England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE QUEEN'S BENCH DIVISION
(MR JUSTICE WRIGHT)

		Royal Courts of Justice Strand London WC2
		24th May 1996

LORD JUSTICE STAUGHTON: Mr Graham Page, the plaintiff in this action, is a sole trader in the name of Graham Page Trading in essential oils. For the past six years he has acted as agent for a company called Combined Shipping and Trading Company Ltd who are the defendants in this action. Latterly, the relationship between them has been governed by an agreement which was concluded on the 3rd January 1995. I do not need to go into the detail of the agreement. What it does provide is that Mr Page shall buy and sell commodities, the finance will be provided by the Combined Shipping Company, the net profit will be divided in equal shares between them. It is quite an elaborate agreement, but there are only certain provisions that are relevant for present purposes. The first is Clause 5. That provides, 5.3:

"The company in its absolute discretion but after consultation with GPT shall from time to time determine -

a) the maximum open position long or short which GPT can take, such determination to supersede any previous determination;

b) the maximum allowable exposure of all or any individual clients of the Company to the Company. Such determination to supersede any previous determination.

c) the maximum allowable exposure of the Company to its creditors in respect of contracts issued under the Agreement, such determination to supersede any previous determination"

Then there is clause 11 which deals with termination of the Agreement. 11.1:

"This Agreement shall come into force on the date hereof and, subject to clause 11.3 and 11.4, shall continue in force for a period of 4 years. Thereafter it shall be subject to automatic renewal for further periods of 2 years unless or until terminated by either party giving the other party not less than 12 months' written notice of termination, expiring at the end of that period."

Clause 11.4 provides:

"Either party shall by entitled forthwith to terminate this Agreement by a written notice to the other party if-

a) that other party commits any breach of any of the provisions of this Agreement and, in the case of a breach which is capable of remedy, fails to remedy the same within 30 days after receipt of a written notice giving full particulars of the breach and requiring it to be remedied"

That was the written agreement which was concluded between the parties in January 1995. On the 6th June the Combined Shipping Company informed Mr Page that its parent company, which was called Tiger Oats Ltd and I think came from South Africa, had decided to disinvest in the operations of the Combined Shipping Company. That meant, apparently, to bring the company's activities to an end. Redundancy would be offered to all the company's employees. It was thought by Mr Page that this constituted a repudiation of the agreement, which was supposed to have lasted four years and had been concluded some five months earlier. He wrote a letter accepting the conduct of the Combined Shipping Company as a wrongful repudiation of the agreement. That was on the 2nd February 1996.

Mr Page had at that time in store goods which had been brought pursuant to the agreement to a value of $900,000. The Combined Shipping Company removed some of the stock, but Mr Page retained some £300,000 worth in his custody. He maintained that he was owed money. Since then the stock has been released by agreement, and money has been deposited in a bank account. Meanwhile, Mr Page started this action in which he claims damages or compensation for repudiation of the agreement. He applied to a judge in chambers for a prior restraint injunction. His ground for doing so was that there was a real risk that if he had to wait until the action came to trial there would be no assets of the Combined Shipping Company left in this country. Seeing that the parent company is South African and that they had themselves said that they wished to disinvest in the company, that does have a certain plausibility about it. However, that has not been in dispute today.

What happened before Wright J was that the judge concluded that Mr Page did not have a good arguable case to recover any significant sum as compensation. Accordingly, the judge refused the prior restraint injunction which Mr Page had applied for.

Before Wright J it had not been argued, or at any rate not argued very effectively, that there was by English domestic law a right to recover substantial damages. The reason for that is as follows: it was said that the company had an option as to how they performed the contract. It would have been in their power to authorise no business at all, pursuant to the provisions of Clause 5.3, in which case they say Mr Page would have been able to recover nothing. Now, it is and has for a long time been established in the English domestic law, that when there is a choice as to how a contract will be performed, and when the contract is wrongfully terminated before the time for the exercise of that choice, the result depends on which party had the choice. If it was the plaintiff's choice, one inquires which way he probably would have exercised it, for the purpose of calculating damages. If it is the defendant's choice, he is assumed to have exercised it in the way most favourable to himself, that is in the way which most reduces the sum which he will have to pay as damages.

