Does an Agent Acting for Competing Principals Lose Their Entitlement to Compensation?

The Commercial Agents (Council Directive) Regulations 1993 have provided agents with significant protection since their establishment. On termination of an agency agreement, principals are often required to pay significant termination payments by way of compensation or indemnity.

When advising principals, it is crucial to consider the impact of any relevant conduct by the agent which may impact these payments. Agents acting for competitors can be a notable issue.

The extent to which agents can be restricted in acting for competitors is partially determined by the agency agreement and is an important factor for principals to consider in the preparation of an agency agreement.

If a principal wishes to restrict their agents acting for competitors, they should include this explicitly in the agency agreement. The terms included should be clear and reasonable and make commercial sense.

For the term to be considered reasonable, it should:

• relate to the geographical territory the agent covers and;
• relate to the same kind of goods as sold under the agency agreement.

Where an agent acts for a competitor in breach of a clause in the agency contract which prevents him from doing so, this may give the principal the right to terminate the agency under the contract or the Regulations and potentially avoid paying the agent a termination payment.

An agent acting for two principals about directly competing products without the informed consent of the principals involved is highly likely to be acting in conflict and in breach of their duty of good faith to their principals. 

Whether the principal can avoid paying a termination payment will depend on whether the breach is repudiatory.

An agent will only lose the right to a termination payment if the breach is repudiatory and the termination was on the grounds of repudiatory breach.

If the breach is not repudiatory, the principal may still be entitled to terminate the agency under the terms of the agency agreement but the agent will not lose his right to a termination payment in those circumstances.

Agency agreements sometimes seek to exclude payment of compensation or indemnity following termination by the principal - principals ought to be aware that just because they have a contractual right to terminate the agency, the clause excluding the right to the termination payment is likely to be a derogation from Regulation 17 and unenforceable if the clause attempts to exclude a termination payment in circumstances where the breach was not repudiatory.