Lonsdale v Howard & Hallam Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Moore-Bick,Lady Justice Hallett,Lord Justice Jacob |
| Judgment Date | 08 February 2006 |
| Neutral Citation | [2006] EWCA Civ 63 |
| Docket Number | Case No: B2/2005/1174 |
| Court | Court of Appeal (Civil Division) |
| Date | 08 February 2006 |
[2006] EWCA Civ 63
Lord Justice Jacob
Lord Justice Moore-Bick and
Lady Justice Hallett
Case No: B2/2005/1174
4OX03380
Mr. Philip Moser (instructed by Morgan Cole) for the claimant
Mr. Oliver Segal (instructed by Harvey Ingram LLP) for the defendant
This appeal raises some important questions relating to the application of The Commercial Agents (Council Directive) Regulations 1993 by which Council Directive 86/653/EEC was implemented in Great Britain. The Regulations govern the relations between commercial agents and their principals in relation to activities carried on within England and Wales and Scotland. Among other things they deal with the formation and termination of a relationship of this kind, the rights and obligations of the agent and principal to each other, the agent's remuneration and his right to receive what the Regulations describe as an indemnity or compensation on the termination of the relationship.
A commercial agent is defined in Regulation 2(1) as
"a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person ("the principal") , or to negotiate and conclude the sale or purchase of goods on behalf of and in the name of that principal."
The claimant in this case, Mr. Graham Lonsdale, was a commercial agent for the defendant, Howard & Hallam Ltd, a shoe manufacturing company, selling its products to shoe shops in the South East. His agency began on 1st January 1990 and continued until 30 th June 2003 when it was terminated after a period of notice as a result of the closure of Howard & Hallam's business due to rising costs and falling sales. No complaint was made about the termination of the agency and no suggestion was made that Mr. Lonsdale had a claim for compensation of any kind other than that which arises under the Regulations themselves. It was accepted that the Regulations gave him a right to compensation, but the parties could not agree on the amount to which he was entitled. Howard & Hallam paid Mr. Lonsdale £7,500, but he did not think that represented the full amount to which he was entitled and eventually he began proceedings in the Oxford County Court seeking £19,670, an amount that was roughly equal to two years' gross commission calculated by reference to the average of the last five years of his agency less the amount he had already received.
Before the judge Mr. Moser, who appeared on behalf of Mr. Lonsdale, submitted that, where the agency had persisted over a reasonable period of time and the agent had performed his functions competently throughout that period, he should as a general rule receive by way of compensation under regulation 17(6) an amount equal to two years' gross commission. He did not go so far as to submit that that was an established rule of practice, but he did submit that it was a clear guideline which had been applied in the past and ought to be followed in cases of this kind. In support of that argument he drew the judge's attention to the approach adopted by the French courts in such cases and to previous decisions of courts in this country and Scotland. Mr. Segal for Howard & Hallam submitted that there was no such guideline, that if commission were to be taken as the basis for assessing compensation it should be the amount received by the agent after deducting expenses and that the payment already made to Mr. Lonsdale was as much as he was entitled to receive.
5. Regulation 17 provides as follows:
" 17 Entitlement of commercial agent to indemnity or compensation on termination of agency contract
(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.
(8) Entitlement to the indemnity or compensation for damage as provided for under paragraphs (2) to (7) above shall also arise where the agency contract is terminated as a result of the death of the commercial agent."
Regulation 18 describes certain circumstances in which an agent is not entitled to payment of the indemnity or compensation provided for in regulation 17. It provides as follows:
" 18 Grounds for excluding payment of indemnity or compensation under regulation 17
The indemnity or compensation referred to in regulation 17 above shall not be payable to the commercial agent where—
(a) the principal has terminated the agency contract because of default attributable to the commercial agent which would justify immediate termination of the agency contract pursuant to regulation 16 above; or
(b) the commercial agent has himself terminated the agency contract, unless such termination is justified—
(i) by circumstances attributable to the principal, or
(ii) on grounds of the age, infirmity or illness of the commercial agent in consequence of which he cannot reasonably be required to continue his activities; or
(c) the commercial agent, with the agreement of his principal, assigns his rights and duties under the agency contract to another person."
As the judge pointed out, the Regulations themselves give no explicit guidance as to the amount of compensation which the agent is entitled to receive. Having referred to the decision of the Inner House of the Court of Session in King v T. Tunnock Ltd [2000] ScotCS 70, [2000] Eu.L.R. 531, the decision of Morland J. in Ingmar GB Ltd v Eaton Leonard Technologies Inc. [2001] EWHC QB 3, [2001] Eu.L.R. 755 and the decision of Davis J. in Tigana Ltd v Decoro Ltd [2003] EWHC QB 23, [2003] Eu.L.R. 189, he concluded that Mr. Lonsdale was entitled to be compensated for the value of the agency of which he had been deprived. He declined to take account of the approach adopted in other jurisdictions and held that on the facts of this case Mr. Lonsdale was entitled to no more than £5,000.
8. The judge's approach was to seek to identify from the language of the Regulations themselves and the decided cases the nature of the damage suffered by the agent in respect of which he is entitled to be compensated before attempting to place a monetary value on it. In my view that was a sensible approach to take, but it is convenient to begin by considering a number of previously decided cases in which the assessment of compensation has been considered.
The first case to which we were referred was Page v Combined Shipping and Trading Co Ltd [1997] 3 All E.R. 656. The agent in that case, Mr. Page, had been engaged to trade in commodities on behalf of the defendant for a minimum period of four years. Six months after the agreement had been signed the defendant informed him that its parent company abroad had decided to close down its trading activities. Mr. Page began proceedings claiming compensation under regulation 17 and applied for an injunction to prevent the defendant from moving its assets abroad. The judge dismissed the application on the grounds that, since the defendant could have operated the agreement for the remainder of its term in a way that would not have enabled him to make any money, he did not have an arguable case that he was entitled to recover a significant sum by way of damages. This court reversed the judge's decision, holding that it was arguable that Mr. Page was entitled to recover compensation under regulation 17(7) calculated by reference to the amount of commission he would have...
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