Charles Shearman (Trading as Charles Shearman Agencies) v Hunter Boot Ltd
| Jurisdiction | England & Wales |
| Judge | Judge Mackie QC |
| Judgment Date | 22 January 2014 |
| Neutral Citation | [2014] EWHC 47 (QB) |
| Date | 22 January 2014 |
| Court | Queen's Bench Division |
| Docket Number | Case No: 2012 FOLIO 1329 |
[2014] EWHC 47 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
LONDON MERCANTILE COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
His Honour Judge Mackie QC
Case No: 2012 FOLIO 1329
Oliver Segal QC (instructed by Fox Williams LLP) for the Claimant
Ian Mill QC and Shane Sibbel (instructed by Mishcon de Reya) for the Defendant
Hearing date: 1 st November 2013
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
The Defendant ("Hunter"), a well known boot and shoe company, resists a claim by its former agent Mr Shearman under the Commercial Agents (Council Directive) Regulations 1993 ("The Regulations"). Hunter has, quite close to trial, applied for summary judgment claiming that any entitlement that Mr Shearman has under Regulation 17 is to an indemnity and not to compensation. I declined to determine the application so close to trial for practical and case management reasons but informed the parties that if the opportunity arose I would decide the point as the answer might facilitate settlement, and would shorten the trial and prevent the need for the argument to be repeated.
The background detail is not directly relevant to the point in issue. Mr Shearman's agency came to an end and he claims compensation under Regulation 17. Hunter says that the agency ended because it accepted his allegedly repudiatory conduct. If it is right Mr Shearman will get no compensation. If Hunter fails in that claim the question is whether Mr Shearman is entitled to an indemnity (under Regulation 17(3)-(5)), as opposed to compensation (under Regulation 17(6) and (7)). It is common ground that the value of compensation is greater than that of an indemnity in this case, that that will not be true in every case and that the parties will often not know which basis will be higher prior to termination, the time at which the entitlement under Regulation 17 is assessed.
The relevant Regulations
The Regulations were made under section 2(2) of the European Communities Act 1972 in order to implement EC Directive 86/653 on the coordination of the laws of the Member States relating to self-employed commercial agents. ("The Directive").
Regulation 17 is headed " Entitlement of commercial agent to indemnity or compensation on termination of agency contract", and provides as follows:
' (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.
(2) Except where the agency contract otherwise provides, the commercial agent shall be entitled to be compensated rather than indemnified.
(3) Subject to paragraph (9) and to regulation 18 below, the commercial agent shall be entitled to an indemnity if and to the extent that—
(a) he has brought the principal new customers or has significantly increased the volume of business with existing customers and the principal continues to derive substantial benefits from the business with such customers; and
(b) the payment of this indemnity is equitable having regard to all the circumstances and, in particular, the commission lost by the commercial agent on the business transacted with such customers.
(4) The amount of the indemnity shall not exceed a figure equivalent to an indemnity for one year calculated from the commercial agent's average annual remuneration over the preceding five years and if the contract goes back less than five years the indemnity shall be calculated on the average for the period in question.
(5) The grant of an indemnity as mentioned above shall not prevent the commercial agent from seeking damages.
(6) Subject to paragraph (9) and to regulation 18 below, the commercial agent shall be entitled to compensation for the damage he suffers as a result of the termination of his relations with his principal.
(7) For the purpose of these Regulations such damage shall be deemed to occur particularly when the termination takes place in either or both of the following circumstances, namely circumstances which—
(a) deprive the commercial agent of the commission which proper performance of the agency contract would have procured for him whilst providing his principal with substantial benefits linked to the activities of the commercial agent; or
(b) have not enabled the commercial agent to amortize the costs and expenses that he had incurred in the performance of the agency contract on the advice of his principal. …
Regulation 19 is headed " Prohibition on derogation from regulations 17 and 18" and provides that ' the parties may not derogate from regulations 17 and 18 to the detriment of the commercial agent before the agency contract expires.'
