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	England and Wales High Court (Queen's Bench Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Queen's Bench Division) Decisions >> Smith & Ors v Howard and Hallam Ltd [2005] EWHC 2790 (QB) (14 November 2005) URL: http://www.bailii.org/ew/cases/EWHC/QB/2005/2790.html Cite as: [2005] EWHC 2790 (QB), [2006] EuLR 578

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IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION

		Royal Courts of Justice Strand London WC2A 2LL
		14 November 2005

1. HIS HONOUR JUDGE OVEREND: This is a claim by three commission agents for compensation under Regulation 17, following the termination of their contracts by their principal, the defendant company Howard and Hallam Ltd, by a notice of termination being given in January 2003, expiring at the end of June of that year. They were told at that stage that their commission and forward sales, on a repeat basis, would be paid until the end of December of 2003. No complaint is made as to the notice period, nor as to the payments of commission that fell due after the termination of their contracts. And, accordingly, there is no Regulation 8 claim for remuneration or under Regulation 15, relating to the minimum notice period.
2. The circumstances of the Regulation 17 claim are these: All three complainants have been commission agents, employed by the now non-trading defendant, who was a shoe manufacturer, based in Leicester, for many years. The claimant, Mr Smith, who had the Midlands territory, had been an agent for 28 years. The claimant Mr Palmer, who had the south-western agency, had been an agent for 22 years. Mr Bailey, who held the northern territory, had been the agent for 33 years.
3. They all sold the defendant's brand name Elmdale shoes. They were largely shoes of a wide-fitting nature, aimed at the mature-ladies market, aged some 55 or above. As is not unusual, each of the agents also had other agencies, but for non-competing brands. Two of the agents, at some stage, also owned retail shops themselves for several years.
4. Towards the end of 2002, the defendant company decided on closure. It was caused by the decline in sales that had been continuous since the early 1990s. They were not alone; they were the only last two surviving shoe manufacturers in Leicester. They had seen hundreds of other shoe manufacturers close across the United Kingdom. By way of snapshot, the figures show that peak sales, in terms of pairs of shoes, were running at 430,000 in 1990; that had fallen to 201,000 in the year 2000.
5. The court heard from Richard Hallam, the great-grandson of the founder, in 1895, that there was a 40% drop in market share for specialist shoe shops, into which the commission agents sold, between 1992 and 1996. By way of illustration of the decline of the market as a whole, he told the court that Clarks and Dr Martins had relocated their UK manufacturing to India and Indonesia, in 2001 and 2002, and those events marked the end of serious volume production of shoes in the United Kingdom.
6. By 2002, when Howard and Hallam made their decision to close, Elmdale shoes were being priced out of the market, and their profit margin was being eroded; that was due to the change in the pattern of the market – shoes being available through supermarkets, factory shopping villages, discount shopping, and large numbers of shoes being imported into multiple retail outlets.
7. Those overall declining sales figures had, in each case, been reflected by declining commission earnings of the three claimants. Each was on 3.75% by way of commission, and figures and graphs were produced showing both actual and inflation-corrected bases, showing individual declines. There is some issue as to whether the events surrounding the closure in 2003 further reduced the agents' commissions below the existing trend, following the announcement of the company's intention to shut the business at the end of that year.
8. Following the termination letters, dated 10 January, 2003, a press announcement of closure was made by the company. This, according to Mr Hallam, was almost immediately followed by half a dozen approaches to the defendant company, from organisations interested in buying some or all of the company's assets, one of which turned out to be the other, remaining, Leicester manufacturer, a cooperative called Equity. Within a short period of time, before the notice period to the agents had expired, Equity was discussing the purchase of the Elmdale trade name from the defendant company. It was also considering that it would be advantageous to contact the defendant's commission agents, and in particular the three claimants in this case. Terms were shortly agreed between Howard and Hallam Ltd an Equity for the sale of the Elmdale brand name to Equity, for the sum of £550,000. The three agents were also offered commission-agent contracts by Equity, to continue to sell the Elmdale products into their existing territories, at a slightly enhanced rate of 4%. One adjustment was in fact made; the south-eastern territory, which had been serviced by a Howard and Hallam agent, who was not offered a contract by Equity, went to Mr Palmer in addition to his south-west territory; a further adjustment was then made – he gave up the North Wales component to Mr Bailey, who operated that, together with his northern territory.
9. In practical terms, therefore, all three agents were almost immediately placed with the purchaser of the Elmdale trademark, and were therefore in a theoretical position to continue to earn commission, selling the same brand-marked goods, which were changed season by season, year by year, to the same customer base, in the same territories, subject to the adjustment of territories referred to above.
10. A fourth agent, Mr Lonsdale, who is not a claimant in these proceedings, but did bring proceedings against Howard and Hallam Ltd, was paid the sum of £7,500 by the defendant, by way of a voluntary assessment of Regulation 17 compensation. He challenged that figure before His Honour Judge Harris, QC, in the Oxford County Court. He received from the learned judge a lesser award of £5,000, being equivalent to approximately six months of net commission. That judgment is under appeal. The learned judge gave permission to appeal, and I am told that the appeal is to be heard by the Court of Appeal next month.
11. These three claimants, however, were not in the same position as Mr Lonsdale, in that they have continued to hold an agency for the sale of Elmdale shoes. They, too, have received voluntary payments from Howard and Hallam Ltd, but they are relatively modest, as assessed by the defendant company, acting on legal advice. They amount to approximately three months worth of net commission – namely, £7,370, £4,558, and £6,950 respectively. There is an arithmetic issue as to precisely how the multiplicand should be calculated – should it be net or gross, and over what period? In other words, should it be over a five-year period, or a lesser period, and if so, which?
12. It is said by Mr Moser, on behalf of the claimants, that the payments made by Howard and Hallam Ltd fall far short of their entitlement under Regulation 17, having particular regard to the great length of service of the agents, and the contribution each of them has made to the wellbeing of the company, reflected in the healthy balance sheet of the company when it ceased to manufacture shoes in 2003.
13. That, then, is the background to this case, although there were some further issues canvassed during the trial, including whether it could be said that Mr Smith saved the company in the late 1970s, by his increases in the business generated in the Midlands, and whether the agents' claims to the past success of the company understated and failed to reflect the role played by the company itself in creating, promoting and advertising the brand name, providing credit to customers, and providing sales support at trade shows or by way of telesales.
14. I turn first to the legal principles. The claim is made under the Commercial Agents (Council Directive) Regulations 1993, which provides, by Regulation 17.1,

