Lonsdale v Howard & Hallam Ltd
| Jurisdiction | England & Wales |
| Judge | LORD BINGHAM OF CORNHILL,LORD HOFFMANN,LORD RODGER OF EARLSFERRY,LORD CARSWELL,LORD NEUBERGER OF ABBOTSBURY |
| Judgment Date | 04 July 2007 |
| Neutral Citation | [2007] UKHL 32 |
| Date | 04 July 2007 |
| Court | House of Lords |
[2007] UKHL 32
HOUSE OF LORDS
Appellate Committee
Lord Bingham of Cornhill
Lord Hoffmann
Lord Rodger of Earlsferry
Lord Carswell
Lord Neuberger of Abbotsbury
Appellants:
Philip Moser
(Instructed by Morgan Cole, Oxford)
Respondents:
Oliver Segal
(Instructed by Harvey Ingram LLP, Leicester)
Interveners
Fergus Randolph
Ms Victoria Wakefield
(Instructed by APP Law on behalf of Winemakers' Federation of Australia)
My Lords,
I have had the advantage of reading in draft the opinion of my noble and learned friend Lord Hoffmann. I am in full agreement with it, and for the reasons which he gives would dismiss the appeal and decline the appellant's request that a question be referred to the Court of Justice of the European Communities.
My Lords,
Mr Graham Lonsdale is a commercial agent in the shoe trade. On behalf of his principals he travels around his territory with catalogues and samples, calling on retailers and attending exhibitions. In 1990 Howard & Hallam Ltd ("H & H"), shoe manufacturers of Leicester, appointed him to sell their Elmdale brand in south-east England. A few years later he was appointed by a German manufacturer to sell their Wendel brand in a slightly larger territory.
Wendel seems to have sold well and by 2000 accounted for two-thirds of Mr Lonsdale's business. Elmdale, on the other hand, was in terminal decline. Like many UK shoe manufacturers, H & H were unable to compete on style and price. Sales, and with them Mr Lonsdale's commission income, fell year by year. In 1997-1998 his gross commission was almost £17,000 but by 2002-2003 it had fallen to £9,621. In 2003 H & H ceased trading and sold the goodwill of the Elmdale brand to a competitor. There were no express terms about the termination of his agency - indeed, there was no written agreement at all. The agency was therefore terminable by reasonable notice. H & H gave Mr Lonsdale six months' notice. This is agreed to have been reasonable. He has been paid the commission on the sales which he generated. So he has no further contractual entitlement.
Mr Lonsale has however a statutory entitlement to compensation under the Commercial Agents (Council Directive) Regulations 1993, which was made to give effect to Council Directive 86/653/EEC of 18 December 1986 on the coordination of the laws of the Member States relating to self-employed commercial agents. As the relevant regulations reproduce the language of the directive, it will be simpler to go straight to the directive. It contains a number of provisions about commercial agents but we are concerned only with article 17, which deals with the termination of the agency contract:
Article 17
1. Member States shall take the measures necessary to ensure that the commercial agent is, after termination of the agency contract, indemnified in accordance with paragraph 2 or compensated for damage in accordance with paragraph 3.
2.(a) The commercial agent shall be entitled to an indemnity if and to the extent that:
- 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
- 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. Member States may provide for such circumstances also to include the application or otherwise of a restraint of trade clause, within the meaning of Article 20;
(b) The amount of the indemnity may 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;
(c) The grant of such an indemnity shall not prevent the commercial agent from seeking damages.
3. The commercial agent shall be entitled to compensation for the damage he suffers as a result of the termination of his relations with the principal.
Such damage shall be deemed to occur particularly when the termination takes place in circumstances:
- depriving the commercial agent of the commission which proper performance of the agency contract would have procured him whilst providing the principal with substantial benefits linked to the commercial agent's activities,
- and/or which have not enabled the commercial agent to amortize the costs and expenses that he had incurred for the performance of the agency contract on the principal's advice.
4. Entitlement to the indemnity as provided for in paragraph 2 or to compensation for damage as provided for under paragraph 3, shall also arise where the agency contract is terminated as a result of the commercial agent's death.
5. The commercial agent shall lose his entitlement to the indemnity in the instances provided for in paragraph 2 or to compensation for damage in the instances provided for in paragraph 3, if within one year following termination of the contract he has not notified the principal that he intends pursuing his entitlement.
6. The Commission shall submit to the Council, within eight years following the date of notification of this Directive, a report on the implementation of this Article, and shall if necessary submit to it proposals for amendments.
It will be noticed that although the purpose of the directive is said to be the coordination of the laws of the Member States relating to self-employed commercial agents, article 17 allows Member States to choose between two different rights, one or other of which must be accorded to a commercial agent on the termination of the agency. He must be given a right to either an indemnity in accordance with article 17(2) or compensation in accordance with article 17(3). The English words "indemnity" and "compensation" are not very illuminating in marking the distinction between these two rights. They are both ways of dealing with the unfairness which it was thought might arise if the termination of the agency leaves the agent worse off and the principal better off than if the agency had continued. It appears that the right under article 17(2), which the draftsman has chosen to label "indemnity", is derived from German law and is now contained in section 89b of the Handelsgesetzbuch. The right to "compensation" under article 17(3) is derived from French law and is now contained in article 12 of the Loi no 91-593 du 25 juin 1991 relative aux rapports entre les agents commerciaux et leurs mandants. The two systems can plainly lead to different results, so that, on this point at any rate, the extent of the coordination achieved by the directive is modest.
