Lonsdale v Howard & Hallam Ltd.

Under the Commercial Agents (Council Directive) Regulations 1993, compensation on termination addresses damage actually suffered. Ordinarily, this is the value at termination of the agency business and its goodwill. It is not a discretionary severance payment and is not governed by a general two-years gross commission rule.

Valuation may reflect earning potential and the principal’s financial condition, including decline likely to affect future value. Common-law mitigation is generally irrelevant to asset valuation, although future prospects may be relevant to that valuation. Proven unamortised expenses may also be recoverable. A broad-brush assessment is permissible, and expert evidence is helpful but not invariably proportionate.

Mr Graham Lonsdale acted as a commercial agent for Howard & Hallam Ltd, selling its shoes to retailers. The agency lasted from 1990 until June 2003, when the company closed its business. The parties accepted that compensation was payable under the Commercial Agents Regulations, but disagreed about the amount.

The Oxford County Court assessed the compensation at £5,000. Mr Lonsdale appealed, contending that compensation should generally equal two years’ gross commission and that greater weight should be given to the agency’s duration and his satisfactory performance. The central issue was the proper interpretation and valuation of damage under regulation 17(6).

The Court of Appeal unanimously dismissed the appeal. Moore-Bick LJ gave the judgment, with Hallett LJ and Jacob LJ agreeing.

1. Nature of the entitlement. Regulation 17(6) compensates the agent for damage actually suffered as a result of termination. It does not confer a discretion to award whatever sum appears fair in the circumstances. This differs from the indemnity regime, which expressly depends on equity and is subject to a statutory cap.
2. Normal basis of valuation. The damage will ordinarily be the loss of the agency business, including its goodwill. Compensation should therefore reflect the value of that business at the date of termination. Loss of goodwill is not exclusive: under regulation 17(7)(b), the agent may recover other proved loss, including unamortised expenses.
3. Relevant evidence. The value of an agency depends on matters such as earning potential and the likely development of the principal’s business. The principal’s decline could therefore be taken into account. Future events are not excluded merely because they might otherwise arise under the doctrine of mitigation. Duration and quality of performance matter only insofar as they illuminate value.
4. No fixed multiplier. The court rejected the proposed two-years gross commission rule, even as a general guideline. An award must be reasoned and related to the damage proved. The court may adopt a broad-brush approach, and expert valuation evidence may assist, but it is not always necessary or proportionate.
5. Compensation may also be available where a fixed-term agency ends by effluxion of time, although that issue did not arise on these facts. The court expressed strong doubts about whether regulation 17(6) covers losses caused by wrongful repudiation, but left that question open.
6. Given the serious decline in Howard & Hallam’s business, falling commission and limited valuation evidence, the judge was entitled to assess compensation at £5,000. His decision could not be faulted.

The court referred to King v Tunnock [2000] ScotCS 70, Tigana v Decoro [2003] EWHC QB 23, Light v Ty Europe [2003] EWCA Civ 1238 and PJ Pipe v Audco India [2005] EWHC 1904(QB) in explaining the proper approach.

• Court of Appeal (Civil Division): dismissed Mr Lonsdale’s appeal and upheld the assessment of compensation at £5,000.
• Oxford County Court: His Honour Judge Charles Harris QC assessed the compensation payable under regulation 17(6) at £5,000.