Business Law Essay To what extent does the law adequately protect the interests of the agent in claims for compensation upon termination of the agency relationship? PDF

Preview

Summary

This essay shows to what extent the law adequately protects the interests of the agent in claims for compensation upon termination of the agency relationship using different cases for analysis. I will demonstrate this also through discussing some of the requirements that are put in place for the age...

Description

Business Law Essay Question: To what extent does the law adequately protect the interests of the agent in claims for compensation upon termination of the agency relationship?

This essay will show to what extent the law adequately protects the interests of the agent in claims for compensation upon termination of the agency relationship using different cases for analysis. I will demonstrate this also through discussing some of the requirements that are put in place for the agent and the principal under the Commercial Agents Regulations 1993 1 and show in cases some of the controversial issues that can arise when courts are calculating compensation. Upon termination of an agency agreement between the agent and the principal, commercial agents are entitled to compensation under the Commercial Agents Regulations 1993. In order for the agent to be successful in claiming compensation they must meet the regulations that apply to the contract. The regulations apply to both parties, the principal and the agent. The regulations also allow the agent to have the right to gain either compensation or indemnity 2. For the purpose of this essay question, this writing will only focus on the right to receive compensation upon the termination of the contract as it is based on commercial agents3. The regulations show that where an agency contract wishes to be terminated by either party, different periods of notice must be given. The notice period that should be provided by either party is explicitly shown in the Commercial Agents Regulations 1993 4 and states that either party must give one month notice in the first year of the agency contract, then two months for two years and three months for three years and from that time forward.5 The regulations also outline that an agent has no right to compensation if the contract has ended due to the

1 Commercial Agents (Council Directive) Regulations 1993

2 F Davidson and others, Commercial Law in Scotland (5th edn, Thomson Reuters 2018) 171 3 1993 Regulations reg.17(2) 4 Commercial Agents (Council Directive) Regulations 1993 5 1993 Regulations reg. 15(2)(a)-(c).

commercial agent breaching the contract 6. The agent must also inform the principal within a year of ending the contract if they wish to seek compensation 7. I will go on to further demonstrate some of the regulations 8 that are in place and to what extent they protect the agent through using examples of case law in which they were applied. The way in which compensation is calculated in court has been very controversial over the years. The leading case in Scots law formerly was the King v T Tunnock Ltd 9 case which has now been overcome by the Lonsdale v Howard & Hallam Ltd 10 case, which will be considered further on in this essay. In the King v T Tunnock Ltd1 1 case, Mr King worked for Tunnock as an agent selling Tunnock’s bakery goods. When Tunnock ended the contract with King, he was given no payment in place of notice, no compensation and there was no written agency agreement in place. In this case it was stated that compensation seeks to make restitution for the commercial agent for the damages he has incurred due to the end of his relationship with the principal. Therefore, a main aim was to protect the agent and allow them to gain what they are entitled to, protecting them in situations where a contract has been terminated12. The other key legal issues in this case was the approach taken by the Inner House regarding compensation. It was not clear enough how this should be calculated and needed to be clarified 13. Upon researching compensation and whether the law adequately protects people upon termination of the agency relationship in the article Compensation, commercial agents and comparative law14 it is suggested by the author that in regards to the regulations, a general rule should have been one where if there was no fault of the agent then they should receive two years gross commission, regardless of proof of any loss. In King v T Tunnock Ltd15, King was awarded compensation, which shows that the agents interests were adequately protected. The approach in this case was very lenient and is no longer binding in courts. The issue of this case was 6 1993 Regulations reg.18(a). 7 1993 Regulations reg.17(9). 8 Commercial Agents Regulations 1993 9 King v Tunnock Ltd, 1996, S.C.L.R. 742 10 Lonsdale v Howard & Hallam Ltd [2007] UKHL 32; [2007] 1 W.L.R. 2055 11 King v Tunnock Ltd, 1996, S.C.L.R. 742 12 F Davidson and others, Commercial Law in Scotland (5th edn, Thomson Reuters 2018) 172 13 F Davidson and others, Commercial Law in Scotland (5th edn, Thomson Reuters 2018) 173 14 O’Neill, A., “Compensation, commercial agents and comparative law" (1997) SLT 141 15 King v Tunnock Ltd, 2000 S.C. 424

that the Inner House used French Law to assist them in their decision of how much compensation to award. In French law, at the discretion of the judge, compensation can be awarded at two years loss of average gross commission 16. This is explored and clarified further in the Lonsdale v Howard & Hallam Ltd 17 case. In this case, it is shown that the court A hugely influential case in terms of compensation is the Lonsdale v Howard & Hallam Ltd 2007 case

