Under law introduced by the EU, when a commercial agent has its agency terminated, it is entitled to compensation.

Recently, a case arose in which the agency of a commercial agent was terminated by a designer in 2005 and a compensation claim was made by the agent. What complicated matters was that the agency agreement, which had existed for many years, was made when the agent was a partnership. The agency had subsequently incorporated its business in 2003. Under UK law, a company is a separate legal person from its shareholders.

When the change in ownership was made, the businesses carried on dealing with one another as before without any difficulty until the decision was made to sever relations.

The company brought a claim for compensation. This was successfully opposed on the basis that the company had never entered into an agency agreement with the designer, so it could not bring the claim. The partnership could bring a claim, however, because it had assigned the benefit of the contract to the company.

The company argued that because the notice of termination sent by the designer’s solicitors was addressed to the company, the designer was ‘estopped’ from arguing that it was not the company that held the contract.

The notice was clearly wrongly addressed, but the court ruled that it had been treated by both sides as terminating the agreement. Because the law applying to the commencement of a claim for compensation for termination of an agency requires the claim to be commenced within a year of the termination, the partnership was ‘out of time’ for commencing a claim.

The partnership should have arranged for its contract to be replaced by a new contract with the company: this is called ‘novation’ by lawyers.