002] 8 WLR 2085 17 (Lard Hottrann), ‘2 Sinetne Sunt, "inal Guielines ax Compensation of Commerc Agents (2008) 124 LOR 31.39 The Eeropern Commision’ Action Pl an A Mere Coherent European Coninet Lave (Cont 12003) final) [als critcieed the Dieetive fr oving"wo diferent egtlatir approsches in abe adhe sume direc (63, are Mitkeise @ Co Ltd v Escada (UR) Lid (2001) £U LR 567 (QB) 975, approved by Lord Hole at [007] UKHL32, [207] 1 WLR 205 26), although he did ize concern about the we of tive word “eotonal'ndstated that al that is notional i the asturnption thatthe agency was available tobe bough andsoldattherelerane date Scanned with CamScannerCHAPTER TERUMNATION OF AGENCY i alsa need to value ‘the Income stream which the agency would have generated.® Lord Hofimann also stated that where a business is fling {as was the case here, the value ofthe agency and, consequenty, the value of the compensation should be reduced. Accordingly, Lonsdale received £5,000 compensation. COMMENT: The House's decision in Lonsdale has proven controversial and has been iticized on several grounds, Fist, it has been argued that the case will have significant cost implications, as expert evidence maybe required to abtain an accurate valuation. In ‘any cases, the claims Involved might nat justify the expense of obtaining a valuation. Lord Hatfmann himself expressed concern regarding such costs, but countered the criticism by stating that ‘once itis firmly understood that the compensation is for the loss of the valve of the agency, relatively Few eases will go to court’! Second, If has been argued that reducing compensation based on the failings of the business ‘burs the distinction between compensation and indemnity” jas discussed in the next section, ta principal goes out ‘of business, no indemnity will be payable) and that {Hlegal advisors on both sides may struggle to understand why aspects of indemnity now apply to-cormpensation’” Finally it has been contended that the valuation method advocated by Lord Hotfmann is based on assumptions that are not accurate in practice, namely that » market for the buying and salting of commercial agencies exists, which can be used as the basis of a valuation. la fect, no such market existe because usually ‘{elommercial agencies are not assignable by the agent because they are by their nature personal to the agent’ It follows thet any valuation ‘will be extiemely speculative. | Sh a a en eee Where the agency contract provides that the commercial agent is entitled to an in- demnity, then the key provision is reg 17(3), which provides that: . thecommercisl agen shall be entitled toan indemnity if and to theextentthat— (a) he has broughe the principal new customers or as sirifcaityineressed the volume of business with existing customers and the principal cortinaes to derive substantial benefits from the business with such eustomners:and {) the payment ofthis indemnity s equitable having regard to all the circumstances ern © particula, the semmmission lest by the commercial agent on the business transacted wth such customers, (ee ee [is clear from reg 17(3Ma) that the peimary purpose of the indemnity iste allow the agent to recover a sum in return for the increas of business that the principal enjoys {and may continue to enjoy) due to the agent’s efforts, It follows fram this that ‘if the ee SSS 664, 2007} UKHIL32, 2007] 1 WLR 2055 [12] (Lard Hoffmann (6. ibd [35] (Lord Hoffman. : 66, SeverineSainier, ‘Final Guidelines on Compensation of Coramercial Agents’ (2008) 124 LOR 31 36 7 Laura Macgregor, ‘Goampensation {or Commercial Agents; An End se Plucking Fagees roe: the ‘AlrY (2004) 12 Edin LR 86,92 rei 68. Andrew McGee, “Termination of Commercial Agency: "The Agents Rights [2011] 8 JBL 782,792 BBB sxe seveone ‘sine, Yea Gadel on comperantonet Commerce Agent ao0ar BUDE Scanned with CamScannerPrincipal went out of business and therefare derived no benefit from the customers introduced by the agent, na indemnity will he payable. Where an indemnity is pay. able, then the amount is Limited 8 figure equivalent to an indemnity for one year calculated from the commercial ageat’s average annual remuneration aver the preceding five years and if the contract gocs back less than five years the indemnity shall be calculated on the average for the period in question * ‘The payment of an indemnity will not prevent the commercial agent from seeking damages. So, for example, where, in breach of contract, the principal terminates the agency contract, then the agent could seek an indemnity for the business generated by his activisies, and damages for the principal’ Breach of contract. In four situations, the commercial agent's right to compensation or an indemnity will be lost: 1. Hf-within one year of the agency contract being terminated, the commercial agent has ‘not notified the principal that he intends topursac