'This Regulation has effect for the purpose of ensuring that the commercial agent is, after termination of the agency contract, indemnified in accordance with paragraphs 3 to 5 below or compensated for damage in accordance with paragraphs 6 and 7 below.

17.2, Except where the agency contract otherwise provides, the commercial agent shall be entitled to be compensated rather than indemnified'.

15. Two routes to payment were therefore envisaged, namely indemnity, which was not provided for in these contracts, which were oral, and therefore is not applicable, or compensation. There is a time-bar of one year, in either case, set out by Regulation 17.9, but that, too, is not relevant on the facts of this case.
16. The provisions relating to compensation are set out in Regulation 17.6 and 7, which provides:

17.6, 'Subject to paragraph 9 and to Regulation 18 below, the commercial agent shall be entitled to compensation for the damage he suffers as a result of the termination of his relations with his principal'.

17.7, 'For the purposes of these Regulations, such damage shall be deemed to occur particularly when the termination takes place in either or both of the following circumstances, namely circumstances which, a, deprive the commercial agent of the commission which proper performance of the agency contract would have procured for him whilst providing his principal with substantial benefits linked to the activities of the commercial agent; or, b, have not enabled the commercial agent to amortise the costs and expenses that he had incurred in the performance of the agency contract on the advice of his principal'.

17. The words 'damage he suffers', are not defined in the Regulations, but, presumably, relates to the damage to the agents' right, protected under the Regulations, which, in turn, derive their origin from Council Directive 86/653/EEC, of 18 December, 1986, on the co-ordination of the laws of member states relating to self-employed commercial agents.
18. It is apparent that the choice given in the British Regulations, between indemnity and compensation, mirrors the choice set out in Article 17 of the parent Directive, which provides, in Article 17.1,

'Member states shall take the measures necessary to ensure that the commercial agent is, after termination of the agency contract, indemnified in accordance with paragraph 2, or compensated for damage in accordance with paragraph 3'.

19. The parent provisions to Regulations 17.6 and 7 are in Article 17.3 of the Directive, which provides:

'The commercial agent shall be entitled to compensation for the damage he suffers as the result of a termination of his relations with the principle. Such damage shall be deemed to occur particularly where the termination takes place in circumstances depriving the commercial agent of the commission which proper performance of the agency contract would have procured him, whilst providing the principle with substantial benefits linked to the commercial agents' activities, and/or which have not enabled the commercial agent to amortise the costs and expenses that he had incurred for the performance of the agency contract on the principle's advice'.

20. In order to place the Directive into its context, Mr Moser referred the court to a preamble to the Directive, which provides,

'Whereas it is appropriate to be guided by the principles of Article 117 [now 136] of the Treaty, and to maintain improvements already made, when harmonising the laws of the member states relating to commercial agents'.

21. He then referred the court to Article 136, which, so far as is relevant, reads, under 'Social Provisions':

'The Community of member states, having in mind fundamental social rights, shall have, as their objectives, the promotion of employment, improved living and working conditions, so as to make possible their harmonisation while the improvement is being maintained, proper social protection, dialogue between management and labour, the development of human resources with a view to lasting high employment and the combating of exclusion. To this end, the Community and the member states shall implement measures that take account of the diverse forms of national practices, in particular in the field of contractual relations, and the need to maintain the competitiveness of the community economy'.

22. In those circumstances, Mr Moser submits that the English Regulations should be applied purposively, and he relies upon a raft of authority to support that proposition, commencing with the speech of Lord Templeman in the House of Lords, in Lister v Forth Dry Dock and Engineering Co Ltd [1990] 1 AC 546, 558.

'Thus the courts of the United Kingdom are under a duty to follow the practice of the European Court by giving a purposive construction to their Directives, and to Regulations issues for the purposes of complying with Directives'.