The United Kingdom chose both systems, in the sense that it allowed the parties to opt for an indemnity under article 17(2) but provided that in default of agreement the agent should be entitled to compensation under article 17(3): see regulation 17(2). In the present case the parties made no choice and Mr Lonsdale is therefore entitled to compensation under article 17(3).
The question in this appeal is how the compensation should be determined. But for this purpose it is necessary first to decide exactly what the agent should be compensated for. Only then can one proceed to consider how the compensation should be calculated.
On this first question the directive is explicit. The agent is entitled to be compensated for "the damage he suffers as a result of the termination of his relations with the principal." In other words, the agent is treated as having lost something of value as a result of the termination and is entitled to compensation for this loss.
As this part of the directive is based on French law, I think that one is entitled to look at French law for guidance, or confirmation, as to what it means. Article 12 of the French law says that the agent is entitled to "une indemnité compensatrice en réparation du préjudice subi". The French jurisprudence from which the terms of the article is derived appears to regard the agent as having had a share in the goodwill of the principal's business which he has helped to create. The relationship between principal and agent is treated as having existed for their common benefit. They have co-operated in building up the principal's business: the principal by providing a good product and the agent by his skill and effort in selling. The agent has thereby acquired a share in the goodwill, an asset which the principal retains after the termination of the agency and for which the agent is therefore entitled to compensation: see Saintier and Scholes, Commercial Agents and the Law (2005) at pp 175-177.
This elegant theory explains why the French courts regard the agent as, in principle, entitled to compensation. It does not, however, identify exactly what he is entitled to compensation for. One possibility might have been to value the total goodwill of the principal's business and then to try to attribute some share to the agent. But this would in practice be a hopeless endeavour and the French courts have never tried to do it. Instead, they have settled upon compensating him for what he has lost by being deprived of his business. That is the "préjudice subi." The French case law makes it clear that this ordinarily involves placing a value upon the right to be an agent. That means, primarily, the right to future commissions "which proper performance of the agency contract would have procured him": see Saintier and Scholes, op.cit, pp. 187-188. In my opinion this is the right for which the directive...
To continue reading
Request your trial
-
W Nagel (A Firm) v Pluczenik Diamond Company NV
...principal”: see regulation 17(6). The way in which such compensation is to be calculated was considered by the House of Lords in Lonsdale v Howard & Hallam Ltd [2007] UKHL 32; [2007] 1 WLR 2055, paras 10–14. As explained by Lord Hoffmann (with whose opinion the other law lords agreed), th......
-
Alan Ramsay Sales & Marketing Ltd v Typhoo Tea Ltd
...to valuation of an award of compensation under Regulation 17 was authoritatively determined by the speech of Lord Hoffmann in Lonsdale v Howard & Hallam Limited [2007] UKHL 32; [2007] ICR 1338. At [9]-[13] he stated the relevant principles: "9. As this part of the Directive is based on Fr......
-
Fern Computer Consultancy Ltd v Intergraph Cadworx & Analysis Solutions Inc.
...not contractual as that word would normally be understood. This conclusion is supported by the speech of Lord Hoffman in Lonsdale v Howard & Hallam Ltd [2007] 1 WLR 2055 at paragraphs 3 and 4 where he contrasts the claimant's "contractual entitlement" with his additional "statutory entitle......
-
Software Incubator Ltd v Computer Associates UK Ltd
...Medical Research Pty Ltd v Comrad Medical Systems Pty LtdUNK [2010] NSWSC 267. Lonsdale (t/a Lonsdale Agencies) v Howard & Hallam LtdUNK [2007] UKHL 32; [2007] 2 CLC 1. McQuillan v McCormickUNK [2010] EWHC 1112 (QB). Nigel Fryer Joinery Services Ltd v Ian Firth Hardware LtdUNK [2008] EWHC 7......
-
Tax Update- 21 February 2011
...prospect of exit (i.e. re-sale of the entire holding being purchased). Lonsdale (trading as Lonsdale Agencies) v Howard & Hallam Ltd 2007 UKHL 32 at paragraph 39 was cited for the proposition that the court is not required to shut its eyes as to what actually happened which may provide ......
-
House Of Lords Rules On Approach To Commercial Agents Compensation
...on termination has been significantly weakened. Case references: Lonsdale (trading as Lonsdale Agencies) v Howard & Hallam Ltd [2007] UKHL 32 King v T Tunnock Ltd [2000] IRLR 569, (2000) Times, 12 May, 2000 SC 424, 2000 SLT 744 This article was written for Law-Now, CMS Cameron McKenna's......
-
Commercial Agency Regulations Compensation For Agents
...took into account previous case law and existing legal principles set out by the House of Lords in Lonsdale v Howard & Hallam Ltd [2007] UKHL 32 but also took into account the evidence presented by the experts on both The experts agreed that compensation should be calculated on a future......
-
Compensation for Commercial Agents
...the average ofthe last ¢ve years of his agency after deducting the amount he already receivednLecturer, City LawSchool, City University.1 [2007]UKHL 32.2 A commercial agent is de¢ned as a self-employed intermediary whohas continui ngauthority tonegotiatethe sale or purchase of goods on beha......