Mr Kingsley has worked for many years as an agent in the carpet industry.  He acted as agent for KJC Carpets’ agent from 1988 to 1994.  In September 1994, KJC Carpets terminated Mr Kingsley’s agency, having unilaterally reduced Mr Kinglsey’s commission rate from 4 per cent. to 3.5 per cent. with effect from January

Mr Kingsley brought a claim against KJC Carpets for pre-termination commission attributable to the unilateral reduction to the commission rate, failure to give proper notice and compensation under the Commercial Agents (Council Directive) Regulations 1993 (as amended) (“the Regulations”).

The judge awarded the agent:

  • the difference between the commission paid at the reduce commission rate and the commission which Mr Kingsley would have received at the full commission rate;
  • damages for failure to give proper notice of Mr Kingsley average annual commission in 1994 multiplied by three; and
  • compensation of Mr Kingsley’s average annual commission multiplied by 4 (being the number of years which the judge considered the agency had to run, until Mr Kingsley reached the age of 65) and having deducted 36 per cent. (being the expenses which the judge considered Mr Kingsley would have incurred in earning commission over the next 4 years of the agency).

In calculating Mr Kingsley’s compensation entitlement, the judge had regard to the German cases on calculating compensation.  In so doing, the judge confused the concept of indemnity (to which agents are entitled on termination of the agency in Germany) with the concept of compensation (to which Mr Kingsley was entitled under the Regulations). 

The indemnity concept derives from Germany law, is subject to a cap of the agent’s average annual commission over the last 5 years of the agency (or over the duration of the agency, if less than 5 years), and is calculated by reference to a formula recommended by the European Commission.  In contrast, the compensation concept derives from French law, is not subject to a cap and is calculated by the French courts by reference to a 2 year benchmark, being the agent’s average annual gross commission over the last 3 years of the agency multiplied by 2 or the global amount of the gross commission earned by the agent over the last two years of the agency.

Irrespective of this, the judge erroneously extracted one factor from the method of calculation of an indemnity used by the German courts, being the presumption that the agency agreement would have continued.  The judge considered that  the German courts favoured a 4 year continuation period and so applied this to calculate Mr Kinglsey’s compensation entitlement by multiplying his average annual commission by 4.  The judge then noted that the German courts did not deduct an agent’s expenses when calculating the indemnity.  The judge disagreed with this approach and chose not to follow it, considering that not to deduct expenses would be “repugnant to the law of England and Wales”.

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 Steve Sidkin

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