23. He also relied on the case of Page v Combined Shipping and Trading Co Ltd [1997] 3 AER 656, which was in turn referred to in the Scottish case of King v T Tunnock Ltd [2000] EuLR 531, a decision of the Extra division of the Inner House of the Court of Session. In King, Lord Caplan referred at page 539, paragraph 17, to Page and the judgment of Lord Justice Staughton at page 660. Lord Caplan then commented,

'His Lordship went on to observe that the purposes of the relevant Directive, including the harmonization of the law of member states, and the second purpose, derived from motives of social policy, were to afford the agents protection against their principals…..,'

24. Lord Caplan quotes from Lord Justice Staughton,

"These reasons seem, to me, to point fairly strongly to an intention to depart from the domestic legal provisions of the various countries in the Community, or at any rate some of them, and achieve a regime which is new to some, and will be the same for all".

25. Mr Moser then referred the court to the decision on a reference for a preliminary ruling of the European Court, in the case of Barbara Balone v Yokohama SpA [1998] ECR I-2191, and, in particular, the opinion of the Advocate General, Mr Cosmas, at paragraph 27, which reads as follows.

'However, the Court of Justice has repeatedly held that the member state's obligation arising from a Directive, to achieve the result envisaged by the directive, and their duty under Article 5 [now Article 10] of the Treaty, to take all appropriate measures, whether general or particular, to ensure the fulfillment of that obligation, is binding on all the authorities of the member states, including, for matters within their jurisdiction, the courts. It follows that, when applying national law, whether adopted before or after the Directive, the national court called upon to interpret that law must do so, so far as possible, in the light of the wording and the purpose of the Directives, so as to achieve the results it has in view, and thereby comply with the third paragraph of Article 189 of the Treaty'.

28, 'In this case, given the case law of the national courts in regard to the requirements that a commercial agent be registered, failing which the contract is void, problems of interpretation arise for the national court because of the need to interpret the provisions of the national law governing the subject matter in issue in a manner compatible with the Directive….'

Paragraph 30, 'It must be pointed out first that the purpose of the Directive is to protect those persons who fall within its definition of 'commercial agent…..'

26. In the judgment of the court, that reasoning was adopted at paragraph 13, where it said,

'In that respect it should be borne in mind, first, that the Directive is designed to protect commercial agents….'

27. To complete his full house of authority, Mr Moser relied upon the decision of Mr Justice Morison in Tamarind International Ltd v Eastern Natural Gas Retail Ltd [2000] CLC 1397, which was cited by Mr Justice Fulford in the case of PJ Pipe and Valve Co Ltd v Audco India Ltd [2005] EWHC 1904, and in particular, at page 146 of Mr Justice Fulford's judgment, he cites paragraph 10 of Mr Justice Morison's judgment, which says,

'The Directive has as an essential function the co-ordination of laws relating to self-employed commercial agents. The rights of nationals from one member state to set up agencies, branches or subsidiaries in another member state, the right of establishment, lies at the heart of the Community. The directive was made partly so as to give effect to the right of establishment and to the correlative obligation upon the Council and the Commission to effect, progressively, the abolition of restrictions on freedom of establishment, Articles 43 and 44. It was also made pursuant to Article 47 "to make it easier for persons to take up and pursue activities as self-employed persons" and to harmonise laws so as to enhance fundamental social rights including the promotion of employment and working conditions, Article 136.'

28. Mr Justice Fulford also cited paragraph 28 of Mr Justice Morison's judgment, the citation being at paragraph 148 of PJ Pipe and Valve, and the relevant passage is as follows;

'The court is invited to look at the nature of the commercial bargain between the principal and the agent. Was it in the principal's commercial interests that this agent should be appointed to develop the market in the particular goods by the agent's expenditure of time, money and his own resources? It seems to me that by adopting this approach Parliament has properly reflected the purpose of the directive. What the Directive is aimed at is the protection of agents by giving them a share of the goodwill which they have generated for the principal, and from which the principal derives benefit after the agency agreement has been terminated. Essentially the Regulations are asking whether this agent has been engaged in such circumstances as he can be said to have been engaged to develop goodwill in the principal's business'.

29. Having cited those authorities on the need to interpret purposively, Mr Moser submitted that the nature of the right that was protected under the Directive and the Regulations was a quasi-proprietary right, and he relied in support of that proposition upon a passage of the judgment of Mr Justice Davis in the case of Tigana Ltd v Decoro Ltd [2003] EWHC 23, in particular paragraph 106.2, where Mr Justice Davis said,

'Secondly, it seems clear that the Directive contemplates that goodwill established by an agent for the benefit of the principal can be treated, as it were, as a quasi–proprietary right in which the agent is taken to have a share and of which he is divested on termination'.

30. Mr Moser further argued, and/or accepted, that common-law principles of mitigation and avoidable loss are not to be taken into account. That was a proposition that had been conceded by counsel in the Tigana case, which was referred to in paragraph 87.2 of Mr Justice Davis's judgment;

'Common law principles of mitigation and avoidable loss have no part to play in the assessment. Mr Hollander's concession in this respect is, in my view, also obviously right: having regard, for example, to the availability of compensation on the death or retirement of the agent. As Mr Hollander put it, the focus is on the position at the time of termination; one looks back, not forward'.

