| COMMERCIAL AGENTS | 31st Dec 2008 |
The most significant event in the law of Commercial Agents Regulations since their introduction on 1st January 1994, took place on 4th July 2007.
The House of Lords gave their definitive Judgment in relation to the calculation of a commercial agent’s compensation in the case of Lonsdale –v- Howard & Hallan. This was the first time that the Commercial Agent’s Regulations had come before the House of Lords, and fortunately there was a very experienced panel of Judges dealing with this particular case. Since 1994 the Courts in the United Kingdom have struggled with the issue of compensation when a commercial agent has had his or her agency terminated by their Principal. The initial reaction of the United Kingdom Courts was to follow the French method of awarding compensation which allowed a commercial agent two years gross commission as compensation for losing their agency.
The House of Lords unanimously agreed that the agent should be compensated for the value of the agency which he or she has lost. The Court stated that the valuation is determined by the amount which the agent could reasonably be expected to receive for their agency on the open market, if they sold the business.
This is seen by most commentators in this area of law as a sensible and businesslike approach to this problem which has frustrated lawyers and clients for the last 13 years. In assessing the value of the agency, certain factors will be taken into account by the valuers. Was the agency expanding or diminishing? If it was a diminishing agency, then it follows that a third party would be prepared to pay very little for the agency and therefore the compensation figure is likely to be relatively small if anything. Alternatively if the agency is rapidly expanding, a third party would be likely to pay a substantial premium for that agency.
The Appellant in the claim, Mr Lonsdale who was the agent, also requested the Court to refer this matter to the European Court of Justice in order to clarify the law in this area, which began life as a European directive. The House of Lords firmly rejected this request on the basis that although the law had been unclear for a number of years in the UK, the calculation of compensation is a discretionary matter for each Member State of the European Union.
Following this Judgment, it is clear that an agent will have to obtain valuation evidence from an expert in order to pursue a claim in the Court. The valuation evidence is likely to be provided by a forensic accountant or an accountant who specialises in valuing businesses. This is a very imprecise science - however it will no doubt develop in the coming years as a result of the decision in this case.
Should you require any further information on this area of law then please contact Michael Devane at our Enfield office on 020 8367 3230 or by email at md@martinshepherd.co.uk.
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