Ingmar GB Ltd v Eaton Leonard Inc. [QBD]
| Jurisdiction | England & Wales |
| Judge | Morland J. |
| Judgment Date | 31 July 2001 |
| Neutral Citation | [2001] EWHC 3 (QB) |
| Court | Queen's Bench Division |
| Date | 31 July 2001 |
Queen's Bench Division.
Morland J.
J Stratford (instructed by Fladgate Fielder) for the claimant.
P Moser (instructed by Clifford Chance) for the defendant.
The following cases were referred to in the judgment:
Barret McKenzie v Escada (UK) LtdUNK (unreported, 1 February 2001)
Brookes v IR CommrsELR [1913] 3 KB 398.
Cybermedia Inc v Roderick Manhattan GroupUNK (unreported, 12 February 1999).
Daley v HargreavesUNK [1961] 1 All ER 552.
Duffen v Frabo SpAUNK [2000] 1 Ll Rep 180.
Hartland, ReELR [1911] 1 Ch 459.
IT Commrs v GibbsELR [1942] AC 402.
King v T Tunnock Ltd [2000] EuLR 531.
Moore v Piretta Pta Ltd [1998] CLC 992; [1999] 1 All ER 174.
Page v Combined Shipping and Trading Co Ltd [1996] CLC 1952; [1997] 3 All ER 656.
Secretary of State for Employment and Productivity v Clarke, Chapman & Co LtdWLR [1971] 1 WLR 1094.
Tamarind International Ltd v Eastern Natural Gas (Retail) Ltd [2000] CLC 1397.
Commercial agent — Termination of agency — Assessment of compensation — Commercial Agents (Council Directive) Regulations 1993, reg. 17(6), (7).
This was a hearing to assess the compensation payable under the Commercial Agents (Council Directive) Regulations 1993, reg. 17(6), (7) on termination of the claimants' agency.
The defendants, a Californian corporation, were manufacturers and sellers of sophisticated tube and pipe bending machines and associated equipment mainly designed for the aircraft and automotive industries. The claimant company was incorporated in 1988 to act as the defendants' exclusive sales agent for the UK market. The claimant's managing director and the founder of Ingmar Ltd was “L”. The sales director of Ingmar GB Ltd was “C”. The agency ran from 1 January 1989 to 7 September 1996 when it was terminated by the defendants. The claimants issued proceedings and the question whether the regulations did not apply because the agency agreement was expressly governed by Californian law was referred to the European Court of Justice by the Court of Appeal. The European Court (Case C-381/98, 9 November 2000) held that the regulations and Directive 86/653 applied where a commercial agent carried on his activity in a member state even though the principal was established in a non-member country and the contract was governed by the law of that country.
The Court of Appeal remitted the assessment of compensation to the High Court.
Held, ruling accordingly:
1. Regulation 17(6) and (7) provided for a different basis of making compensation than the traditional common law approach. The regulation was based on the French approach to such compensation which valued the agency at the date of termination rather than requiring an explanation of the future prospects for the agency. During the currency of the agency the agent had owned a valuable asset and what he chose or omitted to do after he had lost that asset had no bearing on the value of what he had lost. If he had assigned the agency he would normally have received some compensation for that assignment, observing that he could do so only with the principal's agreement and been free thereafter to do as he chose. By judicial custom the level of compensation was fixed as the global sum of the last two years' commission or the sum of two years' commission calculated over the average of the last three years of the agency contract which conformed with commercial practice. However, the courts retained a discretion to award a different level of compensation where the principal brought evidence that the agent's loss was in fact less, for example, because of the short duration of the contract or where, for example, the agent's loss is greater because of the agent's age or his length of service. ( King v T Tunnock Ltd [2000] EuLR 531 applied.)