31. Mr Moser said that where, in paragraph 89 of Mr Justice Davis's judgment he sets out no less than 14 (non-exhaustive) factors to be considered in deciding what compensation, if any, to award, Mr Moser says that they are all capable of assessment through the prism of events occurring at the date of termination.
32. Mr Moser's case on behalf of the claimant was that the protection of an agent required payment of a substantial sum on termination, and he suggested that two years average gross earnings, upon termination of the agencies of the length that his clients had served, was appropriate. His case was that it cannot be gainsaid that each and every one of these agents were not only extremely hard-working; they were highly successful, and in some cases in their heyday, they brought sales of £1 million a year to the defendants for their territories.
33. Mr Moser said that he did not rely on a tariff of two years, nor was he relying on French law, however he did draw the court's attention to the report of the European Commission, written in 1996, on the application of Article 17 of the Council Directive on the coordination of the laws of the member states relating to self-employed commercial agents, and in particular to a passage entitled 'Difficulties' in respect of the award of compensation reported on by the Commission, as a result of questionnaires that had been sent out to relevant organisations in the member states. Under 'Compensation', the report says:

'As regards the compensation option, clearly this has not presented problems of interpretation in France, where pre-existing jurisprudence has continued to be applied. However, as regards the United Kingdom, which applies the compensation option in default of the choice of the parties, there is a fundamental difference in approach. At this stage, [and one interposes, this was written in 1996] there is no UK case law, but the parties in practice are attempting to apply common-law principles. These common-law principles are directly opposed to the well-established method of calculation of compensation in France. For example, the English system will take account of future developments after termination of the contract, and this results in the need for the injured person to mitigate his loss. Whereas, under French law, events after the termination of the agency contract have no bearing on the compensation to be awarded. Under French law the standard award is two years commission, which represents the value of the purchase of an agency, or the period it will take the client to re-establish his client base. It is difficult to see how the UK courts will reach this figure. This, no doubt, derives from the previous legal position in the United Kingdom that agency contracts could be terminated on notice without any payment being due. This naturally has had consequences for business practices. There was no real concept of goodwill attaching to an agency, to which the agent had a right to share in. It is not possible to predict how the UK courts will interpret the Directive, but it seems likely they will have regard for the existing common-law principles'.

34. That slightly pessimistic report set the scene for the next decision referred to by Mr Moser, which was the Scottish case of King v Tunnock Ltd, to which reference has already been made, in which Lord Caplan said, at paragraph 48,

'It is obvious, in our view, that on the basis of its own terms Regulation 17. 6 and 7 provide for a different basis of making compensation than our traditional common law approach. However, as stated, the Regulation does fit in well with the French approach to such compensation. The legislation provides for valuation at the date of termination rather than requiring an explanation of the future prospects for the agency. During the currency of the agency, the agent has owned a valuable asset and what he chooses or omits to do after he has lost that asset has no bearing on the value of what he has lost. If he had assigned the agency he would normally have received some compensation for that assignation, observing that he could do so only with the principal's agreement and been free thereafter to do as he chose. Thus the French conclusion that mitigation of loss by the agent is not a factor when compensation is approached, as we have described, is in our view persuasive…..'

'The Directive and Regulations, as presented, seem to harmonise with the French approach and, given their terms, and the general objective of achieving harmonisation, we see no justification for construing the Regulations as being radically different from the French approach'.

'The matter of fixing an appropriate level of compensation remains. It seems that, even in France, the two-year rule is only a benchmark, and can be varied at the discretion of the judge, however this does not mean that we are precluded from considering what will happen in France, for the rulings of a judicial system apply in the same legislation, intended, indeed, to operate in the same way between the relevant systems, must be entitled to some respect. There are also practical considerations. The French law obviously considers that there is some merit in finding a clear and practical basis for determining a fair level of loss. We equally consider that, given the particular type of loss we are dealing with, a broad approach is both inevitable and a practical requirement of the law. This approach is emphasised when we consider that they are seeking an overview of the commercial situation where one of the dominant aims is to protect the agent'.

35. The Inner House went on to make an award of two years compensation in the circumstances.
36. That approach was considered in the case of Ingmar GB Ltd v Eden Leonard Inc, by Mr Justice Morland, at paragraph 42, where he said,

'Although I consider myself bound by the Court of Session on matters of law, where the court was giving guidelines as to appropriate methods for calculating or setting compensation, I must remember that they are guidelines, not rules of law. However, in my judgment, unless the guideline is inappropriate on the facts and circumstances of the particular case, the guidelines should be followed. If a principle and an agent, whether or not in a litigation situation, know the likely method by which the courts will assess compensation on termination, that must ease the resolution of the dispute and be in the overall public and commercial interest within the Community. My paramount consideration in assessing the compensation remedy, having regard to the facts and circumstances of this case, must be to achieve the purpose of the regulations derived from the Directive. If it is appropriate to follow the Court of Sessions guidelines, so much the better'.

