How are debts owed to family members dealt with in divorce proceedings?
The first question for the court to determine is whether the debts are legitimate, and this is a...
Many businesses use independent commercial agents as a way of expanding their sales presence geographically. They can be an effective way of establishing a sales presence in a territory without the need to take on additional employees as the agent will, in most cases, only earn commission on sales made. They can be particularly useful in establishing a presence in foreign markets without the need to invest heavily in establishing a permanent presence in any given territory.
There are, however, traps for the unwary in appointing such agents. In 1986 the European Union issued a Directive in order to co-ordinate the laws of its member states relating to self-employed commercial agents and the Commercial Agents (Council Directive) Regulations 1993 (“the Regulations”) were introduced in the UK in order to implement the Directive.
The Regulations provide for compensation or an indemnity to be paid to the agent upon termination of his contract. The Regulations go on to say that compensation will be payable “except where the contract provides otherwise”. It is generally accepted that the value of compensation payable will be greater than that of an indemnity and most well drafted commercial agency agreements therefore provide for an indemnity to be payable on termination rather than compensation.
However, even then there are additional traps for the unwary, as illustrated by the recent case of Charles Shearman v Hunter Boot Limited. The defendant in this case was a well-known boot and shoe company and the claimant was a former agent of the company. When the claimant’s agency came to an end he claimed compensation under the Regulations. The defendant company maintained that the agency ended because the defendant accepted the claimant’s breach of contract and in those circumstances the claimant should not get any compensation. The main issue, however, was what was the effect of the Regulations on the contract, which provided for the agent to be paid “the lower of” an indemnity or compensation payment.
The Court ruled that on an English law approach the meaning and effect of the contract was quite clear, namely that the agent should receive an indemnity, unless compensation would be lower in which case he got compensation. However, the contract was not consistent with the regime permitted by the Regulations. These were designed to protect and improve the position of commercial agents and the clause as drafted was not compatible with the underlying thrust of the legislation. The entire clause therefore fell away so that, if the claimant was entitled to anything, it was to compensation and not an indemnity.
It is important, therefore, when drafting agency contracts that one does not try a “mix and match” approach to compensation and/or indemnity. If the indemnity regime is to be adopted, then this must be made clear using an express clause which provides for indemnity only in the event of termination.
The case also illustrates a need for expert legal advice to be sought before preparing or terminating any commercial agency contract.