England and Wales High Court (Queen's Bench Division) Decisions

Ingmar GB Ltd v. Eaton Leonard Inc [2001] EWHC QB 3 (31st July, 2001)

Case No: HQ0101282

IN THE HIGH COURT OF JUSTICE

QUEENS BENCH DIVISION

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 31st July 2001 (Handed Down)

B e f o r e :

THE HONOURABLE MR JUSTICE MORLAND

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Miss J. Stratford (instructed by Fladgate Fielder for the Claimant)

Mr P. Moser (instructed by Clifford Chance for the Defendant)

I direct pursuant to CPR PD 39A para 6.1. no official shorthand note shall be taken of this judgment and that copies of this version as handed down (subject to correction) may be treated as authentic

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The Hon. Mr Justice Morland.

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JUDGMENT: APPROVED BY THE COURT FOR HANDING DOWN (SUBJECT TO EDITORIAL CORRECTIONS)  

Mr Justice Morland :

Judgment

1. The claimants, commercial agents, seek entitlement to commission under the Commercial Agents (Council Directive) Regulations 1993 (Regulations 7 and 8) and/or contractually under the agency contract and compensation on termination of the agency (under Regulation 17(6) and (7)) from the defendants, their principals, a Californian Corporation.

The Factual Background

2. The defendants were the manufacturers and sellers of sophisticated tube and pipe bending machines and associated equipment mainly designed for the aircraft and automotive industries ("The Products").
3. The claimants were incorporated in 1988 with a view to acting as the defendants' exclusive agent for the United Kingdom market. The claimants are a subsidiary of Ingmar Ltd which had marketed the defendants' products in Eastern Europe and the USSR since the early 1980's.
4. By a written agreement dated the 1st January 1989 the claimants were appointed as the Defendants' exclusive sales agent for the sale of all of the defendants products within the United Kingdom and Ireland (Bundle D tab 14 p.301 clause 1.1).
5. That written agreement was terminated by a letter (D 15. p.318) handed by Mr Hess, the defendants' President to Mrs Ingeborg Leese, the claimants managing director and the founder of Ingmar Ltd, at a meeting at the Radison Hotel Heathrow on the 31st October 1995. The termination was effective on the 1st February 1996.
6. The letter gave reasons for termination of the agreement

"We have made a decision to re-evaluate our coverage of the UK market and will be interviewing both potential agents and potential direct employees.

We will interview and consider Ingmar, GB Ltd, but feel at this time we need to look at all of our options and make a decision on which alternative is best for Eaton Leonard.

While this process is going on we will continue to pay a commission on all orders where Ingmar has objective evidence of being instrumental in Eaton Leonard receiving the order"

7. At that meeting it was agreed that the claimants would continue as the defendants' agents from the 1st February 1996 but the agency was to be terminable forthwith on notice. There is a dispute as to the exact basis upon which commission was to be payable under what has been called the New or Varied agreement. The nature of the dispute is indicated in Mrs Leese's contemporary note (D.15.p.319) and the ensuing correspondence (D.15 p.321, p.322, p.326, p.332-9, p.341-4, p.346, and p.348).
8. The project list dated the 23rd February 1996 (D.15 p.325) indicates the scale and nature of quoted equipment being marketed by the claimants on that date under the New or Varied agreement.
9. Warning that that agreement was soon to end was given in Mr Hess's letter dated the 13 June 1996 (D.15 p.326) in which he said:-

"Inge, we have had a long association and have very much enjoyed working with you. We appreciate the professional way in which you have conducted business. We hope you feel the same about us. Although our formal relationship is ending, we would hope to maintain the friendship we feel we have developed"

10. The New or Varied agreement was terminated at an acrimonious meeting at the Sheraton Heathrow Hotel on the 7th September 1996 (D.15 p.344).
11. The Writ was issued on the 10th April 1997 which was followed up by Mareva proceedings and an Order of Sir John Wood that the defendants pay into Court £27,000.
12. The defence of the 22nd July 1997 pleaded that the Regulations did not apply because the agreement was governed by Californian Law expressly.
13. On the 23rd October 1997 Sir Peter Webster upheld this contention of the defendants. On the 31st July 1998 the Court of Appeal ordered a reference to the European Court of Justice. On the 9th November 2000 the European Court of Justice gave judgment saying:-

"20. In that respect, it should be borne in mind, first, that the Directive is designed to protect commercial agents, as defined in the Directive (Case C-215/97 Bellone v Yokohama [1998] ECR I-2191, paragraph 13).

