King v T Tunnock Ltd
| Jurisdiction | Scotland |
| Judgment Date | 16 March 2000 |
| Date | 16 March 2000 |
| Docket Number | No 46 |
| Court | Court of Session (Inner House - Extra Division) |
EXTRA DIVISION
European law—Agent and principal—Commercial agency—Termination of agency—Compensation—Appropriate measure of compensation due to agent—Commercial Agents (Council Directive) Regulations 1993 (SI 1993 No 3053), regs 17 and 18—EEC Council Directive 653/86, art 171
Regulation 17(1) of the Commercial Agents (Council Directive) Regulations 1993, which was made in order to satisfy the United Kingdom's obligations under Council Directive 86/653/EEC, provides that it is to have effect for the purpose of ensuring that the commercial agent is, after termination of the agency contract, indemnified in accordance with paras (3) to (5) or compensated for damage in accordance with paras (6) and (7). Regulation 17(6) provides that, subject to reg 17(9) and reg 18, 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”. Regulation 17(7) provides,inter alia, that for the purposes of the 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 while providing his principal with substantial benefits linked to the activities of the commercial agent”.
The pursuer was employed as a commercial agent by the defenders from 1962 until 1994 when the defenders closed their bakery section. The pursuer's business consisted exclusively of selling the defenders' products at wholesale prices to retail outlets. The defenders paid the pursuer a commission on his sales at a rate which varied from 7 per cent to 11.25 per cent on the cash value of the sales. The pursuer sued the defenders in the sheriff court for payment in lieu of three months' notice which he had not been given of the termination of his agency and also for compensation for loss consequent upon the termination of the agency in terms of reg 17(6) and (7) of the Commercial Agents (Council Directive) Regulations 1993. The sheriff awarded damages in lieu of notice but refused decree for compensation. The pursuer's appeal was refused by the sheriff principal who held that it was a prerequisite to the claim for compensation under reg 17 that the agent should have lost the opportunity of earning commission while at the same time the agent's principal should have continued to benefit from the agent's past activities. The pursuer appealed to the Court of Session. Before the Extra Division the pursuer produced information indicating that French law, which allowed commercial agents compensation, customarily calculated compensation on the basis of two years' purchase of gross commission subject to an ultimate discretion in the court to deviate from that standard.
Held (1) that the word “damage” in reg 17(6) was used to connote the factor which mainly introduced the commercial agent's eligibility for compensation but it was important to keep in mind that the reference was to damage or iniuria and not to “damages” so that, under reg 17(6), if the agent's link with his principal were terminated and this caused him damage, he was entitled to compensation (p 436B–C); (2) that entitlement to compensation was not stated as being dependent on any particular type or extent of loss but was payable upon rupture of the agent's relationship with his principal: it was at the time of rupture of the agency relationship that the value of the lost agency had to
be ascertained and there was no reference to the expected course of events after termination so that all that the agent needed to prove was that after termination he had lost the value of an agency asset which, prior to termination, had existed (pp 436G–437A); (3) that the vital difference between indemnity provisions and the compensation provisions was that indemnity required that the principal should continue in business: thus compensation could arise where the principal shut down the relevant part of his business (as in this case) or ceased to trade because of receivership (pp 437I–438B); (4) that the Council Directive and the 1993 Regulations seemed to harmonise with the French approach and given their terms and the general objective of achieving harmonisation, there was no justification for construing the Regulations as being radically different from the French approach (p 439F); (5) that the pursuer would have expected to receive a capital sum representing at least the total for the last two years of his earnings before he would voluntarily have given up his agency (p 440E–F); and (6) that the payment in lieu of notice should not be deducted from the compensation because the pursuer was entitled to that payment in addition to compensation (p 440G); and appeal allowed.Douglas King raised an action in the sheriffdom of South Strathclyde, Dumfries and Galloway at Hamilton against T Tunnock Limited in which he sought payment in lieu of notice upon termination of his commercial agency agreement with the defenders and payment of compensation for loss of the agency in terms of reg 17(6) and (7) of the Commercial Agents (Council Directive) Regulations 1993.
