Contract and Agency
Most agency relationships are based on a contract or on another consensual basis. The contract may be terminable by notice in accordance with its terms. In defined cases of serious breach, there may be a right to terminate the contract without notice.
The agency and the authority that it imports (as distinct from the contract which may govern the parties’ relationship) may generally be terminated at will. The agent’s authority as such may be terminated, even though there is a breach of contract by reason of the termination of the appointment.
The termination of the agency may or may not constitute a breach of contract. Whether it is a breach, depends on the express and implied terms of the agreement. The general rules applicable to breaches of contract apply.
The breach may be by on the part of the agent or the principal. A right to compensation may arise for the innocent party. The agency terminates, but the principal or agent, as the case may be a right to damages for breach of contract.
The courts will rarely grant an injunction to restrain a termination of the agency. Equity does not act in vain and they will not force parties into a relationship, where there has been a breakdown in trust and confidence.
Means of Termination
The agency may terminate by agreement. The parties may agree the arrangements that shall apply. A new contract may be made on termination which deals with any outstanding issues.
Either the agent or principal may renounce or revoke the agency. This will be usually effective, irrespective of whether there is a breach of contract. If there is a breach of contract, it may give one or other party, a right to damages for any loss thereby caused.
Where the agency appointment is for an indefinite period, the rights of the parties in relation to termination will be determined by the contract. There will be a strong presumption that the agency may be terminated on reasonable notice, given by either party to the other. What constitutes reasonable notice will depend on the circumstances.
Many agency relationships will terminate in the ordinary course of events. The nature of the agency may be such that once a particular task is done or a period of time has passed, the agency will no longer apply.
An agency for a fixed period which has expired may continue as an agency at will, which can be terminated on giving reasonable notice.
The principal’s death, bankruptcy or loss of mental capacity will generally terminate the agency, other than in the case of an irrevocable agency. There are a number of provisions in the relevant legislation, which protect a third party’s position in relation to acts done prior to having notice thereof.
Termination of agency on death is automatic and is subject to few protections.
Where agency terminates automatically, the principal may still be bound by the acts of the agent until the termination of the agency has been communicated to third parties. The agent may continue to have apparent authority if the third party has not had notice that the agent has terminated.
Where an agency has terminated, but this position has not been communicated to third parties, the agent may continue as an apparent agent, with power to bind the principal. The general principles of apparent agency apply.
In some cases, in particular, in the context of powers of attorney and partnerships, statutes provide that the agency will continue to bind the principal until third parties who rely on the apparent authority, receive actual notice of its termination. The statute may specify what constitutes actual notice for this purpose.
Apparent authority on behalf of a person who has become bankrupt or lost mental capacity continues to bind the principal, until the third party has actual notice of the change in capacity.
An agency may be irrevocable. An example of an irrevocable agency is a power of attorney given to the holder of security, to protect and enforce his interest in the secured asset. This agency even survives the legal incapacity and death of the principal.
Effect of Termination
Where an agency is terminated, but the agent purports to act as such, he breaches his warranty of authority to third parties. He may be liable to a third party who is unaware of the termination of the agency.
The principal may also be liable to the third party on the basis of apparent authority. The agent may also incur liability to the principal.
Where an agency is terminated, existing contracts and arrangements entered by the agent remain unaffected. The agent continues to have a right to commission and indemnity in respect of pre-termination agreements.
The termination of the agency may be a breach of contract on the part of the agent or principal. The consequences will be largely determined by contract law.
The agent must keep records of transactions entered. They must be made available to their principal. On termination of the agency he must deliver all property, books, and accounts. He may have a lien for sums owed to him.
A commercial agency subject to the Regulations and Directive on Commercial Agents may be determined in accordance with that legislation. Minimum periods of notice are required. They increase from one month in the first year to three months after the third year.
Where the Regulations apply, these periods cannot be reduced by agreement. The parties may agree longer periods. Where longer periods apply, the principal’s period of notice must not be shorter than that for the agent.
The commercial agent is entitled to commission on post-termination contracts
- if the transaction is mainly attributable to the agent’s efforts during the period of the agency contract and
- if the transaction is entered within a reasonable time after termination; or
- if the order by the third party reached the principal before termination.
A commercial agent is entitled to compensation on termination of the agency, under the Regulations. This right differs from the right to damages that arise on breach of the contract between the agent and principal. There is a substantial overlap. The statutory rights of compensation apply, irrespective of whether there a breach of the contract of agency.
Statutory Compensation I
Under the EU Directive, a commercial agent has a right to compensation for damage suffered as a result of the termination of the agency. Compensation under the Directive is not necessarily coincidental with the loss incurred. It seeks to compensate the agent for his share of a quasi-proprietary entitlement.
This loss is deemed to occur when termination takes place in circumstances which deprive him of the commission to which he would have been entitled while providing the principal with substantial benefits linked to his activities and/ or preventing him recouping costs and expenses which he has incurred.
Compensation is not payable under the Directive where the principal has terminated the agency due to default on the part of the agent, which would justify immediate termination under national law. Termination based on this ground is limited to cases of serious and fundamental breaches of contract. It does not cover ordinary non-fault based termination.
Statutory Compensation II
Compensation is not payable where the agent has terminated the contract, unless justified by circumstances attributable to the principal or on the grounds of age, infirmity or illness in consequence of which, he cannot reasonably be expected to continue the activity. It is not payable, where with the agreement of the principal, the agent assigns the agency to another.
Compensation may be payable irrespective of whether there is a breach of contract by the agent. Unless the above exceptions apply, any termination whether by reason of expiration of time or notice, entitle the agent to compensation. The claim for compensation must be made within one year of termination.
References and Sources
Commercial Law, Fidelma White 2nd Ed. Thomson Round Hall, Dublin, 2015.
Commercial Law Michael Forde, 3rd Ed Tottel, Haywards Heath, 2005
Principles of the Law of Agency Howard Bennett 2013,
Agency 3e: Law & Principles (3rd Revised Ed) Munday, Roderick;
Bowstead & Reynolds on Agency, 20th Ed. Professor Peter G. Watts
The Law of Agency Friedman