Shearman (t/a Charles Shearman Agencies) v Hunter Boot Ltd [QBD]
| Jurisdiction | England & Wales |
| Judge | HH Judge Mackie |
| Judgment Date | 22 January 2014 |
| Court | Queen's Bench Division |
| Date | 22 January 2014 |
Queen's Bench Division.
HH Judge Mackie QC.
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.
The following cases were referred to in the judgment:
European Commission v Alrosa Co LtdECAS (Case C-441/07) [2010] ECR I-5949. Hardie Polymers Ltd v Polymerland Ltd[2001] ScotCS 243; 2002 SCLR 64. Honyvem Informazioni Commerciali Srl v Mariella De ZottiECAS (Case C-465/04) [2006] ECR I-2879. Lonsdale v Howard & Hallam Ltd[2007] 2 CLC 1; [2007] 1 WLR 2055.
Page v Combined Shipping and Trading Co Ltd [1996] CLC 1952; [1997] 3 All ER 656.
R (on the application of Rottman) v Commissioner of Police for the MetropolisELR [2002] 2 AC 692.
Suisse Atlantique Societe d'Armement Maritime SA v NV Rotterdamsche Kolen CentraleELR [1967] 1 AC 361.
Vodafone 2 v R & C CommrsELR [2010] Ch 77.
Commercial agents — Termination — Compensation — Indemnity — Except where agency contract otherwise provided, commercial agent entitled to be compensated rather than indemnified — Parties not to derogate from compensation or indemnity provisions — Agency agreement providing for agent on termination to be entitled to indemnity rather than compensation unless compensation would be less than indemnity — Legislation intended to protect agents — Contractual choice permitted provided agent received intended protection — Contractual provisions inconsistent with legislation and invalid — Directive 86/653 — Commercial Agents (Council Directive) Regulations 1993, s. 17, 19.
This was a claim by a commercial agent (S) raising the question whether he was entitled to an indemnity, rather than compensation, under reg. 17 of the Commercial Agents (Council Directive) Regulations 1993, on termination of the agency.
S's agency came to an end and he claimed compensation from the defendant (H) under reg. 17. H alleged that the agency had ended because it had accepted S's repudiatory conduct, and that accordingly S was not entitled to compensation. If that was wrong, H claimed that S was entitled to an indemnity under reg. 17(3)-(5), as opposed to compensation under reg. 17(6) and (7). S claimed compensation of £1.45m. Under reg. 17(4) any indemnity would be capped at an amount equivalent to his average annual commission income over the last five years of his agency which H estimated to be no more than £204,000.
H relied on reg. 17(2) which provided that: “Except where the agency contract otherwise provides, the commercial agent shall be entitled to be compensated rather than indemnified”, and the terms of the parties” agreement which provided as follows, 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.”
S relied on reg. 19 which provided that “the parties may not derogate from regulations 17 and 18 to the detriment of the commercial agent before the agency contract expires”. He argued that a contractual method of quantifying compensation/indemnity constituted a void derogation, unless it could be shown that the contractual method was known, at the time of contracting, not to be unfavourable to the agent. Clause 14 could not constitute a valid election for an indemnity because it purported to quantify the termination payment in a way which was bound to be unfavourable to S, contrary to reg. 19. He was accordingly entitled to compensation.
Held, ruling accordingly:
The Regulations had to be construed consistently with the underlying purpose of Directive 86/653, which they implemented. The Directive existed primarily to protect agents not principals. Regulation 17(2) was to be read as permitting contractual choice provided that the agent received the protection afforded by the Regulations as a whole. A choice between compensation and indemnity was provided in the Directive because it was decided to permit two different systems, indemnity from Germany and compensation mainly from France, to co-exist. The reasons for that were pragmatic. The choice was not the product of some overall intellectual structure requiring compensation or indemnity to apply to particular special circumstances. The right to choose might permit not only choice between the systems but also election of one where the termination was for one reason and the other where it was for another. However, cl. 14 did not provide for different systems in different situations, visible at the time of the agreement. It provided for different systems to apply in an eventuality not capable of being specified at the time of the agreement, namely whichever system turned out at termination to be cheapest for the principal. That did not give effect to the choice permitted by the Directive and the Regulations. The clause did not give the agent, in a real sense, the “entitlement” to either compensation or, alternatively, indemnity. The regime created by cl. 14 was not compatible with the underlying thrust of the legislation and was not permitted by reg. 17(2). It was not argued that the parties had opted for indemnity, which they were free to do, and that the offending provision, cl. 14.5, could be severed. It followed that the entire clause fell away so that, if S was entitled to anything, it was to compensation not indemnity.
Judge Mackie QC:
1. 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 reg. 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.
2. 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 reg. 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 reg. 17(3)–(5)), as opposed to compensation (under reg. 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 reg. 17 is assessed.
3. 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”).
4. 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...
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