Up until 1994, agents enjoyed little protection under Irish law.

The EU Commission in the 1970s noted the disparity in the level of protection afforded to agents throughout the EU with Member States such as Ireland and the UK providing a low level of protection to agents and countries such as France and Germany affording agents a relatively high level of protection. The above prompted the adoption in 1986 of the EU Commercial Agents Directive (the "Directive") which is designed to harmonise the laws of Member States in regard to relations between commercial agents and their principals.

Each of the then Member States were given a target implementation date of 1st January, 1990 except for Ireland and the UK where the relevant date was 1st January, 1994 (Italy was given a derogation not to apply certain provisions of the Directive until 1st January, 1993).

The Directive primarily seeks to protect the position of a commercial agent and represents a significant increase in the level of protection from the pre 1994 position under Irish law.

The Directive applies to a "commercial agent" which is defined as "a self employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person, hereinafter called the "principal", or to negotiate and conclude such transactions on behalf of an in the name of the principal". The Directive applies to all commercial agency contracts whether they were entered into before or after 1st January, 1994.

The Directive as implemented into Irish law specifies that an agency contract shall not be valid unless it is evidenced in writing. The above does not mean that the relationship must be set out in the written contract. It is felt that it should suffice if the main terms of the agency relationship are confirmed, for example, in correspondence or invoices. The Directive specifies that each party is entitled to receive from the other on request a signed written document setting out the terms of the agency contract including any term subsequently agreed.

One of the most significant features of the Directive is that, subject to certain exceptions, it provides for the making of a payment by the principal to the commercial agent on the termination of the agency contract. Each Member State was given the option of specifying in their domestic law that a commercial agent is to be paid either an indemnity or compensation for damage on termination of the agency contract. Ireland chose the compensation for damage route which is thought to be more generous than the payment of an indemnity as the indemnity is capped at an amount equivalent to the commercial agent's average annual remuneration for the preceding five years (or such lesser period if the relationship is shorter). There is no limit specified on the amount payable to a commercial agent as compensation for damage in Ireland.

The courts in Ireland have yet to set out guidelines for the calculation of compensation on termination. The rule of thumb that has been applied in France is that the amount of compensation should be equivalent to twice the commercial agent's average annual remuneration over the preceding three years. It remains to be seen whether this rule of thumb will be applied in Ireland.

The Directive also specifies that a commercial agent is entitled to commission on commercial transactions concluded after the agency contract is terminated if the transaction is mainly attributable to the commercial agent's efforts during the period covered by the agency contract and if the transaction was entered into within a reasonable period after that contract terminated.

There appears to be a growing number of disputes between principals and agents in Ireland involving the Directive particularly in terms of the payment of compensation on the termination of the agency relationship. Disputes often arise out of circumstances where the principal maintains that he cannot continue to bear the rates of commission agreed at a time when the principal enjoyed greater margins.

April 2005.

For further information please contact Marco Hickey.