his entitlement tocompensation or ‘an indemnity, then ther ight o cormpensation or an indemnity will be los.” 2, Where the principal hes terminated the coatrat of agency because of an actattribut- able to the agent that would justly the immediate verrsnation of the agency contract under reg. 16, then the zight fo compensation or an indemnity will be lost. In relation to this situation, the expiration of an agency contract due to the passing of time (e.g ‘where a fixed-term contract has expired) will not prevent the agent from obtaining compensation or an indemnity" as the contract has not been terminated by the pri- cipal, noc was termination da tothe set of theagent. ‘3, Where the ageney contract is terminated by the commercial agent, then the right to compensation or am indemnity willbe lot, unless the termination is justified (3) by ciscomstances attributable ta the priacipak ot (b) oa the grounds of age, iafiemity, a illness of the commercial agent ia consequence of which he eantiat reasonably be sequited to contioue bis activites” 44, Where the commercial agen, with the agreement of his principal, assigns his rights and duties under the agency contract to another person, then the commercial agents right to compensetian or an inderanity will be lot Finally, it should be noted that neither party can derogate from the provisions of regs 17 or 18 to the detriment of the commercial agent before the contract of agency expires.” From this, i follows that the parties can agree terms that are more favaur- able to the commerctal agent if they so choose. Restraint of trade ‘Where an agreement seeks to impose upon 2 commercial agent a restraint of trade clause, then it will be subject to a number of general contractual common law rules which are unaffected by the Regulations.” Regulation 20(1) imposes two additional eo} 9, Loudale (én Lonsdale Agencies)» Howned & Hallas Lif [2007] URI 32, [2007] 1 WLR 20: (Lord tofimana). 70.Gonemerct! Agents (Council Directive) Regulations 1993, reg 171, ibid reg 1715). TR ibid eg TOL 78. cet. 74. Gagper Pure Fishing (UR) Lid 2004] BWCA Civ 375 (200412 Lio Rep 518 [15] (Tuckey LD. 75. Commercial Agents {Council Dicective) Repelations 983. reg1Blb). 76. tid reg 18(¢). ‘Ribid reg]. 78 ibidg 200), Scanned with CamScannerCHAPTER TERMINATION OF AGENCY MMU requirements by providing thata restraint of trade clause will be vad only ifznd to the ‘extent that: {a} its concluded in writing: and lb} it relates to the geographical areaor the group of customers and the geegrephicel aren entrusted to the commercial agent and ta the kind of goods covered by his ‘gency under the contract, It is contended that reg 20(1) adds little to the common lav, The requirement far the contract to be in writing is new but, in practice, restraint of trade clauses are almost ‘always found in writing, usually within the terms of the agency contract itself. It has also been argued that the requirements found in (b) are ‘broadly in accord with the ‘common law rules’? Further, it has been contended that the limitation imposed by reg, 20(2), namely that a cesteaint of trade clause will not be valid for more than two years alter the termination of the agency contract, may also be covered under the common Jaye requirement of reasonableness." ee Ta ate) The law relating to the termination of an agent's authority can be complex, due ta the variety of methods of termination that exist. Some methods of termination are consensual, but many are MO. ‘Somme methods wll terminate the agency agreement and the agent's authority while others wil not. Somme can be exercised without fear of legal reproach, but others will rest in the terminating party ‘committing some form of legal wrong. Ii, however, vita that the parties to an agency agreement understand not only how the authority ofan agent can be terminated, but also the potential eects that can arise from atermination. “This concludes the discussion ofthe lavrof ageney: The next part ofthis text wil Facus on the Law ‘relating to the sale of goods, but there can be a significant overlap between the two areas of lw ‘notably in cases where the principal appoints an agent to-effect a contract af sale. in such aca, the ‘validity ofthe agreement or the liability ofthe parties may be amatter forthe lawof agency and the aw relating tothe sale of goods. PRACTICE QUESTIONS 1. Define the fotiowing verms: © irrevocableagency; + renunciation: + dissolution; « indemnity: »* festraint of trade clause. 2. “The decision ofthe House of Lords In tonscale v Howard & Hallarn Lid has had a Getrimental Impact upon the harmonisation of liv in relation to commercial agents, and bas ‘bhumed the: ‘distinction between compensation and an indemnity.’ Da yay agree with this quote? Providereasons foryour answers. 2 Peter 6 Was, Bose & Rey on Agee (8h, SelB Max 2180 aha, Scanned with CamScanner