It is important for principals and agents to be aware that agents are entitled to compensation (or indemnity if the contract expressly states this) on termination of an agency contract, even if the agent has himself terminated the contract "on the grounds of age, infirmity or illness”, which includes retirement.

The test is whether as a result of the agent’s age, the agent could not reasonably be required to continue his activities. If that is the case, then the retired agent will be entitled to compensation or indemnity pursuant to the Commercial Agents (Council Directive) Regulations 1993.

There has been much debate over what the retirement age should be. In Abbot -v- Condici Limited and Another [2005] 2 Lloyd's Rep 450, when Mr Abbot retired at 65, the defendants argued that he should not be entitled to compensation because he was physically able to carry on working. The defendants argued that ‘age’ did not necessarily mean 65, especially since there is no compulsory UK retirement age and the typical retirement age varies. The judge disagreed. ‘Age’ is a separate criteria from ‘illness’ and ‘infirmity’ and if the age in question is a reasonable retirement age then the agent should be entitled to compensation regardless of his state of health. The age of 65, which Mr Abbot chose, was in the judge's words "embedded as a retirement milestone" and it was therefore reasonable for him to stop when he did.

Agents will, however, loss their right to claim compensation or indemnity if they do not notify the principal within one year of termination (or retirement) that they intend to pursue a claim for this entitlement.

What is the position of sub-agents?

The Commercial Agents (Council Directive) Regulations 1993 (“the Regulations”) make reference to two parties; a commercial agent and a principal.

The definition of a commercial agent under the Regulations is “a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person (the principal) or to negotiate and conclude the sale or purchase of goods on behalf of and in the name of that principal.”

The question therefore arises as to whether a sub-agent is covered by the Regulations.

The position is unclear and uncertain:

1. On the one hand, the instinctive answer is that sub-agents are not covered by the definition of a commercial agent because:

1.1 the Regulations do not make any mention of a sub-agent and if the Regulations had intended to cover a sub-agent, they would have specified this; and

1.2 the goods in relation to which the sub-agent has authority, are not the agent’s goods (which is the party with which the sub-agent has contracted); but

2. On the other hand, if the sub-agent is properly appointed, a sub-agent’s act will bind the principle as if that act had been performed by the agent. If this means that the sub-agent has continuing authority to negotiate or negotiate and conclude a sale or purchase on behalf of the principal, then it is arguable that the Regulations do apply as between principal and sub-agent.

The case of Light (“L”) –v- Ty Europe (“T”), involved a claim by sub-agents against the principal for compensation pursuant to Regulation 17. T argued that for the Regulations to apply there had to be a contract between L and T. L argued that “agency contract” under Regulation 17 should be construed purposively to include sub-agency contracts. At first instance, L was successful.

However, T appealed and the Court of Appeal held that:

1. L were “self-employed intermediaries”, thus falling within the definition of a commercial agent; but

2. there had to be a contract between L (in the capacity of a commercial agent) and T, (in the capacity of principal) before the Regulations applied.

The case of Pace Airline Services –v- Aerotans involved a claim by a sub-agent against its agent. The court was uncertain as to whether or not the Regulations applied and it stated that guidance was needed as to whether the Directive (and therefore the Regulations) was intended to cover sub-agents. This issue was referred to the European Court of Justice. Unfortunately, the case did not proceed and this question was never clarified by the ECJ.

Despite the above, if this question were to ever come before a court, it is likely that the court would try and find a way of bringing a sub-agent under the ambit of the Regulations. Indeed, the Department of Trade and Industry’s Guidance Notes on the Regulations, state: “Whilst the position is not clear, the Regulations are, in principle, capable of covering sub-agency agreements.”

The position of sub-agents could therefore cause difficulties for both agents and principals alike. Agents should therefore exercise cautioning when engaging sub-agents. If, for example, a principal terminates a principal-agent relationship, this may have a detrimental impact on the agent-sub-agent relationship. In theory therefore, an agent could be in a position where, on the one hand, it is pursuing claims against the principal and, on the other hand, it is faced with having to defend claims against it brought by a sub-agent.