Written by Steve Sidkin
1 June 98
Are commercial agents a down-trodden race? A recent Court of Appeal judgment concerning the Commercial Agents Regulations suggests that they are.
The nature of the judgment was such that, if it is followed, a terminated agent may claim by way of compensation the commission he would have received had the agreement continued until the end of its term. Accordingly the need for a principal to take steps to prevail such a situation arising is even more acute.
This case (Page v Combined Shipping and Trading) was concerned primarily with the issue of an injunction. The principal depended on funding from its South African parent company. When the parent company decided to disinvest from the UK, the agent considered that this constituted a repudiation of the agency agreement which had been entered into for a minimum of five years. Furthermore, the agent feared that disinvestment would result in the principal’s assets (which might satisfy judgment) leaving the UK. He sought an injunction to prevent this occurring.
Initially the agent failed. As a result an appeal was made to the Court of Appeal.
In assessing whether an injunction should be granted, the Court of Appeal concentrated on what constitutes the issue of “proper performance” in terms of termination depriving the agent of the commission which proper performance of the agency contract would have procured for him. It would seem from the judgment that “proper performance” is to mean usual or standard performance.
On this basis the Court of Appeal concluded that the agent had an arguable case as to the recovery of substantial damages. It granted an injunction. However, at the same time it effectively urged the parties to reach an out of court settlement.
In ordering an injunction, the Court of Appeal did not enquire as to whether or not following termination the principal would receive substantial benefits as a result of the activities of the agent. This is despite the fact that this is a major component of the Regulation which provides for compensation to be paid to an agent on termination. Indeed, in view of the circumstances where the parent company was disinvesting from the UK, the Court of Appeal might have considered whether the principal would receive substantial benefits in the future in a situation where there was likely to be a closing down of the principal’s activities. Without these benefits, the opportunity for significant compensation would be limited.
In addition, the Court of Appeal disregarded performance of the agency agreement by both parties prior to termination. In isolation this would be unsurprising. But one of the provisions in the agreement enabled the principal to determine the way in which the agent performed the agreement and, therefore, the commission which would be earned. In view of the interpretation of “proper performance”, it seems remarkable that the Court of Appeal did not enquire as to how the agreement had been performed prior to termination.
The most important issue in any matters concerning the Regulations is whether or not the agent is a “commercial agent” as defined by the Regulations. The Regulations provide that they do not apply to commercial agents operating on commodity exchanges on in the commodity market. However, in this case the role of the agent was to buy and sell commodities. It is unclear from the report as to whether this issue was considered by the Court of Appeal.
It is the custom of judges to make remarks which may appear to others to be quirky. Some may see this case as no exception, when the Court of Appeal referred to commercial agents as “a down-trodden race”!
The second case (Skingsley v KJC Carpets Limited) was far less complex. It concerned an agent whose agency agreement had been terminated by a carpet company. The agent had acted for the company for 6½ years before being terminated at the age of 61. He claimed compensation.
Inexplicably the company allowed the agent to obtain judgment in default of filing a defence. The company then sought to have judgment set aside but went about doing so in an ill-prepared manner. An application to set aside judgment was filed on the date on which the court was to assess damages in respect of the judgment awarded in favour of the agent. Furthermore the supporting affidavit failed to set out what defence the company might have. Unsurprisingly the court refused to allow the application.
In assessing damages the judge recognised that the Regulations provide for “no fault” compensation. However, it was then accepted by the court that regard should be had as to how compensation is calculated in the German courts.
In doing so, the judge made a mistake. The applicable law in Germany is concerned with the issue of providing an indemnity (and not compensation) to agents on termination. Furthermore the judge accepted an analysis of German law which was incorrect.
Despite this the judge decided that he would follow the German example and award the agent compensation equivalent to 4 years’ average annual commission in the absence of any unusual features.
This resulted in an award of almost £70,000. From this was deducted annual expenses of about £6,000. Accordingly compensation of £45,000 was awarded.
In addition to mistaking the way in which compensation should be calculated, the judge also failed to recognise that the notice of termination of the agency agreement was not in accordance with the Regulations. In the absence of a provision in the agreement, notice of termination is to expire at the end of a calendar month. This did not happen in this case. The failure of both the judge and the agent’s lawyers to recognise this point meant that the agent failed to recover his full entitlement in respect of his loss.
This case was the subject of an appeal by the company. Before it was heard the case was settled.
In the interim there are now two similar judgments arrived at in different ways and on different facts. Of the two, the Page decision is more likely to be followed, at least in respect of the interpretation of “proper performance”. Whether other aspects of that decision will be followed remains to be seen in view of the defects in the case.
What is clear is that the Regulations are here to stay and the courts are now involved.
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)