The Agreement
The relevant clauses of the Agreement between the parties are clauses 14.4 and 14.5, which provide under the heading " Effect of termination";
14.4. Upon termination of the Agreement the Agent shall not be entitled to compensation but shall be entitled (subject to clause 14.5) to be indemnified ….
14.5. The Agent will not be entitled to the indemnity referred to in clause 14.4 but will be entitled to compensation for the damage it suffers as a result of the termination of its relations with the Agent [sic] if the amount of such compensation would be less than the amount payable by way of indemnity.
14.6 If as a matter of English law it is not mandatory that the Agent be paid an indemnity or compensation then clauses 14.4 and 14.5 shall not apply.'
Although of course any clause in a contract needs to be read in its context I do not set out any other provisions as the meaning of Clause 14 is clear. Clause 14 needs of course to be read as a whole and Hunter's submission that the parties have contracted and agreed that only an indemnity is payable is disingenuous. The meaning of Clause 14, under the English approach to contractual construction, is that the Agent receives an indemnity, unless compensation would be lower in which case he gets compensation.
The question is, in the light of Regulation 19, what is the effect of Regulation 17(2) on a commercial agency contract, drafted by the Principal, which provides for the Agent to be paid the lower in value of an indemnity or compensation payment?
Why the difference between compensation and indemnity matters in this case.
Following the decision of the House of Lords in Lonsdale v Howard & Hallam [2007] 1 WLR 2055, compensation is calculated by reference to the value of the agency depending on the circumstances actually existing at the time of termination, including what its earning prospects had been and what people would have been prepared to pay for it. Mr Shearman claims that this will amount to ' a sum not less than £1,454,400.' Under Regulation 17(4) any indemnity will be capped at an amount equivalent to Mr Shearman's average annual commission income over the last five years of his agency which Hunter says will be no more than £204,000. So there is a big gap.
Defendant applicant's submissions
Mr Mill QC and Mr Sibbel for Hunter put their position as follows. Regulation 17(2) provides that on termination an agent shall be entitled to be compensated rather than indemnified, ' except where the agency contract otherwise provides.' This gives the parties a contractual discretion to provide for circumstances on termination of a contract where the agent will receive an indemnity rather than compensation. There is nothing in the wording of Regulation 17(2) which prohibits the system set out under Clauses 14.4 to 14.6, or which prohibits contracts providing for indemnities to be paid in some instances of termination and for compensation to be paid in respect of others.
It is a well-established principle of statutory interpretation that a rule of the common law is not extinguished by a statute unless the statute makes this clear by express provision or by clear implication (R (Rottman) v Commissioner of Police for the Metropolis [2002] 2 AC 692 at ¶75 per Lord Hutton. Equally parties are free to contract as they see fit (see e.g. Suisse Atlantique Societe d'Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361 at 399 per Lord Reid);
The principle of freedom of contract has also been recognised as a general principle of European Union law, which is ' inseparably linked to the freedom to conduct a business' under article 16 of the EU Charter of Fundamental Rights (per A.G. Kokott in Case C-441/07 European Commission v Alrosa Co Ltd [2010] ECR I 5949 at AG ¶225. It follows that, absent any EU obligation requiring it to be construed otherwise Regulation 17(2) must be read as leaving the parties with a general freedom to contract in respect of the payment of an indemnity rather than compensation on the termination of the Agreement which must include the freedom to provide for an indemnity in certain circumstances and compensation in others.
Hunter also points to the Department of Trade and Industry Guidance Notes on the Commercial Agents (Council Directive) Regulations 1993 ("the DTI Guidance") issued in 1994 following the enactment of the Regulations which includes the following;
' The Regulation deals with entitlement to indemnity/compensation upon termination of the agency contract. It is for the two parties to choose which of these options they would wish to include in their contract with the backstop of compensation should no choice be indicated. There is however, nothing to preclude the two parties from agreeing to use the compensation provisions in...
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