The cause came to proof on 23 October 1995 and 21 February 1996 and on 8 March 1996 the sheriff assoilzied the defenders from the crave for compensation but granted decree for payment of £4,762 in lieu of notice.
The pursuer appealed. The defenders cross-appealed but abandoned their appeal. On 24 December 1997 the sheriff principal refused the pursuer's appeal.
The pursuer thereafter appealed to the Court of Session.
Cases referred to:
Bellone (Barbara) v Yokohama SpA (Case C–215/97) [1998] ECR I–2191
Brasserie du Pecheur SA v Germany; R v Secretary of State for Transport, ex parte Factortame Ltd (No 4) (Joined Cases C–46/93 and C–48/93) [1996] ECR I–1029
Kontogeorgas v Kartonpak AE (Case C–104/95) [1996] ECR I–6643
Landcatch Ltd v International Oil Pollution Compensation Fund 1999 SLT 1208
Litster v Forth Dry Dock & Engineering Co LtdSC 1989 SC (HL) 96
Page v Combined Shipping and Trading Co LtdUNK [1997] 3 All ER 656
Roy v M R Pearlman LtdSC 1999 SC 459
Sabel BV v Puma AG, Rudolph Dassler Sport (Case 251/95), European Court of Justice, 11 November 1997
Wagamama Ltd v City Centre Restaurants plcUNK [1995] FSR 713
Textbooks, etc referred to:
Dalloz, Répertoire du Droit Commercial (2nd ed, 1996), sec 3, para 87
The cause called before an Extra Division, comprising Lord Caplan, Lord Milligan and Lord Cameron of Lochbroom for a hearing in the summar roll.
At advising, on 16 March 2000, the opinion of the court was delivered by Lord Caplan.
Opinion of the Court—[1] The pursuer and appellant, Douglas King, was employed as a commercial agent by the defenders and respondents, T Tunnock Limited, for many years. He sues for compensation for damage he alleges he has suffered as the result of the termination of his agency agreement by the defenders. The respondents were manufacturers of cakes and biscuits. The appellant's father for many years had been an agent for the respondents, selling their produce at wholesale prices to retail outlets. The appellant was born in February 1945 and in 1962 he took over his father's business as agent for the respondents. Thereafter, as was the case with his father before him, his business consisted exclusively of selling the respondents' products. Generally the retail customers paid cash to the appellant for the goods they purchased. However, other customers paid by cheque and a limited number of customers were allowed monthly credit and paid their accounts direct to the respondents. The appellant was paid by the respondents a commission on his sales at a rate which varied from 7 per centto 11.25 per cent on the cash value of sales. On 14 July 1994 the respondents closed their bakery section and as a result the contractual relationship between the parties was terminated on that date.
[2] No payment has been made by the respondents to the pursuer in lieu of notice. Nor have the respondents paid him any indemnity or compensation in consequence of the termination and collapse of his agency. There was no written agreement governing that agency.
[3] The pursuer maintains that he was an agent within the meaning of the Commercial Agents (Council Directive) Regulations 1993 which came into force on 1 January 1994. These Regulations were enacted to comply with the Directive of the Council of the European Communities 86/653 of 11 September 1986. The appellant contends that in terms of reg 15(2)(c) of the Regulations he was entitled to three months' notice of termination of his agreement and no such notice having been given to him he was entitled to payment in lieu thereof. Further he contends that in terms of reg 17(6) and (7) of the Regulations he was entitled to compensation from the respondents upon termination of his agency contract.
[4] Since the appellant's said claims were not satisfied he raised the present proceedings in the sheriff court at Hamilton. He claimed the sum of £165,230 in respect of the failure to give notice and compensation. A proof was held on 23 October 1995 and 21 February 1996. The respondents had contended before the sheriff that the pursuer was not a commercial agent within the meaning of the said Regulations with the result that the Regulations had no application to him. In any event, reading paras 6 and 7 of reg 17 together the respondents, having closed their bakery for a commercial reason, would not have continued to enjoy substantial benefit from the appellant's activities had the agency contract continued to operate. Nor had he incurred costs and expenses that he hoped to amortise. Thus he had no entitlement to compensation. The sheriff, by interlocutor dated 8 March 1996, held that the pursuer was a commercial agent and awarded him...
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