Legal Updates

Commercial – Commercial Agent – Compensation on Termination of Agency Contract

The judgment from Smith and other v Howard and Hallam Ltd  (2005), illustrates the court’s approach to assessing compensation under the Commercial Agents (Council Directive) Regulations 1993 (“the Regulations”).  The defendant, Howard and Hallam Ltd (“HH”), manufactured shoes until late 2002 when they decided to close down their business. Smith and other (“S&O”) were HH’s commercial agents for many years. In January 2003, HH gave notice to S&O that they would be terminating their contract as of the end of June 2003. E, another shoemaker, agreed to buy the brand from HH and to take on S&O as their commercial agents with similar terms to the contract between HH and S&O.

Nonetheless, S&O decided to claim compensation from HH under Regulation 17 of the Regulations, whereby a commercial agent is compensated for early termination of contract. The court therefore had to decide the appropriate amount of compensation due to S&O.  In determining a fair and proportionate sum the court considered whether adjustment should be made to take into account the fact that E had taken on S&O under similar terms as a commercial agent.

The court held that:

▪     the appropriate sum due would be 12 months’ commission, calculated with regards to the commission received prior to giving notice;

▪     the decision was based upon the following factors:

1)     the proportion of the overall value of the sum paid to the brand name;

2)     the value of the agency;

3)     a comparison with previous methods used by the court under similar circumstances; and

4)     the fact that the commission was paid on a gross basis.

Comment: Although the amount awarded was generous considering the purpose of the Regulations is to compensate for loss, a more significant point is that it appears that the court will take into account a number of factors in determining the level of compensation due to a commercial agent.

Please contact us for more information on assessing damages due under termination of a contract at  enquiries@rtcoopers.com

Visit http://www.rtcoopers.com/practice_corporatecommercial.php

© RT COOPERS, 2005. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances.

 

 

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