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 merely acquiring customers is not yet sufficient to conclude that the principal’s benefits are substantial. It is necessary to establish that the principal actually derives tangible benefits from this.
It is difficult, however, to identify a universal measure of ‘substantiality’. The question arises whether it should be assessed through the prism of the value of turnover generated by customers, the profit achieved, the number of customers, the durability of commercial relationships, or other circumstances related to the entrepreneur’s activity.
❗ The burden of proof for demonstrating these circumstances rests with the agent.
📌 Conclusion
The concept of ‘substantial benefits’ is one of the most ambiguous elements in the construction of an indemnity. The legislation does not resolve which benefits should be taken into account, nor how their ‘substantiality’ should be assessed. As a result, many issues remain subject to dispute in legal commentary and case law, and the assessment of whether this condition is met requires consideration of the circumstances of each specific case.
