Smith & Ors v Howard and Hallam Ltd

Compensation under Regulation 17 of the Commercial Agents (Council Directive) Regulations 1993 protects the goodwill generated by a commercial agent. The loss is assessed at the termination date. Common-law mitigation and avoidable-loss principles do not apply.

There is no inflexible tariff of two years’ commission. The assessment requires a broad, fact-sensitive valuation of the goodwill lost, with relevant evidence including the value of the principal’s brand, the agent’s contribution, comparable approaches and the effect of any continuity with a purchaser. Continuity with a purchaser may reduce compensation, but does not necessarily eliminate the loss. The award must remain fair and proportionate.

Three long-serving commission agents claimed compensation under Regulation 17 after Howard and Hallam Ltd terminated their oral commercial agency contracts during the closure and sale of its shoe-manufacturing business.

The Elmdale brand was sold to Equity before termination took effect. Equity offered each claimant a new agency for the same brand, broadly covering the existing territories. The claimants nevertheless contended that they had lost goodwill built up during their agency relationships and sought substantially greater compensation than the voluntary payments made by the defendant.

The central issues were the basis of valuation, the relevance of post-termination events and mitigation, whether a two-year commission benchmark should be adopted, and the appropriate multiplicand.

1. Applicable principles. The claim was governed by Regulation 17 of the Commercial Agents (Council Directive) Regulations 1993. The court adopted a purposive approach consistent with the Directive’s protective purpose. Compensation concerns the loss of goodwill generated by the agent’s time, effort and expenditure for the principal.
2. Assessment date and mitigation. The loss was assessed at the effective termination date in June 2003. Common-law mitigation and avoidable-loss principles were excluded. The court therefore considered the value of the agency at termination, while taking account of circumstances existing by that date.
3. Valuation. There was no binding two-year tariff. The court used a broad valuation exercise involving: the proportion of the brand’s market value attributable to the agents; the agents’ evidence of the value of their agencies; comparison with French, Scottish and English approaches; and a final assessment of fairness and proportionality. The value of the Elmdale brand, sold for £550,000, supported an initial figure equivalent to 1.9 years’ gross commission.
4. Continuity with Equity. The new agency arrangements materially reduced the claimants’ lost goodwill, but did not extinguish it. Relevant considerations included Equity’s competing products, the lesser security of the new agencies, the absence of the former principal’s long-standing loyalty, possible differences in the products, and the fact that any later Regulation 17 claim against Equity would concern only goodwill built after June 2003. It would be unjust for the defendant to rely fully on arrangements which the claimants had made necessary by the defendant’s unilateral termination.
5. Amount and multiplicand. The appropriate award was reduced to 12 months’ gross commission. The first six months of 2003 were unrepresentative because of the manner in which closure was announced. Average gross commission was therefore calculated over the preceding three calendar years. The awards were £33,724.80, £20,497.33 and £29,870, subject to credit for payments already made. Interest and costs were left for further submissions.