Not every breach of an agency agreement by the agent results in the loss of entitlement to an indemnity.
🚫 An indemnity will not be payable if three conditions are met together:
➡️ the principal terminated the agency agreement;
➡️ termination was prompted by circumstances for which the agent was responsible;
➡️ those circumstances were sufficiently serious to justify termination without notice.
⚠️ Merely proving that the agent breached the agreement is not enough.
A connection between the breach and the decision to terminate must also be established. The agent’s conduct must have been the actual reason why the principal ended the relationship.
📌 Example
The principal terminated the agreement on notice. Only later did it discover that the agent had previously committed serious breaches that could have justified immediate termination.
In such a case, the subsequent discovery of the breaches will generally not deprive the agent of an indemnity, because those breaches were not the reason for termination.
⚠️ This does not mean that they will be irrelevant.
They may be considered in assessing equitable considerations and, depending on the circumstances, may affect entitlement to an indemnity or its amount.
📌 Must the principal terminate the agreement with immediate effect?
No.
If a breach was serious enough to justify termination without notice, the principal may nevertheless choose to give notice. This may be justified by the need to ensure business continuity, hand over customers or find a new agent.
⚠️ The crucial point remains to identify and document the reason for termination properly. The circumstances in which the relationship ended should clearly show that the agent’s breach prompted the termination decision.
📌 Conclusion?
A litigation strategy for an indemnity dispute with an agent who has breached the agency agreement should be developed before the relationship ends. Properly analysing the nature and seriousness of the breaches, then identifying the reason for termination correctly, can significantly strengthen the principal’s position in a potential dispute. Shortcomings at this stage may make it harder to prove later that the agent’s breaches were the actual reason for termination, depriving the principal of an important argument against the indemnity claim.
