Until 1994 the relationship between a principal and his commercial agent was governed by express or implied terms between the parties, and agents often found themselves in relatively weak positions.

The introduction of the Commercial Agents Regulations 1994 radically changed this area of the law.

The most controversial change was the provision that agents be entitled to payment of "indemnity" or "compensation" on termination of their contract.

However, until recently there has been little indication as to what factors will dictate how much an agent can expect to recover, because principals seem to have favoured settling cases rather than risking letting the Court decide on a figure.

Now though, following a recent High Court ruling, guidelines have been established which give a clearer view as to how an indemnity will be worked out.

The amount of any indemnity should take into account, among other things, the value to the principal of the new customers introduced by the agent, and also the extent to which business from existing customers has increased due to the agent's work.

The period to be considered is that of the agent's employment as a whole rather than any short-term contract.

And the agent is under no obligation to mitigate any loss he suffers through termination.

Attention must also be paid to any commission the agent has lost.

There is a cap on indemnity payments of one year's remuneration calculated as an average of the agent's last five years pay.

If contracts are silent as to indemnity, then a compensation provision applies which takes into account similar factors.

Jonathan Oxley is a partner with Lee & Priestley, Solicitors, Bradford

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