21. The purpose of Articles 17 to 19 of the Directive, in particular, is to protect the commercial agent after termination of the contract. The regime established by the Directive for that purpose is mandatory in nature, Article 17 requires Member States to put in place a mechanism for providing reparation to the commercial agent after termination of the contract. Admittedly, that article allows the Member States to choose between indemnification and compensation for damage. However, Articles 17 and 18 prescribe a precise framework within which the Member States may exercise their discretion as to the choice of methods for calculating the indemnity or compensation to be granted.

22. The mandatory nature of those articles is confirmed by the fact that, under Article 19 of the Directive, the parties may not derogate from them to the detriment of the commercial agent before the contract expires. It is also borne out by the fact that, with regard to the United Kingdom, Article 22 of the Directive provides for the immediate application of the national provisions implementing the Directive to contracts in operation.

23. Second, it should be borne in mind that, as is apparent from the second recital in the preamble to the Directive, the harmonising measures laid down by the Directive are intended, inter alia, to eliminate restrictions on the carrying-on of the activities of commercial agents, to make the conditions of competition within the Community uniform and to increase the security of commercial transactions (see, to that effect, Bellone, paragraph 17).

24. The purpose of the regime established in Articles 17 to 19 of the Directive is thus to protect, for all commercial agents, freedom of establishment and the operation of undistorted competition in the internal market. Those provisions must therefore be observed throughout the Community if those Treaty objectives are to be attained.

25. It must therefore be held that it is essential for the Community legal order that a principal established in a non-member country, whose commercial agent carries on his activity within the Community, cannot evade those provisions by the simple expedient of a choice-of-law clause. The purpose served by the provisions in question requires that they be applied where the situation is closely connected with the Community, in particular where the commercial agent carries on his activity in the territory of a Member State, irrespective of the law by which the parties intended the contract to be governed

26. In the light of those considerations, the answer to the question must be that Articles 17 and 18 of the Directive, which guarantee certain rights to commercial agents after termination of agency contracts, must be applied where the commercial agent carried on his activity in a Member State although the principal is established in a non-member country and a clause of the contract stipulates that the contract is to be governed by the law of that country."

14. On the 23rd January 2001 the Court of Appeal accordingly allowed the claimant's appeal against the decision of Sir Peter Webster (A.5. p.27).
15. Thus it is my task to assess compensation under the Regulations.

