COMMERCIAL AGENTS REGULATIONS – THE COST OF GETTING IT WRONG

In Green Deal Marketing Southern Ltd v Economy Energy Trading Ltd, the High Court carried out a comprehensive review of compensation under the Commercial Agency Regulations 1993. Although it provided no “new law”, it’s a very useful summary of the status quo regarding commercial agents’ disputes.

Just about everything that could go wrong between contracting parties did go wrong. And it ended up with the principal (Economy Energy) going into liquidation under an award in excess of £1million.

What are “goods” for the purposes of the Regulations? EE argued that electricity isn’t but the Judge held against them.

Did “heads of terms” have contractual effect? The parties planned to enter into a formal contract but the judge held that the heads still had contractual effect. It was a word to the unwary about assuming heads of terms can be of no contractual validity.

Was the agent entitled to compensation under the Regulations? This notwithstanding the fact that the principal terminated the contract due to the agent’s breach of contract. In the circumstances of this case, yes. But the water surrounding the alleged breach was very muddy and regulation 18(a) will cover a clear and unambiguous “breach”.

How do you quantify compensation under the Regulations? The judge reviewed the established process calculating compensation. He followed “Lonsdale” and other cases and fixed compensation akin to a share in the goodwill in the principal’s business.

Although the parties agreed that approach, their expert witnesses differed as to what that meant. The agent’s expert put the figure at over £8million. The judge found their calculation was flawed in a number of respects and held in favour of the principal. Even so, at over £1m, the award is probably a record for this type of compensation.

And can an agent claim damages for breach of contract in addition to regulatory compensation?  The judge held that to do so would amount to a double recovery and rejected the claim in that respect.

But was it worth the effort? The agent and its legal team had a result but they came up empty handed when EE went into liquidation. A huge investment in legal costs for no eventual return. More proof of that old Churchillian adage: “Jaw-jaw is better than war-war”.

Philip

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