By Kenneth Muhangi Esq.
LLB(HONS) UCU LLM(WALES)
Dip.Lp(LDC)
Agency is a relationship which arises when one person, called the principal, authorizes another, called the agent, to act on his behalf, and the other agrees to do so.[1] This definition is also used in The Commercial Agents (Council Directive) Regulations 1993[2], although the word “self employed intermediary” is added to explain the function of an agent. In the case of AMB Imballagi Plastici v. Pacflex Ltd[3], Judge Raymond averred that the term self employed is akin to the term independent contractor in English law.
In 1986, the council of ministers enacted Directive 86/653 on self employed commercial agents and the co-ordination of the profession of self-employed commercial agents[4]. This directive was implemented by the 1993 regulations (ibid) which came into effect on January 1, 1994. The purpose of these regulations was to clearly establish the legal protection to be enjoyed by commercial agents. However, although the regulations were enacted with good intentions, they have been plagued with ambiguity. Before the 1993 directive, commercial agents in English law were only entitled to receive damages. Now, that the regulations provide for indemnity and compensation as remedies, ambiguity notwithstanding, the difference of these two from traditional remedies is what has caused confusion. This is so especially concerning termination of agency agreements and the meaning of compensation and indemnity.
Termination is not given a precise meaning under the 1993 regulations[5]. But, it takes place in a number of ways like notice, inconsistent conduct, insanity, death and bankruptcy[6]. The regulations give remedies to agency agreements that have been terminated. Under section 17 (2) of the regulations, a commercial agent is entitled to compensation rather than indemnity. However, section 17(3) extends the remedy of indemnity. The effect of this is that an agent has two remedies, compensation and indemnity and this is what has caused problems for the courts as an agent, will still get compensation even when he is the one that has committed the breach. In fact, Severine Saintier an author in various journals commented that the effect of this clause made an agency agreement similar to an employment contract rather than a commercial one[7]. And, since there is no definition of damage in the Directive[8], UK courts seem to agree with Saintier. In King V Tunnock[9], court noted that the only guidance as to the circumstances that give rise to compensation is contained in regulation 17 (6).
If it can be shown that there is damage, then compensation will arise and the only remaining question will be the amount of compensation. Court of appeal in Lonsdale v Howard & Hallam ltd[10], agreed with the decision in the King case[11] and Moore Bick L.J, commented that the purpose of regulation 17 is not to provide compensation for damage caused by breach of duty but to provide compensation for the loss of goodwill for which a claim would otherwise arise. The regulations only take away the right to compensation in three instances which are; when the principal has terminated the commercial agency relationship with just cause, secondly when the agent terminates the agreement also without just cause and when the agent does not claim compensation or indemnity within one year of termination[12].
The principle of indemnity is influenced by Article 89 b of the German Commercial code. In the case of Moore v Piretta[13], court held that the main purpose of the Directive as to harmonize member states on the subject of commercial agency and court also suggested that German law be used as guidance for the purpose of “construing the English Regulations”. On the other hand, when it comes to compensation, the influence of the French legal system cannot be ignored. This is seen in cases like AMB Imballagi Plastici srl v. Pacflex ltd[14], where court seemed to rely on French legal principles. This was also the case in Roy v. M.R. Pearlman ltd[15] and King V Tunnock[16], where French law was used in calculating compensation. However, in Jeremy Duffen v FRA BO SPA[17], the plaintiff was appointed to act as the exclusive commercial agent for an Italian manufacturer. This arrangement was to last for three years but, two years later, following the nonpayment of commissions, the claimant terminated the contract relying on the terms of the contract that gave him authority to do so. The claimant then started proceedings and claimed unpaid commissions and liquidated damages pursuant a contract clause. Court of Appeal allowed the sum prayed for in unpaid commissions but held that the liquidated damages clause unenforceable.
When the case reached the Central London County Court, the claimant now sought to recover unpaid commission, a retainer and compensation for damage suffered relying on the Agency Regulations (ibid). In interpreting the regulation, court held that regulation 17 (6) is not meant to duplicate what may otherwise be recoverable at common law. In this case, French law was also used as a guide but it also seemed to slowly move away from the French methods of calculating compensation.