Now, before the judge it was assumed or perhaps even accepted, that by English law the company had a choice as to the way they would have required the contract to be performed. I am not sure it was not also assumed that they could have chosen to let it run to its full four year period without allowing Mr Page to earn anything more at all. Now that does seem a rather extravagant interpretation of Clause 5.3 or indeed of the contract. But that is not the problem today. Assuming that that was and is the meaning of the contract, still it is said that there is a right to recover substantial compensation, not under the domestic law of this country but by virtue of the regulations of the European Community. Those are the Commercial Agents Council Directive Regulations 1993, as enacted in this country. They deal with contracts between commercial agents and their principles.

Regulation 3.1 says that a commercial agent:

"In performing his activities a commercial agent must look after the interests of his principal and act dutifully and in good faith."

Regulation 4.1 says that the principal must act dutifully and in good faith. Then one comes to regulation 17 which deals with, according to the heading, 'Entitlement of commercial agent to indemnity or compensation on termination of agency contract.' Regulation 17.1 says:

"This regulation has effect for the purpose of ensuring that the commercial agent is, after termination of the agency contract, indemnified in accordance with paragraphs (3) to (5) below or compensated for damage in accordance with paragraphs (6) and (7) below."

Regulation 18 deals with what is meant by termination. It covers the case where the Commercial Agent has himself terminated the agency contract. It says that compensation shall not be payable where:

"(b) the commercial agent has himself terminated the agency contract, unless such termination is justified -

(i) by circumstances attributable to the principal"

It is that exception which is relied on by Mr Page in this case. He says that yes, he did terminate the agency, but his termination was justified by circumstances attributable to the Combined Shipping Company.

I need not pause to look at the indemnity provided by paragraphs (3) to (5) of regulation 17 in any depth. In a word, one can say that they provide for the agent to be compensated if he has brought new customers to the principal, or has significantly increased the volume of business with existing companies, and that the principal continues to derive the benefit. Also the payment of indemnity is to be equitable having regard to all the circumstances.

That is not the provision we are dealing with today. We have to consider paragraph (6) of regulation 17 which provides:

"the commercial agent shall be entitled to compensation for the damage he suffers as a result of the termination of his relations with his principal."

In paragraph 7 it says:

"For the purpose of these Regulations such damage shall be deemed to occur particularly when the termination takes place in either or both of the following circumstances, namely circumstances which -

(a) deprive the commercial 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 commercial agent; or

(b) have not enabled the commercial agent to amortize the cost and expenses that he had incurred in the performance of the agency contract on the advice of his principal."

Wright J took the view that that regulation did not depart from the position under English domestic law. If, as was assumed at the hearing before the judge, the Combined Shipping Company could have so operated the contract for its remaining three and a half years that Mr Page would have made no money out of it at all, then it is said that he has lost nothing by the premature termination and should recover no compensation under regulation 17(7). Therefore, it is said that Mr Page has no good arguable case to recover substantial sums from the Combined Shipping Company and should be refused a prior restraint injunction.

It is of some significance to look at the directive which gave rise to the regulations and in particular to its preamble, which tells us the purposes of the directive and the regulations. In the preamble there is this passage:

"Whereas the differences in national laws concerning commercial representation substantially affect the conditions of competition and the carrying-on of that activity within the Community and are detrimental both to the protection available to commercial agents vis-a-vis their principals and to the security of commercial transactions;"

Now, that indicates to my mind at least two purposes. The first is harmonization of the law of Member States of the Community so that people compete -- in the popular cliche of today -- on a level playing field. It should not make any significant difference whether one employs a commercial agent in country 'A' or country 'B', they will compete on equal terms. The second objective is one which appears to be a motive of social policy, that commercial agents are a down-trodden race and need and should be afforded protection against their principals.

Those reasons seem to me to point fairly strongly to an intention to depart from the domestic legal provisions of the various countries in the Community, or at any rate some of them, and achieve a regime which is new to some and will be the same for all. That is particularly emphasised by regulation 19 which says:

"The parties may not derogate from 17 or 18 to the detriment of the commercial agent before the agency contract expires."