2. The regulation was framed so as to provide compensation and not to provide a windfall. It was one thing to disregard what the agent was able to do or in fact did upon and in consequence of termination; it is quite another artificially to inflate what would have been the true benefit to the agent had the agency continued. In the present case to apply the French customary method of calculation of compensation based upon two years of gross average commission of the previous three years would result in an injustice to the defendants and an excessive windfall to the claimants way above the value of the agency on the 7 September 1996 and therefore would be inappropriate. The average gross commission for the previous three years was £105,810.98. Using a two-year purchase, the assessment of compensation would be £211,621.98 which would be excessive and result in a considerable degree of windfall. Taking into account the following factors: the length of time of the agency, approaching eight years, the inevitable lack of profitability in the early years, the high degree of engineering and sales expertise required and put into the agency in obtaining, nurturing and developing the customer base, and the degree of profitability of the agency at the time of its rupture, in my judgment a fairer and more realistic result is achieved by aggregating C's remuneration and pension with the management charge paid by the company to Ingmar Ltd and effectively received by L. That method which resulted in an award of compensation under reg. 17 of £183,600 would achieve the purpose of the regulations in this case. ( Duffen v FraboUNK [2000] 1 Ll Rep 180 considered.)
Morland J:
1. The claimants, commercial agents, seek entitlement to commission under the Commercial Agents (Council Directive) Regulations 1993, reg. 7 and 8 and/or contractually under the agency contract and compensation on termination of the agency (under reg. 17(6) and (7)) from the defendants, their principals, a Californian corporation.
2. The defendants were the manufacturers and sellers of sophisticated tube and pipe bending machines and associated equipment mainly designed for the aircraft and automotive industries (“the products”).
3. The claimants were incorporated in 1988 with a view to acting as the defendants' exclusive agent for the UK market. The claimants are a subsidiary of Ingmar Ltd which had marketed the defendants' products in Eastern Europe and the USSR since the early 1980s.
4. By a written agreement dated 1 January 1989 the claimants were appointed as the defendants' exclusive sales agent for the sale of all of the defendants products within the UK and Ireland.
5. That written agreement was terminated by a letter handed by Mr Hess, the defendants' president, to Mrs Ingeborg Leese, the claimants' managing director and the founder of Ingmar Ltd, at a meeting at the Radison Hotel Heathrow on 31 October 1995. The termination was effective on 1 February 1996.
6. The letter gave reasons for termination of the agreement :
“We have made a decision to re-evaluate our coverage of the UK market and will be interviewing both potential agents and potential direct employees.
We will interview and consider Ingmar GB Ltd, but feel at this time we need to look at all of our options and make a decision on which alternative is best for Eaton Leonard.
While this process is going on we will continue to pay a commission on all orders where Ingmar has objective evidence of being instrumental in Eaton Leonard receiving the order.”
7. At that meeting it was agreed that the claimants would continue as the defendants' agents from 1 February 1996 but the agency was to be terminable forthwith on notice. There is a dispute as to the exact basis upon which commission was to be payable under what has been called the new or varied agreement. The nature of the dispute is indicated in Mrs Leese's contemporary note and the ensuing correspondence.
8. The project list dated 23 February 1996 indicates the scale and nature of quoted equipment being marketed by the claimants on that date under the new or varied agreement.
9. Warning that that agreement was soon to end was given in Mr Hess's letter dated 13 June 1996 in which he said:
“Inge, we have had a long association and have very much enjoyed working with you. We appreciate the professional way in which you have conducted business. We hope you feel the same about us. Although our formal relationship is ending, we would hope to maintain the friendship we feel we have developed”
10. The new or varied agreement was terminated at an acrimonious meeting at the Sheraton Heathrow Hotel on 7 September 1996.
11. The writ was issued on 10 April 1997 which was followed up by Mareva proceedings and an order of Sir John Wood that the defendants pay into court £27,000.
12. The defence of 22 July 1997 pleaded that the regulations did not apply because the agreement was governed by Californian law expressly.
13. On 23 October 1997 Sir Peter Webster upheld this contention of the defendants. On 31 July 1998 the Court of Appeal ordered a reference to the European Court of Justice. On 9 November 2000 the European Court of Justice gave judgment saying:
“20. In that respect, it should be borne in mind, first, that the directive is designed to protect commercial agents, as defined in the directive (Bellone v YokohamaECAS(Case C-215/97) [1998] ECR I-2191, para. 13).
21. The purpose of art. 17–19 of the directive, in...
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