Businesses will often engage with commercial agents and distributors to help them sell their products or services. This could be for several reasons, such as:

  • The agent/ distributor may have a large network of customers in a specific sector that the principal/ supplier wishes to tap into; or
  • The agent/ distributor may have specific industry knowledge that the principal/ supplier wishes to utilize to expand its business.

Whatever the reason, commercial agents and distributors are a useful and cost-effective way for companies to expand their business. Agencies and distributors are however fundamentally different from one another, and it is important to understand the differences between the two and the legal ramifications for you and your business.

If you would like to discuss any of our services with us, feel free to contact us using the form below or give us a call at 0161 669 4621 for a free no obligation chat. We look forward to assisting you with your legal concerns.



If you would like any further information or need advice about any dispute, please get in touch with us today. You can contact us today on 0161 669 4621 or by email on for a free no obligation chat.

An agent acts on behalf of another person (the ‘principal’) and can create a contract between the principal and the customer. The agent is not however usually a party to the contract and, as such, the principal’s goods are sold directly from the principal to the end customer.

One of the advantages of appointing an agent over a distributor is the fact that the supplier retains control over the sale. They can control price, who they sell to, and the terms of sale.

One of the major drawbacks however for principals when engaging with a commercial agent is that their relationship is governed by the Commercial Agents (Council Directive) Regulations 1993 which has several important implications for both principal and agent.

A distributor is an independent trader who buys products from one party (the ‘supplier’) and then sells them directly to its own customers. The supplier contracts with the distributor and then the distributor contracts with the end customer separately. Distributors will sell products purchased from the supplier on the distributor’s own terms and at their own prices. The supplier therefore loses the ability to exercise any real control over the onward sale to end customers. Distributor agreements however are not subject to the same statutory implications as commercial agents.

The Commercial Agents (Council Directive) Regulations 1993 (the Regulations) apply to commercial agents and commercial agency agreements. They do not apply to distributors or agreements with distributors.

The Regulations impose certain rights and obligations on the parties to a commercial agency agreement. Those rights and obligations can have a significant financial impact if the principal falls foul of them, so it is important that you take legal advice from an early stage when entering into an agency agreement.

A commercial agency can be ended in a number of ways.

  • Expiration of time. Where the agency agreement is for a defined period (e.g. 2 years) it will end automatically at the end of that period unless the parties agree to extend the agreement.
  • Termination (notice). Where one of the parties takes an active step to end it. The agreement may be for an undefined period and will continue until one party terminates it either for no reason or a reason specified in the agreement.
  • Termination (breach). Where one of the parties to the agreement breaches a term of the agreement the other party may be entitled to accept that breach and terminate the agreement with immediate effect.

Where the Regulations apply the principal must give the agent the following notice prior to termination:

  • 1 month for 1 year.
  • 2 months for 2 years.
  • 3 months for 3 plus years.

If you don’t give the right amount of notice, the agent may be able to claim damages for breach of contract.

Under the Regulations the general rule is that an agent is entitled to a payment on termination of its contract by the principal. The agent is also entitled to a payment if they terminate the agreement for a legitimate reason (e.g. the principal has breached the terms of the agreement or because they are retiring). The payment will either be a compensation or indemnity payment. There are important differences between the two.

Compensation will automatically apply if nothing else has been agreed. In order to determine the amount of the compensation the parties will need to value the agency (being the amount a hypothetical purchaser would be willing to pay for it at the date of termination) in order to determine the loss of value to the agency and the level of compensation payable. The parties will unfortunately have to incur the cost of an accountant to provide the valuation evidence required. Determining compensation can be problematic and expensive. It is therefore advisable, wherever possible, to agree that any payment should be on an indemnity basis.

If the parties agree to an indemnity the process of determining the amount is a lot simpler and less costly. It limits the sum payable to one year’s average commission payment (averaged over the last five years).

The only exception to the general rule regarding termination payment is if the agent has breached the terms of the agreement and the principal has terminated the agreement as a result. In such cases, providing that the principal was right in bringing the agency to an end, there will be no liability for any termination payment.

At Birch Law we can advise principals, suppliers, agents and distributors of their rights and legal obligations. We can assist with the preparation of agency and distributor agreements and can assist if a dispute arises between the parties.

For a free no obligation chat please feel free to contact us on 0161 669 4621 or by email at

Whichever funding route you choose, you can rest assure that our experienced solicitors will always do their utmost to keep costs as low as possible. If you would like to discuss any of our services with us, feel free to contact us using the form below or give us a call at 0161 669 4621 for a free no obligation chat.




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