Brand Studio Ltd v St John Knits, Inc.
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Teare |
| Judgment Date | 02 November 2015 |
| Neutral Citation | [2015] EWHC 3143 (QB) |
| Docket Number | Case No: LM-2014-000084 |
| Court | Queen's Bench Division |
| Date | 02 November 2015 |
[2015] EWHC 3143 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
MERCANTILE COURT
Royal Courts of Justice
Rolls Building, 7 Rolls Buildings
Fetter Lane, London EC4A 1NL
Mr. Justice Teare
Case No: LM-2014-000084
Oliver Segal QC (instructed by Rosenblatt Solicitors) for the Claimant
Philip Moser QC (instructed by Harbottle & Lewis LLP) for the Defendant
Hearing date: 26 October 2015
This is the trial of a preliminary issue in an action in which a commercial agent has sought compensation from his principal on the termination of his agency. The issue to be tried is as follows:
"Whether the Claimant is entitled to compensation (as opposed to an indemnity) pursuant to clause 6.3(a) of the EU Agency Agreement executed by the Claimant and the Defendant on or about 9–14 December 2009, referred to in the statement of case as the "EU Agreement", (as defined in the Amended Particulars of Claim dated 6 March 2015) and pursuant to Regulation 17 of the Commercial Agents (Council Directive) Regulations 1993 (as amended)."
The background
The Defendant is a Californian fashion company designing, manufacturing and retailing luxury women's clothing. The Claimant is a UK sales agency. Between 2009 and 2014 the parties were in a contractual relationship whereby the Claimant sold the Defendant's clothing to retailers in the EU and elsewhere for commission. The "EU Agreement" between the parties is governed by English law.
Pursuant to the Commercial Agents Regulation a commercial agent is entitled to an indemnity or compensation on termination of the agency. Unless otherwise agreed the agent is entitled to be compensated rather than to be indemnified. Regulations 17 and 19, so far as material, provide as follows:
"17(1) This regulation has effect for the purpose of ensuring that the commercial agent is, after termination of the agency contract, indemnified in accordance with paragraphs (3) to (5) below or compensated for damage in accordance with paragraphs (6) and (7) below.
17(2) Except where the agency contract otherwise provides, the commercial agent shall be entitled to be compensated rather than indemnified.
………..
19. The parties may not derogate from regulations 17 and 18 to the detriment of the commercial agent before the agency contract expires."
The agreement between the parties provides as follows, so far as material:
"6.3(a) Upon expiry or termination of this Agreement for any reason:
(a) If and to the extent that the ….Regulations apply, [the Claimant] shall (if and to the extent so entitled in accordance with the provisions of the Regulations) have the right to be indemnified as provided for in regulation 17 of those Regulations. For the avoidance of doubt, [the Claimant] shall have no right to any compensation under those Regulations upon termination or expiry of this Agreement provided that if the amount payable by way of indemnity under this Clause would be greater than the amount payable by way of compensation, [the Claimant] shall ….have the right to receive compensation instead of an indemnity under the regulations ….
7.5 In the event that any provision of this Agreement is held to be invalid or unenforceable, such provision will be deemed to have been severed from the Agreement, while the remained of the Agreement will remain in full force and effect."
In Shearman v Hunter Boot Ltd [2014] EWHC 47 (QB) HHJ Mackie held that similar provisions in the agency contract before him did not amount to a valid "agreement otherwise" and so was unenforceable. At paragraph 35 he said:
"I recognise that the right to choose may permit not only choice between the systems but also election of one where the termination is for one reason and the other where it is for another. Clause 14 does not provide for different systems in different situations, visible at the time of the agreement such as death or bankruptcy (as envisaged by, for example, the DTI guidance). It provides for different systems to apply in an eventuality not capable of being specified at the time of the Agreement, namely whichever system turns out at termination to be cheapest for the Principal. This does not seem to me to give effect to the choice which the Directive and the Regulations permit. The Clause does not give the Agent, in a real sense, the 'Entitlement' (as it is described in the heading to the Regulation) to either compensation or, alternatively, indemnity."
It is common ground that that analysis applies to clause 6.3(a) of the agreement between the parties in the present case.
Mr. Segal QC, on behalf of the Claimant, submits that there being no valid "agreement otherwise" the Claimant is entitled to compensation pursuant to Regulation 17. Mr. Moser QC, on behalf of the Defendant, submits that the offending proviso in clause 6.3(a) can be severed leaving the rest of the clause in place with the result that the Claimant is entitled to an indemnity, not compensation. The question of severance was left open in Shearman because, although the judge raised the point, it was not argued. It now falls to this court to determine the question.
Mr. Segal submits that the severance argument is misconceived for two reasons. First, it is said that the question does not arise. Lest I misrepresent this argument I shall set it out as it appears in Mr. Segal's skeleton argument:
"The question must first be answered whether the EU Agreement "otherwise provides", within the meaning of the regulations, for an entitlement to an indemnity. Only if the answer to that question is Yes does it become material whether the second sentence of clause 6.3(a) can be severed as a matter of English common law. The answer to that question in this case is No; therefore the issue of severance is a red herring."
The second argument is that, if it is relevant to consider severance, it is not permissible to sever the offending proviso pursuant to the common law rules on severance which it is common ground are the relevant rules to apply.
Mr. Moser submits that the proviso can be severed, leaving the lawful choice of an indemnity in the first part of the clause.
Does severance arise at all?
Mr. Segal's submission is that since, for the reasons given by HHJ Mackie, clause 6.3(a) does not "otherwise provide", the Claimant is entitled to compensation upon termination of the agency agreement pursuant to Regulation 17 and no question of severance can arise. I was...
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