Commercial Agents Update 2010 (Part 1)

by Christopher Tayton Clarkslegal LLP

T h e C o m m e r c i a l A g e n t s
Regulations have been in force for
over 15 years yet the Courts are still
being asked to clarify parts of the
Regulations which remain unclear.
Few will have missed the House of
Lords decision in Lonsdale v
Howard Hallam where the Court
explained how compensation
under the Regulations should be
calculated. The purpose of this
note is to provide an update on
those areas of the Regulations
which have been clarified by the
Courts over the last three years.

(For a fuller explanation of commercial agency law please refer
to our Complete Guide to Commercial Agents, accessible via
our website, www.clarkslegal.com).

The following questions have been considered
by the Courts over the last three years:
1. How do you calculate compensation
due on termination of a commercial
agency agreement?

This was the question put to the House of
Lords in Lonsdale v Howard Hallam (2007).
Previously the Court’s approach was
inconsistent and had varied between either
applying the French rule of awarding two years’
gross commission or using the value of the
agency business to calculate the award. The
Court decided that the latter basis was correct
and explained the method of calculating
compensation as follows:
The test is what a hypothetical purchaser
would reasonably have paid for the agency
business at the date of termination, on the
assumption that it was assignable and
would have continued.

Where appropriate, the valuation will take
account the following: o The condition of
the underlying business of the principal. If
the business is in decline or being closed,
this will be reflected in a reduced valuation.
If the agent is likely to take customers away
with him on termination, again this should
be reflected in a reduced valuation.
The agency should be valued on a net basis,
so any expenses that the agent has to incur
to earn the commission need to be
discounted.
Where claims go to Court, generally the
parties will need to provide expert
accounting evidence to prove the value of
the business.
After Lonsdale, the Court was given a
further opportunity to clarify these rules in
Nigel Joinery Services v Ian Firth Hardware
(2008). The Court held that generally the
costs of employing someone to undertake
the duties of the agent was an expense
which should be deducted when preparing
the valuation. In many cases, this will
substantially reduce the amount of
compensation awarded.
After Lonsdale, the Court was given a further
opportunity to clarify these rules in Nigel
Joinery Services v Ian Firth Hardware (2008).
The Court held that generally the costs of
employing someone to undertake the duties
of the agent was an expense which should be
deducted when preparing the valuation. In
many cases, this will substantially reduce the
amount of compensation awarded.

2. When is an agent a “commercial
agent” for the purpose of the
Regulations?

One qualification is that the agent must have
“continuing authority to negotiate the sale or
purchase of goods”. Lawyers have tried to
exclude the Regulations by drafting agency
agreements which avoid giving the agent the
necessary “authority to negotiate”.
Two recent decisions have helped clarify this
issue.

In Nigel Joinery Services v Ian Firth
Hardware (see above), the Court decided
that an agent whose role it was to get the
customer interested in the product,
suggest possible prices for the product
(subject to principle’s approval) and
encourage the customer to order those
products was a “commercial agent” even
though the actual sale was negotiated by
the principal.
In Raoul Sagal (T/A Bunz UK) v. Atelier Bunz
GMBH (2008), an individual bought
jewellery from principal at 20% discount
and sold onto customers. Court held that
where a business buys and sells the goods
as principal rather than agent, this will not
be a commercial agency. In this case, the
individual did not have authority to
negotiate on behalf of the principal, and
was, in reality, a distributor.

A further requirement is that the agent’s
activities as “commercial agent” must not be
“secondary” to their main duties as an agent.

In John Harold Crane v Sky-In Home
(2007), a sales agent was retained to supply
and install satellite equipment packages
and also to sell subscriptions to Sky’s
satellite television. The Court held that the
key issue was whether the sale of the
“goods” (in this case the satellite
equipment) generated any goodwill (in this
context, repeat business) for the principal.
The Court decided that it was the sale of
the satellite subscriptions (which is a
“service” and therefore not covered by the
Regulations) which generated the repeat
custom and that the sale of the goods (i.e.
the satellite equipment) was therefore
secondary, meaning the agent was not a
commercial agent.

CONTINUES IN NEXT ISSUE

Chris is a dispute resolution lawyer
working out of the firm’s Reading and
London offices.
Chris has particular expertise in the Commercial Agents
Regulations (acting for both principals and agents),
advertising law and restrictive covenants in
employment contracts.
He also advises on IT and software related claim, and is
a member of the Society for Computers and Law.

Head Office:
Thames Valley Office: One Forbury Square,
The Forbury, Reading RG1 3EB
Tel: 0118 9604691
www.clarkslegal.com

Disclaimer: This column does not contain legal advice and is for general
guidance only. Agentbase, Clarkslegal LLP and the writer accept no
liability in connection with the general guidance given in this column.

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