37. In fact, what Mr Justice Moreland chose to do was to award a slightly lesser figure of 1.8 times the gross commission which was equivalent to three times the net, in the particular circumstances of the case.
38. Finally, on this aspect, Mr Moser relied on the case of Cooper v Pure Fishing UK Ltd [2004] EuLR 664, where a High Court Judge said, at paragraph 38, that he was persuaded by the decision of Mr Justice Morland, although he was not bound by it, and he applied it by awarding two years average receipts. That case was appealed, and upheld in the Court of Appeal, although this issue of quantifiability was not before the Court of Appeal.
39. Drawing his legal cases to a conclusion, Mr Moser submits that, whatever name it is given – a tariff, a benchmark, a guideline, a comparator, or a starting point – there is a body of English case law which supports his contention that the right level of award, in this case, is two years. He also points to, and relies on, the evidence of each of the three claimants, to the effect that two years' average commission would have been the sum that each of them would have required in order to surrender their agencies on a voluntary basis.
40. Mr Segal's approach was to underline the importance of justice and equity. He drew a parallel with the principles relating to the award of an indemnity, which provides, under the Regulation 17.3 subparagraph, 'Subject to paragraph 9 under Regulation 18 below, the commercial agent should be entitled to an indemnity, if and to the extent that, sub-section paragraph (a) he has brought the principal new customers, or has significantly increased the volume of business with existing customers, and the principle continues to derive substantial benefits from the business with such customers and, sub-section paragraph (b), the payment of this indemnity is equitable, having regard to all the circumstances, and in particular the commission lost by the commercial agent on the business transacted with such customers.
41. There is also a capping provision in Regulation 17.4, relating to an indemnity. The amount of the indemnity shall not exceed a figure equivalent to an indemnity for one year, calculated from the commercial agent's average remuneration over the preceding five years.
42. Mr Segal also relied upon the decision of John Mitting QC, as he then was, in the case of Moore v Piretta PTA Ltd [1999] 1 AER 174, who held, in an indemnity case, that equitable principles might require there to be taken into account such part of the goodwill as the agent was able to exploit for himself, or for the benefit of another principal.
43. Mr Segal also argued that, although Mr Justice Davis had agreed with counsel appearing before him in Tigana, that the focus of attention should be to look backwards, and not forwards, from the date of termination, that there were several aspects in Mr Justice Davis's balance sheet of 14 factors, (at paragraph 89) that could be construed as having a future element; namely, sub-paragraph (e), the matters specifically mentioned in Regulation 17.7(a) and sub-paragraph (b)(i), the extent to which the principle retains benefit after termination of the agency, and sub paragraph (j), the extent to which an agent is free after termination to have dealings with customers with whom he dealt during the agency.
44. By way of elaboration of that submission, Mr Segal argued that it would be open to these agents to claim Regulation 17 compensation from Equity, following a future termination of their current agency, on a basis that required the total length of their representation of the Elmdale brand to be taken into account, and not just those few years that had elapsed since 2003, after Equity acquired the Elmdale brand name. He also submitted that the fact that the proceeds of the brand name should be viewed net and not solely as the purchase price of £550,000. When one took into account the closure expenses, the net proceeds were of the order of £48,000, as shown at page 272 of the trial bundle, a document which was, Mr Hallam said, prepared by KPMG, although they would not put their name to the document, on advice. Mr Segal submitted that, 'so far as equity and the justice of the case was concerned, the fact that each agent had been taken on by Equity to sell Elmdale in either the same or voluntarily altered territories, that would lead the man on the Clapham omnibus to say there was no loss or, if any, a very small loss, in this case.
45. He invited the court to consider the alternative approaches that had been taken by other judges in the English courts to the issue of how to assess Regulation 17 compensation. In particular Mr Segal submitted that in the PJ Valve and Pipe case, Mr Justice Fulford had awarded Regulation 17 compensation on the basis of what he estimated to have been the loss caused by the termination, by reference to the earnings that might have accrued had the claimants remained the defendant's agent. In that case, Mr Justice Fulford had held that the agency had been wrongly terminated some 12 months too soon, during which period he assessed that one further large petrochemical commission-earning project might have been successfully introduced. Mr Segal's point is that Mr Justice Fulford's approach is very similar to an assessment of damages for breach of contract which, if such a principle were applied to the facts of this case, would in fact lead to an award of nil. Mr Segal invited the court to say that the decision in PJ Valve and pipe "squared the circle" and, in effect, completely undermined the proposition that a large sum of compensation should be paid where there has been a contractual termination, more particularly where each agent had been taken on by the new owner of the Elmdale brand name on slightly more favourable terms than had been given to the agents by Howard and Hallam.
46. Mr Segal invited the court to pour cold water on French law, or on courts that followed French law. He submitted that the Scottish courts had, 'taken a wrong turning'. In support of that proposition, he referred to a further series of cases. Firstly to the case of Duffan v Frabo SpA [2000] EuLR 167, where His Honour Judge Hallgarten QC, sitting in the Central London County Court Business list, said, at page 193,

'It is one thing to be told and to acknowledge that, under French law, events after termination have no bearing on the compensation to be awarded; it is quite another to be asked to go on to award, as a matter of routine, two years' commission, which is said to be the standard award granted by the French courts, albeit the standard award is itself subject to exceptions'.

47. He referred to the Commission's report and said,

'I think that the authors of that report were right in saying that it is difficult to see how the UK courts could reach this figure. It seems to me that once an English court is diverted from the general into the particular, it will find itself drawn into trying to mimic what a French court would actually have done, a task which it is ill-equipped to perform'.

48. Mr Segal also relied upon a forceful passage in the judgment of Mr Justice Davis, at paragraph 98, which runs to six sub-paragraphs which, rather than read out, I will attempt to summarise.

1. One, the Directive does not say French law should be applied.

2. Two, King v Tunnock did not say French law should be applied, other than by way of a comparator.

3. Three, implementation of the Directive is left to each member state.

4. Four, expert evidence regarding French law would be onerous to obtain.

5. Five, remedies are for the member states; it would be odd if compensation were to receive a two-year tariff, when indemnity is capped at one year.

