An agent may be entitled to an indemnity not only for bringing in new customers, but also for substantially increasing business with the principal’s existing customers.
Does every increase in business with the principal’s existing customers therefore give the agent a right to an indemnity?
⚠️ Not necessarily.
The provision refers to a “substantial” increase in business, rather than just any increase.
Legal commentary takes the following approach:
➡️ First, not every increase in sales will be “substantial”. Given that increased business is intended to have effects comparable to acquiring a new customer, the expansion of business with an existing customer should be economically equivalent to bringing in a new customer.
➡️ Second, increased business should generally be assessed in relation to individual customers, rather than solely by reference to the agent’s overall sales figures.
➡️ Third, an increase in sales does not itself establish that the conditions for an indemnity have been met. It must be determined whether the increase was connected with the agent’s activities. Other contributing factors, such as economic conditions or the principal’s marketing activities, do not rule out the claim, but may be relevant to its merits and the amount payable.
❗ The burden of proof rests with the agent
In a dispute, the agent must demonstrate that sales increased during the agency agreement. In particular, the agent should identify the customers concerned, the scale of the increase and its connection with the agent’s activities.
📌 Conclusion
When assessing entitlement to an indemnity, comparing overall sales at the beginning and end of the relationship is not enough. The key question is whether the agent increased business with particular customers to a degree economically comparable to acquiring new customers. In a dispute, the agent will bear the burden of proving those circumstances.