The Factual Dispute

16. I heard oral evidence from Mrs Leese (her written statements are at B.8 and 9) and Mr Ian Craig (his written statement is at B.10 with his curriculum vitae annexed as Schedule A). Mr Ian Craig was the claimants' Sales Director until trading ceased in 1997. Since then he has worked for Ingmar Ltd.
17. I found both Mrs Leese and Mr Craig convincing witnesses of complete integrity. I unhesitatingly accept their evidence. No evidence was called on behalf of the defendants.
18. I make the following findings of facts.
19. By 1988 the sale and marketing of the defendants' products was and had been for several years moribund in the United Kingdom and Ireland. The defendants' products were of very high quality and of higher quality than its competitors. The defendants' prices were higher that its competitors. The achievement of a successful volume of sales of the defendants' products required engineering and selling expertise and a thorough knowledge of the defendants' products because sales had to be negotiated with a limited number of potential customers in the aircraft and automotive industries who were themselves expert and knowledgeable. Mr Craig had the expertise and acquired that knowledge. The quality and quantity of the input of the claimants and particularly of Mr Craig can be measured by the volume of sales achieved by the defendants as can be seen by the graph annexed to Mrs Leese's statement (B.8A p.63) and schedule (B.8A. p.64).
20. One reason for the fluctuating annual figures, as I find, is the long time gap that may elapse between an initial interest in a product and a confirmed order. This is not surprising in regard to capital items of equipment which cost up to and beyond £100,000,
21. I also accept the evidence that during the period from the 31st December 1995 to the 6th September 1996 the defendants informed some of their customers that the claimants were no longer their agents despite the fact that the agency was still extant (see also Mrs Leese's letter of the 15th January 1996 D. 15. p.322).
22. It was Mr Craig who alerted Mrs Leese to the defendants' intention to terminate the agency shortly before the meeting of the 31st October1995. Mr Craig said that he was in a state of shock and remained so during the meeting. This is not surprising. He was in danger of losing his livelihood and he devoted almost all his working time for approaching 8 years in building up and nurturing the defendants customer base.
23. I accept Mrs Leese's evidence that at that meeting she made it clear to Mr Hess that she would only agree to continue the agency after termination on the 1st February 1996 on the basis that commission would be payable to the claimants on all orders placed following all quotations given prior to termination of the New or Varied agreement This liability of the defendants is not limited as to time. I accept Mrs Leese's evidence that Mr Hess agreed to this. It follows that Clause 5 of the 1989 agreement did not apply to the New or Varied agreement which was terminable at the will of the defendants. This is consistent with Mrs Leese's manuscript note of the 31st October 1995 and her letter to Mr Hess dated the 11th November 1995 (D. 15. p.319 and 321).
24. In my judgment Mr Hess attempted to resile from that agreement. See Mr Hess's letter of the 13th June 1996, Mrs Leese's reply of 15th July 1996, Mr Hess's letter of the 25th July 1996 and Mrs Leese's reply to that of the 6th August 1996. (D.15. p.326, 332, 334-5 and 336-7).
25. I allowed a re-amended Particulars of Claim. Mr Moser for the defendants did not pursue seriously if at all a defence to claims for commission based on a letter of the 23rd June 1997 that there had been settlement beyond the invoices specifically mentioned in that letter and such defences I reject.

The Claimant's Contractual Entitlement Under The New or Varied Agreement

26. This has two parts, pre and post termination commission

Pre - Termination Commission

In my judgment it must follow that the claimant is entitled to commission

(a) on sales of spares and tooling amounting to £1,952.36 which was agreed as a figure

(b) on sales of second- hand machines amounting to £12,500 which was not agreed as a figure. I accept the evidence of Mr Craig that £12,500 was a conservative figure.

Post - Termination Commission.

In my judgment it must follow that the claimants are is entitled to commission.

(a) on sales of spares and tooling amounting to £11,301.53. which was agreed as a figure.

(b) on the sale of four machines amounting to £44,044.60. which was agreed as a figure. It should be noted in relation to machine 154 in respect of which commission is due of £15,702.60. the order was not given until April 1998 after the issue of the Writ and 21 Months after termination; I shall reflect this in my order in relation to interest.

27. These sums are additional to the award under Regulation 17. Compensation under Regulation 17 is for loss of the agency. These sums whether under contract or Regulation 7 or 8 arise under the agency. There is no duplication.

Under Regulation 7 and 8.

28. In my judgment the same sums should be recoverable under the Regulations. With regard to machine 154 although the transaction was entered into 21 months after the agency was terminated it was "within a reasonable period" having regard to the nature of the agency, the product and the customer base.

The Council Directive and the Regulations.