6. Six, the French Civil Code was modified to bring it into line with the Directive, and not vice versa.

49. Mr Segal also relied upon the judgement of Mr Justice Fulford in the PJ Pipe and Valve decision. After referring to Tigana, at paragraph 161, Mr Justice Fulford said,

'It seems to me that flexibility is critical in this area, given that cases and circumstances vary infinitely. A line of reasoning based on a certain selected approach may lead to a fair result in some instances, but not in others.'

50. At paragraph 162, he said,

'For my part, I consider that the court in a given case should not be subject to the straitjacket of one particular test or approach. For instance, given the short life of this general agency agreement, it is clear that the two-year tariff applied, usually in the French courts, would be of little assistance in securing a just result in this case. The relevant approach to be applied when assessing compensation will be largely fact-dependant, and judges should be free to identify those matters that are relevant to the circumstances of a particular case...' '

'Mr Nash[?] accepts that compensation under this cannot be calculated with a high degree of precision, and that something of a broad brush approach of necessity will be applied.'

51. Mr Segal also sought to make good support for the sixth proposition in paragraph 98 in Mr Justice Davis's judgement by submitting that it was a myth that the compensation divisions of the directive were based on French law. Mr Segal said that they were more akin to German law. He sought to make good that proposition by reference to the English translation of current extracts of the French law of 25 June 1991, 91-593, and a further English translation of the German Handels Gesetzbach in the form existing in 1984.
52. I have to say that I am dubious about the strength of Mr Segal's submission. Firstly, it appears to conflict with the report of the Commission on the application of Article 17. I would be slow to be persuaded that a report from a Commission whose very job it is to ascertain the relationship between national laws and European laws is wrong, without careful and persuasive analysis. Mr Segal's points seems to be,

Firstly, that Article 12 of the latest French Loi of 25 June 1991 does not appear to include the particular two deeming provisions contained in Article 17.3 of the parent directive which find their way into Regulation 17.7(a) and 17.7(b).

Secondly, that the English translation of Section 89(b) of the Handels Gazetsbuk appears to give the right to "reasonable compensation" in the circumstances subsection 1 and 2, which appear to correspond with the first deeming provisions of Article 17.3, the parent of Regulation 17.7(a).

53. For my part, I have difficulty with documents which appear to be English language translations of either French of German original texts. I can demonstrate why there is a concern by reference to the French document produced by Mr Segal. The problem is one of the correctness of the English translation, including nuance and legal context. The translation can be misplaced as can be deomonstated particularly by looking at the English translation of Article 12 of the French Loi. It states,

'Those having claims on the commercial agent shall also have the right to compensation where the contract is terminated following the death of the agent.'

54. The words 'those having claims on' seems to be incorrect, having regard to 17.4 of the directive which relates to 'entitlement' to the indemnity to compensation for damage which shall also arise. The French words, which I believe to have been mistranslated are "Les ayant droit de". The word "entitlement" refers to the rights of the agent and not to the rights of third parties with claims on the agent.
55. That seems to me to be an example of the problems associated with English translations. In the context of a case of this nature, without reference to rather more detailed translations and, in particular, without reference to the relevant contemporaneous sourced documents (which have not been produced in this case), I do not feel able to support Mr Segal's proposition.
56. Indeed, Mr Moser pointed out that the translation in the German Handels Gesetzbach for 'damages' also appears not to have the correct nuance or legal content.
57. After that somewhat lengthy excursion into the Expert legal jurisprudence, I now turn to rather more simple and straightforward matters, namely how to go about assessing damages in this case. I think the approach towards valuation of the goodwill of the agencies can be dealt with in the following way:

firstly, by considering a lump sum by reference to a proportion of the overall value of the brand name. In this case it is known, it being sold for £550,000, on the basis of the products bearing the Elmdale brand name would be sold without interruption, from the customers' point of view. The transition of Howard and Hallam Ltd to Equity was intended to be seamless, even though Howard and Hallam ceased to trade.

Secondly, by considering the evidence of the agents relating to the value they placed on their respective agencies, including, if such be the case, any estimate of a reasonable time in which it would have been possible to reconstitute the customer base of which the agent had been divested.

Thirdly, by comparing the results of the two previous exercises with the decisions of the French, Scottish and English courts.

Fourthly, by considering whether the compensation figure arrived at was fair and proportional, as found in paragraph 109 of Tigana, in particular,

(a), 'whether adjustments should be made to reflect the fact that although commissions are paid gross, expenses are inevitably associated with generating the sale that produces the entitlement to commission' and

(b), what adjustments, if any, should be given for the fact that prior to the effective termination date of each agency, Howard and Hallam had sold the Elmdale brand name to Equity, and Equity had taken on each agent on terms that were at least as favourable as before.

One: The Lump Sum Approach.

Unusually, in this case the value of the Elmdale brand name has been ascertained in the marketplace. It is therefore not a matter of conjecture or estimation. It is the value placed on the brand name by Equity which, presumably, represents the value they placed on the goodwill associated with the use of the Elmdale brand name. It would not be speculation, in my judgement, to assume that the number of factors leading to that market valuation included the existence of a ready-made customer base, a long number of successful trading years, the familiarity of the customers, both end purchaser and retailer, with the nature and quality of the products, and the perception of the products as being marketable in their particular niche market, despite the marked changes that had led to the closure of many other British shoe manufacturers.