The case of Barrett Mckensie & co ltd v Escada (UK) Ltd[18], seems to also move away from the French system as Bowers J. held that the High court did not accept that he had to follow the French approach and found that compensation provisions have to be UK based, without requiring an expert in French Law to determine a particular case. This was also the case in Tigana Ltd v Decoro [19]where Davis J held that the decision in King V Tunnock (ibid) was not binding on English courts and that French law need not be applied.
The Tigana case[20] also set out a number of factors to be used in calculating compensation. These include the length and terms of the contract, the nature of history of the agency, the manner in which the agency is terminated, and loss caused by breach. It was also suggested that assessment of compensation be based on the “balance sheet” of relevant considerations, by reference to specific circumstances of the matter in question. The case of PJ Pipe & Valve Co v Audco India ltd[21] also distanced itself from the French approach and instead , a “broad brush” approach be used in interpreting the regulations as this approach would ensure court opined in a principled and logical way. It is clear from all these cases the confusion surrounding calculation of compensation as courts in Wales, Scotland and England have all taken different approaches and it is safe to note that following the Lonsdale decision, the French approach is becoming unpopular especially when it comes to the French Approach of calculating awards equal to two years gross commission.
Regulation 17(6)[22] also brings further issues in that it stipulates that a commercial agent is entitled to receive compensation for the damage suffered as a result of the “termination of his relations with the principal”. The issue here is that when this clause is related to regulation 17(1)[23], it becomes unclear whether the regulations mean the agency contract is the one that is terminated or the relations are the one that are dissolved. This issue can be seen in a scenario where parties enter into several renewable fixed term contracts and if the regulations were to be applied lock, stock and barrel, then regulation 17 (1) would apply only to the last contract and not the agency agreement from the beginning. But, this issue was resolved in the case of Duncan Moore v. Piretta ltd[24], where it was held that the relationship as a whole (as in the scenario above) should be considered in order to evaluate the amount of indemnity to pay.
In conclusion, it is still a mystery as to whether the number of cases involving calculation of indemnity and compensation will go down. What is clear is that the decisions that are passed in this fragile area of law are not addressing the matter in detail. In light of this, it is not surprising that the judiciary has been plagued by confusion in implementing the regulations and that the English courts still rely on other Legal systems for guidance on how to adjudicate cases involving indemnity and compensation. This not only undermines the regulations but also buries their objectives of protecting agency agreements. But, blame does not fall entirely on the courts as it has been shown that the difficulty lies in the ambiguous nature of the regulations and the inability to apply them verbatim. There is need to properly define indemnity, compensation and termination. Also, working out the kinks and other loopholes in the regulations would help reinforce its mandate. But, the problems of the regulations may soon be forgotten as the House of Lords in 2007 granted leave to appeal in the Lonsdale case[25] and as such, try and find a proper definition and assessment of compensation in English and European law. A European court of Justice ruling on this matter would go a long way in redeeming the regulations.
END NOTES.
[1] Peel, Edwin. The Law of Contract, Twelfth Edition, Sweet and Maxwell, at page 752
[2] 1993 no. 3053
[3] (1999) 17 Tr.L.R. 557
[4] [1986] O.J. L382/17
[5] Ibid 2
[6] Peel, Edwin. The Law of Contract, Twelfth Edition, Sweet and Maxwell, at page 802
[7] Severine, Saintier. ‘A remarkable understanding and application of the protective stance of the Agency Regulations by the English Courts’, Journal of Business Law, 2001.
[8] Ibid 2
[9] [2000] Eu.L.R
[10] [2006] EWCA Civ 63
[11] Ibid 9
[12] Regulation 17 (9)
[13] [1999] 1 All E.R. 174
[14] Ibid 3
[15] [1999] 2 C.M.L.R. (3) 1155
[16] Ibid 9
[17]No. 1, see [1999] E.C.C. 58. The case was upheld by the Central London County Court on 21-10-1999 (case No. 2), see [2000] 1 Lloyd’s Rep. 180
[18][2001] All E.R. 73
[19][2003] Eu. L.R. 189
[20] Ibid 19
[21][2005] EWHC 1904
[22] Ibid 2
[23] Ibid 2
[24] [1999] 1 All E.R. 174
[25] Ibid 10
aklawug 