Commercial Agency Regulations – Compensation For Agents

The High Court issued a decision last week regarding the assessment of compensation for agents acting in accordance with the Commercial Agents Regulations 1993 ("Regulations").

The decision did not break any new ground as existing legal principles were applied to the facts of the case. However the case provides a helpful illustration of the factors courts will take into account when calculating the level of compensation payable to agents under the Regulations.

Background to the Commercial Agents Regulations

The Regulations came into force on the 1st January 1994 and govern the relationship between commercial agents and their principals. Under Regulation 17, a commercial agent is entitled to be compensated or indemnified, after the termination of the agent's contract. Compensation shall automatically apply, unless the parties specifically decide to take the indemnity route.

Compensation under the Regulations shall be granted to an agent if he suffers due to the termination of his contract with the principal. Damage is deemed to have occurred if, on termination, circumstances apply which either:

deprive the 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 agent; or have not enabled the agent to amortise the costs and expenses that he had incurred in the performance of the agency contract on the advice of his principal. In Alan Ramsey Sales and Marketing Ltd v Typhoo Tea Limited [2016] EWHC 489 (Comm), the court took into account previous case law and existing legal principles set out by the House of Lords in Lonsdale v Howard & Hallam Ltd [2007] UKHL 32 but also took into account the evidence presented by the experts on both sides.

The experts agreed that compensation should be calculated on a future annual net earnings basis (looking at data on the price/earnings ratios from the FTSE on the day of termination) and multiplied by a multiplier. The multiplier was to be determined by a number of factors namely:

the potential liability of investing in the agency; the stability of the principal's business; the position of the business in the market; the financial position of the business; and the volume of trading...