58. There is no precise evidence as to how much of the value of the brand name sold to Equity could be said to be attributable to the agents and how much to the company itself. There is, however, evidence given by Mr Hallam as to the precise make up of the selling and distribution expenses in the years leading up to the sale of the brand name. From his evidence, I calculate that, in the last three calendar years, excluding 2003 which I regard as unrepresentative, that the total commission payments made amounted to £357,055. That amounted to 42% of the total selling and distribution expenses over the same period. ( I calculated that total to be £844,510).
59. In broad terms, it follows that the agents' commissions, generated by their commission-producing activities, amounted to 42% of the total selling and distribution expenses. Although this percentage is not necessarily the appropriate figure to apply to the brand name value in order to ascertain the exact share of the agents' goodwill that they have lost on termination, on the other hand, it does indicate the respective sales and distribution contributions of both agent and company. The latter includes substantial expenditure on advertising.
60. As a matter of arithmetic, application of that 42% figure to the gross proceeds of sale of the brand name produce the following calculation: 42% of £550,000 equals £231,000.
61. In terms of commission payments, if paid to all agents, this would equate to a payment of 1.9 years of gross commission. The calculation here: the average annual total gross commission over the three calendar years is £357,055 divided by three, which equals £119,018. The figure of £231,000 is 1.9 times the average annual gross commission of £119,018.
62. As a matter of arithmetic, that multiplication of 1.9 would fit to be adjusted if different groups of years were chosen for consideration of the sales and distribution expenses. I do not feel the need, however, to make such an adjustment as I regard the three years chosen as being representative.
63. I have considered whether a further adjusting figure needs to be applied to this arithmetic sales and distribution based figure in order to arrive at an approximate valuation of the loss of the agents' goodwill. One that might spring to mind is one which would reflect the intrinsic values of the product range derived from its design and manufacture. It is trite that a poorly produced, technically flawed, or uneconomically manufactured product range would probably not acquire a valuable brand name, let alone sell. Further, the longevity of the brand name may speak as many volumes for the nature of the products themselves as it does for the activities of the agents. However, I conclude that a brand name has a value that implies good manufacture. In a case such as this, where there are seasonally changing products and designs which would have to be updated each season, no further adjusting factor needs to be applied to the multiplier to which I have already referred.
64. In my judgement the cost of closedown of the Howard and Hallam business, as shown on page 272 of the trial bundle, is not relevant to this exercise. This is because the brand name, as distinct from the Howard and Hallam, was sold as an ongoing entity with new products continuing to be introduced in 2003 and being promoted on a seamless basis for the following seasons. In those circumstances, Howard and Hallam's business closure costs cannot be said to diminish the value of that brand name.
65. Equally, contrary to Mr Moser's contention, the value of the other assets of Howard and Hallam do not appear to be relevant since their value was quite separate and distinct from the goodwill associated with the brand name itself.
66. Finally, it should be stressed that the exercise being undertaken is not one of rewarding agents for long service or of giving prizes for saving the company in the 1970s, which Mr Smith said he had been told he had done by a director of Howard and Hallam.
67. Equally, in my judgement, the court is not assisted in this exercise by reference, as invited by Mr Segal, to the protection given to employees under the Acquired Rights Directive 2001 or to the Transfer of Undertakings (Protection of Employment) Regulations 1981. There is a clear distinction between recognizing rights on termination of agency contracts to goodwill generated by agents on the one hand and in securing continuity in the terms and conditions of employees when the employers' businesses are transferred as a going concern on the other.

Two: The Agents' Evidence on Value.

68. Following the criticisms of the lack of evidence of value made by His Honour Judge Harris QC in the Lonsdale case, the claimants' solicitors ensured that each claimant included a passage in their witness statement in the current case in which they deposed to the price they would have asked for, had they disposed of their agencies voluntarily. Although it might be thought of as contrived evidence, the fact is that each agent said that he would ask for two years' gross commission. For my part, I have some hesitation in accepting such figure without some corroboration, having regard to the manner in which the evidence was obtained. Evidence could have been given of actual prices sought and obtained by agents selling their agencies, but none was forthcoming. Mr Smith spoke of unnamed retailers selling their business for two years' gross profits. Mr Palmer said that a valuation in the region of two years' gross commission would, he understood from an undisclosed contact of Mr Bailey, be considered as standard in Germany. Mr Bailey's friend, who has experience of commercial agencies in Germany, said that the selling price of approximately two years' commission would be a reasonable sum to expect. Such evidence is, in my judgement, little more than wishful thinking and is of no persuasive value of the actual value of agencies being limited to evidence of asking prices, whether realistic or otherwise. Those criticisms apart, I found that the evidence of the agents to have been honestly given and helpful.

Three: The Comparison Exercise.

69. It is appropriate to compare the multiplier of 1.9, arrived at in the lump sum exercise, with practices in other parts of the European Union. These, of course, include France and Scotland. I have already referred to the 1996 commission report which records the French practice as awarding two years' gross commission, subject to adjustment. The Scottish approach, in the case of King v Tunnock Ltd, has also been to adopt a similar two-year multiplier. The English first instance decisions show differences between, on the one hand, the Ingmar and Cooper cases where 1.8 and 2 years were rewarded, and on the other four decisions of Duffan, Tigana, PJ Pipe & Valve and Lonsdale, in which the French approach has been eschewed and "flexibility" substituted. I share the view of the four English judges who preferred flexibility to the French rule of thumb. Harmonisation has already occurred in this country by the creation of a hitherto unrecognised right to compensation for the loss of goodwill upon the termination of a commission agent's contract. The valuation of that loss is very much dependant on the individual facts of each case, and accordingly little assistance, in my judgement, can be gained by comparison from the approach of other jurisdictions.

