Decoro was a Chinese manufacturer of leather furniture. Mr Coleman was a well established agent for leather furniture in the UK.
Mr Coleman became aware of the products offered by Decoro thought his American contacts. He considered that the furniture manufactured by Decoro would sell very well in the UK market. Mr Coleman approached Decoro and arranged to meet with representatives of Decoro at an industry trade show. At this show, Mr Coleman introduced Decoro to a number of his contacts from the main UK retailers in the fashion industry.
Decoro was very enthusiastic about the opportunities introduced by Mr Coleman and agreed to appoint Mr Coleman as its agent for sales in the UK and Ireland. Mr Coleman began taking orders from around October 1998. However, a signed agreement was not entered into until March 1999, although this was back dated to January 1999. For tax reasons, Mr Coleman did not enter into the agreement himself. Instead the agency agreement was in the name of Mr Coleman’s company, Tigana, incorporated in the Isle of Man. The agency agreement provided that it was to be for a period of one year but that it could be extended by agreement between the parties.
Demand for Decoro’s product was high amongst the major retailers. One customer alone placed orders worth US$ 3.65 million for the period April to June 1999. However, Decoro suffered a set back when it was discovered that the furniture did not meet the UK’s strict fire retardant standards. Decoro were forced to recall all products supplied in the UK prior to September 2000. However, from that date Decoro’s furniture was compliant with the relevant health and safety standards the UK market was very profitable.
Decoro decided not the renew Tigana’s agency after it expired on 31 December 1999. Instead Decoro appointed a sales manager for the UK and Ireland.
Tigana claimed against Decoro for unpaid commission under Regulation 7, compensation under Regulation 17, and commission after termination of the agreement pursuant to Regulation 8(a) of the Commercial Agents Regulations.
Decoro argued that it had terminated the agreement because of Tigana’s breach of duty in respect of the UK fire resistance requirements. However, this argument did not hold much water and was dropped at an early stage.
The Court held:
Regulation 17 was clearly intended to apply where an agency agreement expired through effluxion of time.
Tigana was entitled to commission on sales made after termination of the agency agreement which were to customers introduced by Tigana early in the relationship. The judge held that these sales were mainly attributable to Tigana’s efforts prior to termination and that, on the facts, a reasonable period for which such commission should be paid was nine months.
Tigana was entitled to compensation pursuant to Regulation 17. The judge considered that he was not bound to follow the two year bench mark which was the practice of the French courts, but instead that compensation should be evaluated o the basis of a “balance sheet” of various factors, including:
- The length of the agency.
- The nature of the client base and whether orders were likely to be one-off or repeat.
- Whether the agent acted exclusively for the principal.
- Whether the agent was free to do business with customers of the principal after termination.
- The benefits retained by the principal after termination.
- Whether any payments had been awarded under Regulation 8.
- The manner in which the agency agreement ended.
The judge also considered that in this instance compensation should be based on net earnings and made a deduction of 20 per cent, to represent remuneration paid by way of expenses. However, he did not consider that English courts would be bound to calculation compensation based on net remuneration in every circumstance.
On that basis, and despite the fact that the agency agreement had only been in place for a period of fifteen months (including the time spent by Mr Coleman prior to a signed agreement being entered into), the judge awarded compensation equal to the commission earned during the course of the agency agreement less a deduction of 20 per cent. In respect of expenses.
The judge also stated that he considered that he would have concluded that the same award compensation would have been due if he had been bound to follow the approach of the French courts in applying the two-year bench mark.
Tigana’s total award was in excess of US$1m.
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 Steve Sidkin