Ingmar had acted as Eaton Leonard’s exclusive agent for the sale of its tube and pipe bending machines and associated equipment for the aircraft and automotive industries in the United Kingdom and Ireland since 1989. In 1996, Eaton Leonard terminated the agency agreement. As a result, Ingmar issued proceedings, claiming unpaid commission and compensation under the Commercial Agents Regulations.
The principal tried to rely on the fact that the applicable law of the agency agreement was that of the state of California and so the Commercial Agents Regulations did not apply. This led the Court of Appeal to refer the case to the European Court of Justice to determine whether Ingmar could rely on the Commercial Agents Regulations. The European Court of Justice decided that reliance on the law of a non-EEA member state would not prevent the application of the European Self-employed Agents Directive and, therefore, the Regulations.
The case was then returned to the High Court, which had to assess the amount of compensation under the Regulations. Ingmar was claiming compensation in accordance with the French method of calculation, being to award a terminated agent twice the average annual gross commission earned over the 3 years of the agency or the global amount of the last 2 years’ gross commission earned by the agent.
The judge considered that the French method of calculating compensation would be inappropriate in this case. The judge stated that to apply the French method of calculating compensation would result in this case in an excessive windfall for the agent. He considered that this windfall would exceed significantly the value of Ingmar’s agency at the time of termination and would result in an injustice to Eaton Leonard.
Accordingly, the judge took account of the following factors:
- the duration of the agency;
- the inevitable lack of profitability in the earlier years;
- the high degree of engineering and sales expertise required and put into the agency in generating the customer base; and
- the degree of profitability of the agency at the time of termination.
In view of these factors, the judge put forward a completely different method of calculating compensation. This was to multiply the average aggregate remuneration and pension fund of Ingmar’s full time executive director and the management charge taken by Ingmar’s parent company by 3. No reasoning was given for use of a multiple of 3. This resulted in Ingmar being awarded almost 87 per cent. of the amount it had claimed originally by way of compensation, being an amount which the judge had condemned as being an excessive windfall!
This briefing note is for general information. For advice in applying this general information to your specific circumstances, please contact Stephen Sidkin or any members of the Fox Williams’ agentlaw team. (www.agentlaw.co.uk).
Written by Jane Elliot