Four: Fairness and Proportionality.

70. I approach this issue on the basis that the purpose of the provision of the Regulation 17 compensation right is to protect the agent by recompensing him for the loss of the goodwill he has built up by his own time, effort and expenditure in selling his principal's products in his territory. The time for assessment of that loss is as at the date of termination of the agency, in this case in June 2003, with prior notice having been given in January 2003. As already indicated, I accept that common law principles of mitigation and avoidable loss are to be excluded from that valuation exercise. As at the time of the giving of notice in January 2003, the valuation of the agents' loss of goodwill would, in my judgement, have amounted to something of the order of 1.9 years' worth of gross commission, adopting the reasoning and approach as set out above. However, by the actual date of termination in June 2003, two important events had occurred which cannot be ignored, in my judgment.
71. Firstly, Howard and Hallam had sold the brand name of Elmdale to Equity. As a matter of record, that sale had not been engineered or agreed by the principal prior to the termination by notice of the agents' contract. Howard and Hallam had gambled, although they chose to use the expression "exercised a commercial judgement", on being able to sell the brand name simply by announcing the closure of the company.
72. Secondly, by June 2003, each agent had either agreed or agreed in principle, to continue to sell the Elmdale brand name products for the new owners, Equity. Thus it is that Mr Segal, on behalf of the defendants, contends that there has been continuity of the terms and conditions applying to each agent and therefore no loss.
73. At least one of the agents said that his new agency was less secure than the old one. The reason put forward was that because Equity have competing products being sold in the same territory by different agents there was a built-in insecurity. In a diminishing market, it may become inevitable that, despite the competing nature of the original Equity and the acquired Elmdale products, it may be more realistic to have just one agent having both lines. Further, it was said, on behalf of the agents of by the agents themselves, that any Regulation 17 compensation payable by Equity on termination of the new agency contract would not recompense the agents who had moved from Howard and Hallam for their many years' service with Howard and Hallam.
74. It was also said that there had been a loss of confidence in the customer base caused by the uncertainties of the transition, having regard to the gamble taken by Howard and Hallam that they would be able to sell the brand name and, possibly, that the agents would be taken on by any purchaser. This had created a period of uncertainty between the announcement of the closure of the Howard and Hallam business and the announcement of the continuation of the brand name following its acquisition. All the agents were of the view that this had created problems. All the agents said that this had resulted in an enhanced diminution in sales during the first half of 2003. In the case of Mr Bailey, he had felt it necessary to give greater emphasis to the other lines he sold, in order to make good the shortfall he experienced.

Five: Multiplier.

75. In my judgment, the renegotiation of the agents' contract with Equity did have a significant effect on the valuation of their lost goodwill and must be taken into account as part of the circumstances appertaining as at the effective date of termination in June 2003. However, in my judgment, a far more cautious approach should be taken than that contended for by Mr Segal. This is for the following reasons.

One, the new brand name owner also sold competing products which did have the effect of rendering the new agency less secure than the original Howard and Hallam agency.

Two, the loyalty of Equity to their new agents would not be based on many years of long service. This would mean that commercial decisions by the new principal might be taken which would not have been taken by the old principal, for example, "last in, first out".

Three, the products given the Elmdale brand name were no longer to be manufactured by Howard and Hallam, and accordingly might not have the same attributes as would have been expected in a Howard and Hallam product.

Four, any future Regulation 17 claim to compensation made against Equity would be limited to the goodwill built up since June 2003, on the grounds that the goodwill as at June 2003 is being compensated in these proceedings.

76. I also observe that it lies ill in the mouth of Howard and Hallam pray in aid what their agents have had to arrange themselves after the unilateral notice of termination of their agency by Howard and Hallam in January 2003. In some respects, their stance is the equivalent of them asking for a windfall by way of reduction of the inchoate obligations under Regulation 17.
77. Taking all those matters into account, I accordingly reduce the value of the Regulation 17 claim to one of 12 months' loss of commission as at June 2003. Having regard to the way in which this figure is arrived at, I see no reason to award net rather than gross commission. Accordingly, I do not enter into the minutiae of calculating the respective expenses of each of the agents.

Six: Multiplicand.

78. There remains the issue of the multiplicand. In my judgement, I have already found the first six months of 2003 to be unrepresentative, having regard to the way the closure announcements were handled. Accordingly, I find the appropriate period for calculating the average gross commission to be the last three calendar years, not the last five as originally contended for by Mr Moser, which I feel overweighs the claimants' desire for compensation at the expense of a more accurate view of current reality. I am grateful for the alternative calculations produced by Mr Moser during his closing address, from which, if I have my arithmetic correct, it is possible to calculate that 12 months' gross commission, based on the average of the last three calendar years will produce the following compensation.

The first claimant: £33,724.80.

Second claimant: £20,497.33.

Third claimant: £29,870.

79. Credit will need to be given for the payments already made. I will listen to submissions relating to interest and costs.
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