Agency Disputes: Commercial Agents’ Rights under the 1993 Regulations
The Commercial Agents (Council Directive) Regulations 1993 catch businesses out more often than almost any other set of rules. A supplier ends an agency in the ordinary way, on the notice its contract allows, and receives a claim for a payment it never agreed to and cannot find in its written terms.
The claim is usually good. These rights are mandatory. They cannot be drafted out, and for a long-running agency they are often worth more than a year's commission.
Who Counts as a Commercial Agent
A commercial agent is a self-employed intermediary with ongoing authority to negotiate the sale or purchase of goods for a principal, or to sell in the principal's name. The authority must be ongoing, so a one-off introduction does not count. The agent must be self-employed, which rules out employees but includes companies and partnerships. And the subject matter must be goods, not services.
That last point causes the most argument. Distributors who buy and resell in their own name are outside the Regulations. So are agents selling insurance, advertising or consultancy. But "goods" reaches further than principals expect: electricity counts, and in The Software Incubator v Computer Associates the Supreme Court held that software supplied electronically under a perpetual licence counts too.
There is also a narrow exclusion for agents whose activities are "secondary". Principals who rely on it without advice usually find it does not help them.
Rights That Cannot Be Contracted Away
Both sides owe each other a duty of good faith, and it cannot be excluded. The principal must give the agent the information and paperwork needed to do the job, and must give reasonable warning if it expects order volumes to drop well below what the agent would normally expect. Principals who quietly wind down a product line while the agent keeps investing in the territory tend to overlook this.
An agent can demand a signed written statement of the agency terms at any time. Where nothing was ever written down, that is usually the first step in a claim.
Minimum notice periods apply after the first year and cannot be shortened: one month in year one, two months in year two, three months in year three and after. A clause allowing 30 days' notice after five years simply does not work, and terminating on that basis is a breach of contract in its own right, on top of anything owed on termination.
Commission, During and After
An agent earns commission on sales made through their efforts, and on repeat orders from customers they first brought in. Where the agent has an exclusive territory or customer list, commission is due on sales to those customers whether the agent was involved or not.
Commission also survives termination. It is payable on deals concluded after the agency ends if they are mainly down to the agent's work and are signed within a reasonable period afterwards, or if the order arrived before termination. What counts as a reasonable period depends on the sales cycle. For capital equipment it can be far longer than a principal expects.
Commission falls due at the latest on the last day of the month following the quarter it was earned in. The agent can demand a statement showing how it was calculated, and can require extracts from the principal's books to check it. If the principal resists, the court can order an account. For an agent working out whether a claim is worth bringing, this is the most useful tool available.
Termination
When the agency ends, the agent is entitled to compensation or an indemnity. Compensation is the default and applies unless the contract says otherwise. The entitlement also arises when a fixed term expires, when the agent walks away because of the principal's own breach, and when the agent stops through age, illness or infirmity. It passes to the agent's estate on death.
It is lost only in narrow circumstances: where the principal terminated because of a default by the agent serious enough to justify immediate dismissal, where the agent walked away without good reason, or where the agent transferred the agency with the principal's agreement.
The first of those is the usual battleground. Principals facing a claim often assemble a case of past underperformance after the event. The courts are alive to it. The default has to be serious enough to justify immediate termination, and it has to be the real reason for ending the agency, not a justification found later.
Compensation or Indemnity
The two are calculated on completely different bases, and the choice is made at the drafting stage.
An indemnity must be written into the contract. It pays the agent for the ongoing benefit the principal keeps from customers the agent introduced or grew, so far as that is fair. It is capped at one year's remuneration, averaged over the last five years.
Compensation is not capped. Following Lonsdale v Howard & Hallam, it is the value of the agency on the day it ended: what a buyer in the open market would have paid for that income stream. It is a valuation exercise, usually needing expert evidence, and results vary widely. A stable agency with loyal customers and years left in it can be worth several times annual commission. One built on a declining product may be worth little. The old rule of thumb of two years' gross commission was rejected in Lonsdale, though it still surfaces in negotiations.
An award under Regulation 17 does not stop the agent also claiming damages for breach of contract, most obviously for short notice.
The One-Year Deadline
An agent loses the right to compensation or an indemnity entirely unless, within one year of termination, they tell the principal they intend to claim it.
There is no set form. The question is whether the message would tell a reasonable reader that the agent intends to pursue a Regulation 17 claim, and the agent does not need to say which type. But the deadline is absolute and runs from termination, not from the date the agent takes advice. Agents who spend those months negotiating informally can find a six-figure claim has gone. Written notice, sent early, is the accepted practice.
Restrictions After Termination
A post-termination restraint on an agent is only enforceable if it is in writing, is limited to the territory or customers and the goods covered by the agency, and lasts no more than two years. Even then, the ordinary rules on restraint of trade still apply. Broad non-compete clauses on departing agents are frequently unenforceable, and both sides often assume otherwise.
Getting Agency Disputes Right
These claims reward preparation and punish delay. Outcomes turn on three questions: does the arrangement fall within the Regulations, what was the agency worth on the day it ended, and were the deadlines met. All three can be answered early, and answering them early is what separates a negotiated settlement from a valuation fight at trial.
How Lyon Croft Law can help
We act for principals and commercial agents across Park Royal and London, advising on whether the Regulations apply, valuing compensation and indemnity claims, and resolving disputes by negotiation or proceedings. If you require any assistance with a commercial agency dispute, get in touch.
This article has been authored by Abdullah Suker. It is intended for general information purposes only and does not constitute legal advice.
Lyon Croft Law Commercial Solicitors, Park Royal, London [020 3576 7170] [info@lyoncroft.co.uk]
Frequently Asked Questions
Who qualifies as a commercial agent under the 1993 Regulations?
A self-employed intermediary with ongoing authority to negotiate the sale or purchase of goods for a principal, or to sell in the principal's name. Companies and partnerships qualify. Employees, distributors who buy and resell on their own account, and agents dealing only in services do not.
Do the Commercial Agents Regulations still apply after Brexit?
Yes. They survived Brexit and were not revoked by the Retained EU Law (Revocation and Reform) Act 2023. The Government consulted on repealing them in 2024 and confirmed in February 2025 that they stay in force, unchanged.
What is a commercial agent entitled to on termination?
Compensation or an indemnity under Regulation 17. Compensation is the default unless the contract provides for an indemnity. An indemnity is capped at one year's average remuneration. Compensation is uncapped and based on the market value of the agency when it ended.
How is compensation calculated?
Following Lonsdale v Howard & Hallam, it is what a buyer would have paid on the termination date for the agency's future income. It usually needs expert valuation evidence and depends on the agency's profitability, stability and remaining life. There is no fixed multiple of commission.
Is there a time limit for a commercial agency claim?
Yes, and it is short. The agent loses the right to compensation or an indemnity unless they tell the principal within one year of termination that they intend to claim. No particular wording is required, but the deadline is strict.
Can a principal exclude the Regulations in the contract?
No. The termination rights cannot be excluded in advance, minimum notice periods cannot be shortened, and a foreign governing law clause will not defeat them where the agent works in Great Britain. The realistic options are to structure the relationship as distribution instead, or to choose an indemnity in writing at the outset.
Do the Regulations cover software?
They can. In The Software Incubator v Computer Associates the Supreme Court held that software supplied electronically under a perpetual licence counts as goods, even though nothing physical changes hands.
