Thursday, September 3, 2020

Mandatory Compensation to Commercial Agents upon Termination of Agency under Ethiopian Law

MIZAN LAW REVIEW, Vol. 11, No.2 December 2017


Kamil Abdu Oumer §


The Ethiopian Commercial Code recognizes mandatory compensation if agency agreement for an indefinite period of time is terminated due to the fault of the principal; and the Draft Commercial Code is likely to maintain this approach. This comment examines the status and functions of a commercial agent as well as the compensation due to the agent upon the termination of the commercial agency. I argue that there should be mandatory compensation upon the termination of agency relations for both definite and indefinite period of time unless the agency relation is terminated due to the fault of the agent that justifies termination of a contract. This is justified by comparative experience in the legal regimes of Germany, France, Britain, the European Union, Turkey and some international conventions on agency relations.

Key terms
Commercial Agency · Compensation · Indemnity ·Agent · Principal



The academic discourse (in transactional agency law) regarding mandatory compensation upon termination of a commercial agency is underway for the last few decades. Many scholars believe that a commercial agent should be entitled for compensation/indemnity if the principal terminates the relation without fault on the part of the agent. Their first justification is that the agent, through his/her/its efforts, has contributed goodwill for the business of the principal that enables the principal to benefit even after the termination of the agency.

Therefore, termination without compensation may be considered as unlawful enrichment for the principal.1 The second justification relates to the expense the agent might have incurred in the interest of the business of the principal (before the agency agreement is terminated) and the expected commission the agent would have earned had the relation continued. Termination of agency relations, therefore, may cost the agent the investments he/she has made in expectation of future commission.2 Mandatory payment is also justified by the need to protect the commercial agent (usually considered as the weaker party) in the face of a stronger principal.

One of the arguments against mandatory payment is that the principal may shift the cost to the agent for the mandatory payment, and this creates compliance cost. Opponents of mandatory payment also argue that the agent may not be the weaker party in some circumstances and may exacerbate the problem of information asymmetry between the agent and the principal.3 The UK Chamber of Commerce, for example, argued that the agent may be more powerful since the principal hires an agent because it lacks the capability to operate by itself.4 But, the view of the majority is that the agent is a weaker party and needs legal protection.

Mandatory compensation/indemnity for termination of agency agreements is adopted in various continental legal systems after the legislation of the European Council Directive on the Coordination of the Laws of the Member States Relating to Self-Employed Commercial Agents 653/1986. The same holds true in Britain. However, in most of the states in the United Sates, there is no statutory law that recognizes mandatory compensation.5

The Ethiopian Commercial Code also provides for mandatory compensation if a principal terminates an agency agreement for indefinite period of time ‘without good cause.’ The new Draft Commercial Code also retains the provision by changing ‘good cause’ to ‘force majeure’. The team of National Experts employed by the Addis Ababa Chamber of Commerce and Sectoral Associations has recommended against revision of the provision.6

This comment examines the legal debate in relation to mandatory compensation to commercial agents upon termination, and it discusses viable options. The first two sections highlight the features of agency relations and briefly discuss the legal status, powers and duties of commercial agents under Ethiopian Law in comparison with laws of other countries and some international conventions. The third section analyses mandatory compensation upon termination of agency agreements under Ethiopian law.


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