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

Author:Kamil Abdu Oumer
Position:Kamil Abdu Oumer (LLB, LLM), Lecturer of Law at Wollo University School of Law, Dessie, Ethiopia. I thank Dr. Elias Nour for his constructive comments. The author can be reached at: Kamillaw2009@gmail.com
Pages:424-439
SUMMARY

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... (see full summary)

 
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424
Mandatory Compensation to
Commercial Agents upon Termination of
Agency under Ethiopian Law
DOI http://dx.doi.org/10.4314/mlr.v11i2.8
Kamil Abdu Oumer
Abstract
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
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Introduction
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.
Kamil Abdu Oumer (LLB, LLM), Lecturer of Law at Wollo University School of Law,
Dessie, Ethiopia. I thank Dr. Elias Nour for his constr uctive comments. The author can be
reached at: Kamillaw2009@gmail.com
COMMENT 425
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
1Aaron N. Wise (2010), Sales agency Relationships under United States Law, a short guide
for the foreign Business person. Available at:
<http://www.eurojuris.net/sites/eurojuris.net/files/sales_agency_termination-
other_problems_under_us_law--tc__00145021_.pdf> . Last visited, March 3, 2017, p5
2 Ibid.
3 QI Zhou (2014), ‘Limits of mandatory rules in contract law: an example in agency law’,
Northern Ireland Legal Quarterly Vol. 65, No.4, pp.357-69, p. 358-359.
4 Id., p. 361.
5 Wise (2010), supra note 1, p. 4.
6 Addis Ababa Chamber of Commerce and Sectoral Associations (2009), ‘Position of the
Business Community on the Revision of the Commercial Code of Ethiopia. Available at:

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