Clarification from the courts on valuing agencies

The case of Software Incubator Limited v Computer Associates UK Limited was big news in agency circles last year, providing longawaited confirmation that the definition of goods for the purpose of the Commercial Agents (Council Directive) Regulations 1993 includes software. (Please refer to our article run in the November 2016 issue by Blake Morgan: ‘Commercial agents and software – goods rather than services?’) The judgment however also contained useful clarification on a number of other points relating to the sums payable to an agent whose agreement has been terminated. First, the court considered the question of whether, when valuing an agency for the purpose of determining the compensation payable to an agent on termination under Regulation 17, the valuer should take into account the fact that the agency agreement may be terminated on notice. Computer Associates argued that the valuation should be reduced because the agency agreement continued on a rolling yearly basis and was terminable on three months’ notice.

No hypothetical purchaser, they said, would pay a large sum to purchase a business which would only last for a year. The court agreed that when valuing the business it could not be assumed that the agency agreement would last forever and the valuation should take into account any termination rights. However it should generally be assumed that the agency will be properly performed by the hypothetical purchaser going forward, and that the principal will not have any reason to take immediate steps to terminate it at the shortest possible notice. Computer Associates went on to argue that where a compensation claim under Regulation 17 is successful, an agent should not also be able to claim damages for the principal’s breach of the agreement. In this case, Software Incubator had claimed damages for sums due for the three month notice period under the agreement. Notice pay is the most common form of damages claim we see in practice, but it is possible that an agent could have a damages claim for some other breach of the agreement by the principal if this breach has caused him loss. The court rejected Computer Associates’ argument that an agent cannot claim damages as well as Regulation 17 compensation. The judge did however state that the valuation of the agency for the purpose of the compensation claim could be affected by a principal’s liability to pay a large damages claim. In this case the damages claim was not significant enough to make any impact on the value of the agency. As the case shows, valuing an agent’s claim after termination of the agency agreement can be a complex exercise and almost always requires the involvement of expert accountants. We recommend that agents seek advice at the earliest opportunity to ensure that they do not under or overstate the value of their claims in any exit negotiations with the principal.

Emma Butcher is a Senior Solicitor at Clarkslegal

Clarkslegal LLP, One Forbury Square, The Forbury, Reading RG1 3EB Tel: 0118 953 3932 | Ext 3932 Mobile: 07799 212 511 Fax: 01189604618 Email: EButcher@clarkslegal.com www.clarkslegal.comDisclaimer: This column does not contain legal advice and is for general guidance only. Agentbase, Clarkslegal Solicitors and the writer accept no liability in connection with the general guidance given in this column. Please ensure that you obtain legal advice before acting in reliance upon anything in the article. For example please be clear that the answers given in this column may not cover all possible angles, aspects, relevant considerations and/or points of law and so that all or any information which is given above needs in every instance to be referred for legal advice for clarification and amplification, before being relied upon.

 

Disclaimer: This column does not contain legal advice and is for general guidance only. Agentbase, Clarkslegal Solicitors and the writer accept no liability in connection with the general guidance given in this column. Please ensure that you obtain legal advice before acting in reliance upon anything in the article. For example please be clear that the answers given in this column may not cover all possible angles, aspects, relevant considerations and/or points of law and so that all or any information which is given above needs in every instance to be referred for legal advice for clarification and amplification, before being relied upon.

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