THOUSANDS of Australian exporters are unaware they could be forced to pay substantial compensation to their European agents on termination or expiry of agencies following a recent confirmation of the position in the UK.
The decision by the House of Lords in Lonsdale v Howard & Hallam Ltd confirms the rights of EU agents to claim compensation if the principal terminates an agency relationship, regardless of whether a written agreement exists, even if it simply expires at the end if its term.
Malcolm McBratney, a partner at McCullough Robertson, said the case, which involved a commercial agent in the shoe trade, confirms what is a potentially very costly but little known risk for Australian exporters.
“The agent involved in the case received compensation for damages suffered as a result of termination of relations with his principal despite the lack of a written agreement between the parties,” McBratney said.
“The court held that the compensation awarded should reflect the amount the agent could reasonably expect to receive from a hypothetical purchaser of the business at the time of termination.
“This important decision means that any Australian exporter who terminates an agreement with an agent in the EU will most likely have to pay compensation when the agreement ends, even if the termination is just expiry of the term of the agency.”
McBratney said as the EU is such a growing market for Australian exporters it is vital care is taken when appointing an overseas agent.
“Local exporters face a great deal of risk when dealing with overseas agents that they would not usually encounter in Australia,” he said.