Commercial agents were given substantial new rights on 1 January 1994 by the Commercial Agents (Council Directive) Regulations 1993 (SI 93/3053).

The regulations stipulate when commission is due and payable and no tice periods and were considered in [1994] Gazette, 20 April, 24.The regulations have the effect that compensation is payable where the contract is terminated by the principal except where: the agent is in default which justifies immediate termination; the agent dies; the agent terminates the contract on grounds of his or her age, infirmity or illness in consequence of which he or she cannot reasonably be required to continue his or her activities; the agent terminates the contract for circumstances attributable to the principal (a type of constructive dismissal provision); a fixed term contract expires; and the principal gives proper (or no) notice to terminate an agreement.This is a radical change in English agency law, though where an agent is in breach no compensation is payable.

To minimise risk, agents can be set binding sales requirements, with no right to remedy their breach.

Where an agent dies his or her estate may make the claim.

Those involved in wills and probate may like to consider whether executors might be held negligent if they fail to put in a claim.

Agency contracts should include a retirement age and contracts may require that agents be subject to health checks.Where the principal is in breach of contract, the agent may claim compensation.

A fixed term contract for a short period is more likely to result in smaller compensation awards.

Where the agent assigns the contract no compensation is payable.

There is no obligation to pay compensation unless a claim is made within one year.

Many agents are not aware of their rights and will not claim.

This is one reason why it may be preferable to draw up contracts which do not refer to compensation at all.

No derogation from the compensation provisions can be imposed by contract before the contract expires.

Once a contract has terminated, an agent can be offered a modest cheque and be presented with a waiver of compensation rights to sign which should be legally binding.

A cap in contracts on compensation or a fixed sum could be ignored by the judge, though as a practical matter it may be accepted by the agent who might not have the funds to litigate the matter.

Stating that the sum included is a genuine pre-estimate of the loss suffered by the agent may assist in enforcing such a provision.There may be merit in stating that the agent has no rights to compensation save where the regulations apply when the principal wishes to try to place a cap on compensation payable.

The regulations give principals a choice of paying agents an indemnity (where this is included in the agreement) or compensatory damages.

Most other EC states have chosen indemnities only.

The agent is entitled to an indemnity where he or she has brought in new customers or significantly increased the volume of business from existing customers and the principal continues to derive substantial benefits from the business from such customers.

It must also be equitable in all the circumstances to pay an indemnity, particularly having regard to the commission which the agent will have lost.

The parties might set out in the contract what would be regarded as a significant increase in the volume of business or list at the start of the agency arrangement, those new customers brought by the new agent and those already there and the levels of business then transacted with existing customers.

That would enable any growth to be measured.

Gradually removing from the agency contract listed products could also result in a phasing out of the agent whose contract could continue with only one unprofitable produ ct line.

Another option is to follow what occurs in Germany, where new agents are often required to pay a lump sum to the principal to pay for the indemnity to be paid to the old agent.

The advantage of the indemnity is that it is capped at a year's commission based on annual average remuneration over the previous five years.

There is no cap with compensatory damages.

However, reg 17(5) provides that the agent may claim the indemnity and damages.

Such damages are normal damages for breach of contract not compensatory damages.This also suggests that the compensatory damages provisions are intended to compensate the agent for more than damages for breach of contract at common law, which might be compared to damages for wrongful dismissal under employment legislation.

Compensatory damages are intended to comprise an unfair dismissal type payment, giving agents rights similar to employees, though more far reaching, with no upper limit on damages.Compensatory damages are payable unless the contract contains an indemnity.

An agent may claim compensation for the damage he or she suffers as a result of the termination of his or her relations with his or her principal.

This could be loss of commission to retirement age.Damage is deemed to occur, under reg 17(7), where the agent is deprived of commission which proper performance of the agency contract would have procured for him or her whilst providing his or her principal with substantial benefits linked to the activities of the commercial agent.

This involves looking at benefits which the principal continues to derive from the agent's customers as well as lost commission for the agent.

What is proper performance? If proper notice has been given then the agent who is paid commission due has arguably suffered no lost commission.

However, that English law approach does not accord with the intention behind the regulations.

It is an argument which will have to be tested in the courts.If an agent dies, he or she has an express entitlement to compensation.

If the contract states that the agreement terminates if the agent dies then it has been properly performed, but the regulations clearly provide for compensation in those circumstances.

Damage is also deemed to occur where the agent has unamortised expenses.

Contracts can reduce this element by providing that the agent must not incur expenses at his or her own expense without the consent of the principal over a stated figure.Whilst no derogation from the compensation and indemnity provisions is permitted, principals can insure against some of the risks.

Principals can require agents in contracts to take out life insurance, accident and permanent health insurance at the agent's expense with the proceeds to be held in trust for the principal.

Some principals may be able to include agents on their group policies for employees.

Some schemes are being particularly devised to provide cover for agents through trade associations and other bodies.

A level of cover of about a year's commission is, in my experience, affordable.

Insurance cannot be effected against termination of contracts on notice and the level of cover for death and illness may not be sufficient to cover every court order, but the risks can be minimised substantially.Most cases will be at county court level and not reported.

I am keen to collect information on cases and decisions and to pool such information for the benefit of others in the profession and in industry and readers are invited to send details to Singletons, Eagle House, 67 Brooke Avenue, Harrow, Middlesex HA2 0 ND; tel 081-864 0835.

I have settled four cases with payments of between three and six months' commission.