These are regulations to protect and improve the position of commercial agents. I was puzzled by the words, "before the agency contract expires". But with the help of Mr Coppel (who appears for Mr Page today) it would seem sensible to say that that means that after the agency contract has expired and the dispute has arisen, then the parties may agree something different from what is in the regulations, but not before.

It is not right to say too much today about this dispute, if I have not done so already, because all that has to be decided is whether Mr Page has a good arguable case to recover a substantial sum. The argument, in essence, appears to be whether the proper performance of the agency contract would allow the Combined Shipping Company to reduce the trading to nil, or nearly nil, for the next three and a half years or whether that in terms of the regulation would not be "proper performance". We have been shown the French, German and Italian versions all of which use the word 'normal/normale' instead of 'proper'. That does not necessarily mean the same as 'normal' in English; similarities in language can be deceptive. It seems to me, in short, that we ought to conclude that Mr Page has a good arguable case for recovering a substantial sum. It may well be that when this comes to trial we shall have to refer the problem to the European Court, and it will take another two years after that before a decision emerges as to what the regulation really means. Maybe the parties will think there are better methods of spending their time and their money than disputing that for a long period of time. But for the present it is enough for us to say, I think, that there is a good arguable case.

I should mention the one case that has been cited by

Mr Pooles for the Combined Shipping Company which is said to support his argument. This was the case of Brasserie du Pecheur SA v. Germany [1996] All ER (EC) 301. The Court said at page 368 paragraph 83:

"In the absence of relevant Community provisions, it is for the domestic legal system of each member state to set the criteria for determining the extent of reparation."

I am by no means sure that that is a provision of general application. But even if it is, are we at this stage of the argument talking about the extent of reparation, or what the reparation has to be for? It is arguable that it is the latter. It is what the compensation has to be for, in the absence of proper performance, that has to be calculated.

I would therefore conclude that we should allow this appeal and grant a prior restraint injunction. I would not, for my part, feel able to express a precise sum but it may be that we can arrive at some solution on that.

MILLETT LJ: The plaintiff is entitled to compensation under regulation 17(6) and (7) of the Commercial Agents Council Directive Amendment Regulations 1993. These came into effect re the provisions of article 17(3) of the Council Directive 86/653 EEC on the 18th of December 1986.

They entitled the plaintiff to compensation on the lawful termination of his agency contract, for the loss of commission which:

"Proper performance of the agency contract would have procured for him"

In the light of: (1) the purpose and aim of the council directive; (2) regulation 4(1) of the regulations; and (3) the wording of other language versions of article 17(3), in which the word 'normal' is used rather than the word 'proper', it is, in my judgment, plainly arguable that regulation 17(7) not only provides for compensation for the lawful termination of the agency contract but lays down its own measure of compensation; and that it provides for compensation in the amount of the commission which the plaintiff would have earned if the contract had continued to be performed throughout its further life in the normal manner in which the parties intended to be performed, and not by reference to the amount of the commission which the plaintiff could have earned if the defendant had continued to carry out his obligations under the contract with the view to minimising his liability to the plaintiff and in a manner which lawful, if abnormal, would have been least onerous to him.

It is, in my judgment, plain that there is a serious question to be tried. There is a clear risk of dissipation of assets if the injunction is not granted, since the defendant intends to repatriate the monies in this country to South Africa. I therefore agree the Mareva Injunction ought to be granted until trial.

The plaintiff has sought a limit of £300,000. That does not appear to me to be excessive having regard to the fact that the contract was terminated after one year and was bound to last for at least four years and, as I understand it, the commission earned by the plaintiff in the first year was nearly £400,000. That figure has been criticised and may be too high. Nevertheless, in the absence of any other evidence it does not appear to me that the sum of £300,000 is likely to be excessive. If it is, application can always by made to the judge to reduce the figure.

OTTON LJ: I agree.

Order: Appeal allowed with costs of application and appeal. Mareva Injunction granted in the sum of £300,000. Special allowance for Solicitor/Advocate.