One of the conditions for an indemnity is that, after the agency agreement has ended, the principal derives substantial benefits from contracts with customers brought in by the agent, or with customers whose business with the principal the agent has significantly increased.
In practice, this condition gives rise to considerable difficulties of interpretation.
⚠️ The legislation does not explain either what the principal’s ‘benefits’ are or when they should be regarded as ‘substantial’.
Legal commentary and case law indicate that the principal’s benefits should be connected with the agent’s activities. They should therefore result from the agent bringing in customers or increasing business with existing customers.
However, questions remain about the nature of those benefits and how to assess whether they are ‘substantial’:
➡️ Although the term ‘benefits’ is associated with financial value, some commentators take a broader view and consider that acquiring a lasting customer base may also constitute a benefit.
➡️ Although the literal wording of the provision requires the principal to ‘continue to derive’ substantial benefits, some commentators consider that this should be assessed on the basis of a forecast, rather than events that actually occur after the agreement has ended.
❗ It is particularly difficult to determine whether the benefits are ‘substantial’ in a given case. The legislation provides no criteria to assist with this assessment.
Case law emphasises that bringing in customers is not, by itself, enough to establish that the principal’s benefits are substantial. It must be established that the principal actually derives tangible benefits from those customers.
It is nevertheless difficult to identify a universal measure of what is ‘substantial’. Should the assessment be based on the volume of business generated by customers, the profit earned, the number of customers, the durability of business relationships, or other circumstances relating to the principal’s business?
❗ The burden of proving these circumstances rests with the agent.
📌 Conclusion
The concept of ‘substantial benefits’ is one of the most ambiguous elements of the agency indemnity. The legislation does not determine either which benefits should be taken into account or how their ‘substantial’ nature should be assessed. As a result, many issues remain disputed in legal commentary and case law, and deciding whether this condition is met requires consideration of the circumstances of each individual case.
