Commercial Agents Regulations: assessing compensation
05/07/2007
The House of Lords has ruled that where an agency agreement is terminated early, the compensation payable to the agent under the Commercial Agents (Council Directive) Regulations 1993 (the "Regulations") can be calculated by reference to the value of the agency.
Upholding the Court of Appeal's decision in Lonsdale v Howard & Hallam Limited (2006), the House of Lords held that the correct approach to calculating compensation is by reference to the actual damage the agent suffers as a result of the termination. Damages will be the loss of the value of the agency relationship, that is, the amount the agent could reasonably expect to receive should the relationship have continued.
In accordance with the Regulations, an agent is entitled to an indemnity or compensation following termination of the agency relationship (regulation 17(1)). The indemnity is capped at one year's commission, calculated by reference to average earnings in the previous five years. Where the parties have not specifically agreed that an indemnity will be payable on termination, the agent will instead receive compensation.
The relevant EC Directive and the Regulations provide no explicit guidance as to the amount of compensation payable. The approach established by the French courts is to award an amount equal to the previous two years' gross commission. The House of Lords did not, however, apply this approach, which the court deemed too broad and inadequate in certain cases. Furthermore, the House of Lords held, the courts of England are not bound by such an approach since the method for calculating an agent's compensation is a discretionary matter for the domestic laws of the Member States. The appellant was, therefore, refused leave to the European Court of Justice.
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