Douglas King v Tunnock Limited (2000) S L T 744

Mr King had acted as a commercial agent exclusively for Tunnock, a cake and biscuit manufacturer, since 1962. The agreement between the parties was terminated in 1994 when Tunnock closed its bakery section. Mr King commenced an action seeking payment in lieu of notice of termination together with compensation in terms of the Regulations. The Court initially awarded Mr King the sum of £4,762 in lieu of notice on the basis that he was a commercial agent within the meaning of the Regulations but found that compensation was not payable. Accordingly, Mr King appealed.

Tunnock argued (1) that the Court was not bound to follow the approach in other European jurisdictions in applying the Regulations and (2) if compensation was due, it should be substantially less than the figure of £27,144 (which effectively amounted to 2 years’ commission). Tunnock also argued that a variety of matters needed to be considered before compensation could be calculated on any basis, including the relevant business practices, market conditions, type of goods and the effect on Mr King’s customers.

It was held, allowing the appeal that:

1. the objective of the 1986 Directive was to harmonise national laws so that conditions for commercial agents throughout Europe were equivalent to those of a single market;
2. the Directive deliberately offered member states an option in respect of the termination of agency contracts, to provide either compensation or indemnity on termination;
3. Regulations 17(6) and (7) provided for a different basis of compensation than the traditional common law approach and one which fitted well with the compensation system adopted in France. In this regard, the French conclusion that mitigation of loss by the agent was not a factor when compensation was considered and therefore Mr King’s post-termination activities had no application in assessing Mr King’s loss;
4. although the French system of calculating compensation on the basis of 2 years’ gross commission was applied as a benchmark only, such application deserved respect and provided a broad approach which was an inevitable and practical requirement of the law. It was stated that 2 years’ commission would be regarded as standard compensation for loss of an agency;
5. it was likely that Mr king would have expected and required a relatively high level of compensation to surrender his long established agency; and
6. Mr King was entitled to compensation in the sum of £27,144 (which amounted to 2 years’ gross commission) plus payment of a sum in lieu of notice and this latter payment should not be offset.

It is worth noting that it was held that, when evaluating the agency’s worth, its earning potential must be a factor in that evaluation.

This briefing note is for general information.  For advice in applying this general information to your specific circumstances, please contact Stephen Sidkin or any member of the Fox Williams’ agentlaw team (www.agentlaw.co.uk)

Written by Sarah Pooley