by Dr Robert Lewandowski, attorney at law (radca prawny) at Derra, Meyer & Partners in Warsaw
In the event of termination of an agency contract, an agent may seek indemnification or compensation under a UK council regulation from 1993 which came into force on 1st January 1994. Generally, according to the indemnification concept, a commercial agent in order to be entitled to indemnity must show that he/she has brought the principal new customers or has significantly increased the volume of business with existing customers and the principal still continues to gain substantial benefits from ongoing business with such customers. Pursuant to the indemnification concept, the commercial agent shall be entitled to compensation for the damage he/she suffers as a result of the termination of his/her relationship with the principal and such damages in particular occur in circumstances which deprive commercial agents of commission and have not enabled commercial agents to amortise costs and expenses that he/she had incurred within the performance of the agency agreement. The English courts encountered difficulties in the past as to how to calculate the amount of compensation under second concept. In the case of Londsale v. Howard & Hallam Limited [2007] UKHL 32 in 2007, the court laid down some rules helping in formulating the method of: (1) calculating the gross income of the agency business over the last three years or more, (2) deduction actual costs/expenses from this income of running an agency business and (3) final evaluation of how many years net profit a hypothetical purchaser would have to pay to buy the agency business. It is important to stress that under UK regulations, an agent may seek either indemnity or compensation.
Contrary to the UK regulations on agency law, the Polish legislator decided - under Directive 86/653/EEC dated 18th December 1986 - to establish the system of indemnification in Poland based on two differing requirements: (1) the agent has brought his/her principal new customers or (2) the agent has significantly increased the volume of business with existing customers with the principal continuing to receive substantial benefits from this business with such customers, however, the amount indemnified should be reasonable. Under Polish agency law, an agent – in addition to the entitlement to indemnification – can also seek compensation for damages in accordance with general statutory provisions if the principal terminated the agency contract by observing termination periods and this concept would result in culmination of the agent’s right to indemnification and compensation as well (Article 764 ³ § 3 Polish Civil Code). The questions arises as to in which cases the agent may also seek compensation for damages. It is recognized that such additional compensation is always justified, if the agent terminates the agency contract (with immediate effect) for reasons (Article 764 ² § 2 Polish Civil Code) attributable to the principal. It is more difficult to provide an answer as to whether or not the agent may seek such (additional) compensation for damages in the event of termination of agency contract without special reasons for termination and following statutory minimum notice periods. Polish legal scholars tend to agree that such (additional) compensation for damages should in general be denied as the expectation of the parties to continue an agency contract are protected only within the length of statutory termination periods. To date, there has been no has not been court case in Poland regarding so the calculation of the amount of compensation for damages under Article 764 ³ § 3 of the Polish Civil Code.
The principles laid down in the Lansdale decision cannot currently helped Polish courts in evaluating the amount of compensation of an agent as such compensation is rather unlikely and still unusual here presently, however, may become prevalent in future.
For further information please contact Dr. Robert Lewandowski at the following email address: r.lewandowski@derra.pl
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