18

. Mr Lonsdale was paid £7,500 compensation by the

defendant in this case. He argued that this was not enough as he had adequately performed all his duties of the contract to an acceptable standard and under the regulations should be awarded an amount equal to two years gross commission. In the first instance Judge Harris held that Mr Lonsdale should receive the amount representing the agency at or directly before the contract was terminated. The Judge found that the net commission was running at around £8,000 a year at this time and that the agency had an income that was getting lower progressively. The judge decided the best way to apply the law was to award no compensation to Mr Lonsdale, although he did end up compromising and awarded him £5,000. Lonsdale the appealed to the Court of Appeal. His argument was that the judge had failed to apply the two-year commission guidelines from the regulations as mentioned before. He also argued that he felt the judge did not give enough weight to the evidence showing that he had performed all his terms of the agency agreement adequately. The court refused the appeal as they made the decision that the damage that was suffered to the agent as a result of his relations with his principal was normally a loss of the agency businesses, including whatever goodwill was attached to it. This case then raised two questions. Firstly, for what should the agent be compensated upon the termination of an agency agreement? Secondly, how should this compensation then be calculated? The Commercial Agents (Council Directive) Regulations 199319 now gives a clear answer to this. Regarding the first question, for what should the agency be compensated upon the termination of an agency agreement – under article 17 of the regulations 20 it states that the agent is compensated for the damage he suffers as a result of his connections with the 16 17 18 19 20

Commercial Law in Scotland Lonsdale v Howard & Hallam Ltd [2007] UKHL 32; [2007] 1 W.L.R. 2055 Lonsdale v Howard & Hallam Ltd [2007] UKHL 32; [2007] 1 W.L.R. 2055 Commercial Agents Regulations 1993 1993 Regulations reg.17

principal. The agent is assumed as having received a share of goodwill in the principal’s business therefore means that he is due compensation for the loss of that goodwill also. This then raises the question of how courts decide on how this goodwill should be calculated and how it will be given to the agent. Mr Lonsdale argued that the French approach, otherwise known as the ‘French Tariff’, mentioned in the previous case of King v T Tunnock Ltd 21, should be applied here. The House of Lords disagreed due to the fact that commercial agencies in France work in very different market conditions to England, and the method of compensation is allowed to be decided individually by each different member state. The court also decided that all other assumptions regarding compensation made by the valuer have to reflect reality which meant the court of appeal was correct to dismiss Mr Lonsdale’s case as no loss had been proven. To summarise, this case showed that compensation is not only limited to what is fair and reasonable but is also calculated based upon the value of the agency as if it was being sold to a hypothetical purchaser at the date the contract ended. This case shows that the agent is still adequately protected, but it is most definitely harder to claim compensation, which means less cases will make it to court as the costs of court may out weight the value of the claim. Critically speaking, although this does make valuing the claim clearer, this could blur the lines between compensation and indemnity and cause confusion 22. The key legal principles in Lonsdale v Howard & Hallam Ltd have been applied in further cases, providing clarity when there has been doubts. In Warren v Drukkerij Flanch BV23 and Mcquillan v McCormich24 for example Lord Hoffmans guidelines25 have been of use when looking at how much compensation should be awarded. Again, the guidelines from the Lonsdale v Howard & Hallam Ltd 26 case do make it harder for agents to give evidence of the loss they have suffered therefore making it more difficult to be awarded with the amount they are entitled as quantum. Although, this does mean that it may help filter out more cases that are ineligible for claiming compensation.

21 King v Tunnock Ltd, 2000 S.C. 424 22 F Davidson and others, Commercial Law in Scotland (5th edn, Thomson Reuters 2018) 174 23 Warren v Drukkerij Flanch BV [2014] EWCA Civ 993 (CA) 24 Mcquillan v McCormich [2010] EWHC 1112 (QB) 25 Lonsdale v Howard & Hallam Ltd [2007] UKHL 32; [2007] 1 W.L.R. 2055 26 Lonsdale v Howard & Hallam Ltd [2007] UKHL 32; [2007] 1 W.L.R. 2055

To conclude, from exploring the relevant case law it appears that agents are adequately protected by the law when claiming compensation upon the termination of a contract. Lonsdale v Howard & Hallam Ltd 27 was such an influential case that it could be argued that it does compromise the agent being protected perhaps a small amount less than they were when King v T Tunnock Ltd28 was the leading case, as the rules were not as strict as they are now. Although overall, the regulations cover agents adequately enough as shown throughout this essay.

Word Count: 1,518 Bibliography Primary Sources Cases: Warren v Drukkerij Flanch BV [2014] EWCA Civ 993 (CA) Mcquillan v McCormich [2010] EWHC 1112 (QB) Lonsdale v Howard & Hallam Ltd [2007] UKHL 32; [2007] 1 W.L.R. 2055 King v Tunnock Ltd, 1996, S.C.L.R. 742 King v Tunnock Ltd, 2000 S.C. 424 Statutes: Commercial Agents (Council Directive) Regulations 1993 Secondary Sources F Davidson, D J Garrity, L J Macgregor, A D J Macpherson, L Richardson, Commercial Law in Scotland (5th edn, Thomson Reuters 2018) 171-175 O’Neill, A., “Compensation, commercial agents and comparative law" (1997) SLT 141 27 Lonsdale v Howard & Hallam Ltd [2007] UKHL 32; [2007] 1 W.L.R. 2055 28 King v Tunnock Ltd, 2000 S.C. 424...