Case - Lonsdale (t/a Lonsdale Agencies) v. Howard & Hallam Limited

[2007] UKHL 32, House of Lords - Oliver Segal QC
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The United Kingdom courts were not acting inconsistently with Council Directive 86/653 Art.17 by calculating the compensation payable to an agent under Art.17(3) by reference to the value of the agency on the assumption that it continued, rather than adopting the method used in the French courts of awarding twice the average annual gross commission over the previous three years.
 
The appellant commercial agent (L) appealed against a decision ((2006) EWCA Civ 63, (2006) 1 WLR 1281) that he was entitled to the sum of £5,000 as compensation under the Commercial Agents (Council Directive) Regulations 1993 and Council Directive 86/653 Art.17. L had been an agent for the respondent company (H) for over 13 years until the agency was terminated as a result of the closure of H's business. The European Commission had published a report in 1996 which noted that a body of case law had developed in France which fixed, "by judicial custom", the level of compensation for agents as two years' commission. The European Commission said that that "conform[ed] with commercial practice". L argued that the method of calculation adopted by the judge at first instance and the Court of Appeal produced less than he would have been awarded by a French court. He submitted that the European Commission should be treated as having endorsed the French method of calculating compensation under Art.17(3) as the appropriate interpretation of that article as a Community instrument. L argued, therefore, that all Member States which adopted Art.17(3) were bound to treat twice gross commission as the normal compensation for termination of an agency. The intervener submitted that it was concerned about the situation where an agent was able to transfer the goodwill he had created with customers to another principal, so that the former principal would not retain the goodwill which the agent had created and it would be unfair to have to pay compensation on the basis that the agent had gone out of business.

HELD: (1) Article 17(3) was explicit: the agent was entitled to be compensated for "the damage he suffer[ed] as a result of the termination of his relations with the principal". Under French law, the agent was viewed as acquiring a share in the goodwill of the principal's business, so that when the agency was terminated he was entitled to be compensated for being deprived of the benefit of the agency relationship. The value of the agency relationship lay in the prospect of earning commission if the agency contract was performed properly. The European Commission's report was not endorsing any method of calculation as a true reflection of Community law. The European Commission was merely reporting on the basis of information supplied by Member States and it noted that the position in the United Kingdom was different from that in France. There was no suggestion that either approach failed to implement the Directive. Where French and English law differed was in the method by which the damage suffered by the agent was calculated. But the European Court of Justice had made it clear that the method of calculation was a matter for each Member State to decide, Honyvem Informazioni Commerciali Srl v De Zotti (C-465/04) (2006) ECR I-2879 ECJ and Ingmar GB Ltd v Eaton Leonard Technologies Inc (C-381/98) (2001) All ER (EC) 57 ECJ (5th Chamber) applied. Commercial agencies in France operated in different market conditions to those in the UK. Twice gross commission was often the real value of an agency in France because that was what it could be sold for in the market. The UK courts would not be acting inconsistently with the Directive if they were to calculate the compensation payable under Art.17(3) by reference to the value of the agency on the assumption that it continued. That value was the amount which the agent could reasonably expect to receive for the right to stand in his shoes, continue to perform the duties of the agency and receive the commission which he would have received. The judge and Court of Appeal in the instant case had adopted the correct approach, King v T Tunnock Ltd 2000 SC 424 IH (Ex Div) doubted, Barrett McKenzie & Co Ltd v Escada (UK) Ltd (2001) ECC 50 QBD and Tigana Ltd v Decoro Ltd (2003) EWHC 23 (QB), (2003) ECC 23 considered. (2) In circumstances where an agent was able to transfer the goodwill he had created with customers to another principal, that would be reflected in the process of valuation. If it appeared that all customers would be likely to defect to the former agent, or to another party, the buyer would be unlikely to pay much for the agency. (3) There was no need for a reference to be made to the ECJ. There was no uncertainty with the meaning of the Directive. What had been uncertain was the way in which the domestic law should implement the discretion it had to find a method of calculating the damage suffered by the agent. That was a matter for the instant court.

Appeal dismissed.
Counsel for the respondent: Oliver Segal.
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