29. The Council Directive is in Vol. 1 of the Authorities Bundle at Tab 2 and the Regulations at Tab 1. It should be noted that Article 7 is mirrored in Regulation 7, Article 8 in Regulation 8, Article 17 in Regulation 17 although the paragraph numbering differs, Article 18 in Regulation 18 and Article 19 in Regulation 19.
30. It should be noted that there is no non-derogation article equivalent to Article 19 applicable to Articles 7 and 8. In my judgment the absence of such a specific non-derogation article means that commercial agents and principals may derogate contractually from articles 7 and 8 but only so far as they do not thwart the purpose of the Council Directive.
31. I have been greatly assisted by the submissions of expert Counsel, Miss Stratford for the claimants and Mr Moser for the defendants, in the main issue in this case of how to assess compensation under Regulation 17 and to what extent I should follow the French approach.
32. I have also much profited from reading and considering a number of English decisions which bear on the Regulations and to a limited extent on the assessment of compensation.
33. The overall purpose of the Council Directive was not only to achieve harmonisation of the legal relationship of commercial agents and principals thoughout the Community but also to remedy the perceived vulnerability and insecurity of commercial agents vis -a - vis their principals particularly on termination. It might take years for an agency to be developed to a state of profitability. If then terminated the commercial agent loses his livelihood. The resources and effort he has put into the development of a profitable agency are lost to him whereas the principal gains a valuable asset. See per Staughton L.J. in Page v Combined Shipping [1997] 3 All ER 656 on page 660:-

"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: Council Directive (EEC) 86/653. 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 the security of commercial transactions..."

"Now: that indicates to my mind at least two purposes. The first is harmonisation of the law of member states of the Community so that people compete-in the popular cliché 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"

34. See also per Millett L.J. at p.661 at H.
35. Two Member States, France and Germany, had long-standing methods of providing a remedy. In France it was the compensation system; in Germany the indemnity system. The Council Directive presumably as the result of compromise incorporated both systems. Member States were allowed to chose which system or systems they adopted. The United Kingdom, probably because the concept of an extra-contractual remedy on termination was alien, incorporated both systems in the Regulations. In this case I am concerned with the compensation system. However, it should be noted that in relation to compensation the Council Directive substantially altered and enlarged the French concept of compensation as pointed out by Professor Reynolds in Bowstead and Reynolds on Agency (76th Edition) at page 712 note 80. He explains the rationale behind the alternative remedies in these words at page 707:-

"this idea results from a perception that an agent may establish a market and goodwill for a principal, and then be deprived of the benefit of his investment, both in money and in labour, by termination of his authority by a principal who may then seek to deal direct with customers, or perhaps use the services of another agent at a cheaper rate of commission. The agent is therefore in effect to be "bought out" as is sometimes the case in employment law."

36. In the Tamarind International Ltd case [2000] EuLR 708 which was an "indemnity" and "secondary activities" case Morison J. explained how the Regulations should be interpreted in order to achieve the purpose of the Council Directive. He said at p.713 paragraph 10:-

"10. The Directive has as an essential function the co-ordination of laws relating to self-employed commercial agents. The rights of nationals from one member state to set up agencies, branches or subsidiaries in another member state (the right of establishment) lies at the heart of the Community. The Directive was made partly so as to give effect to the right of establishment and to the correlative obligation upon the Council and the Commission to effect, progressively, the abolition of restrictions on freedom of establishment (EC Treaty, Arts 43 and 44). It was also made pursuant to EC Treaty, Art 47 "to make it easier for persons to take up and pursue activities as self-employed persons" and to harmonise laws so as to enhance fundamental social rights including the promotion of employment and working conditions (EC Treaty, Art 136)."

37. He said at page 715 in paragraph 21:-

"(1) When construing a legislative instrument which purports to give effect to a directive, the court will, if it is possible to do so, interpret it so as to accord with the purpose and intention of the directive and with its interpretation by the ECJ (see, for example: Marleasing SA v La Comercial Internaci¢ nal de Alimentaci¢ n SA, Webb v EMO Air Cargo (UK) Ltd).

(2) Much of the Directive was based upon the German Commercial Code which provided protection to an identifiable social group. However, the United Kingdom was not alone amongst other member states in not having that social class or group. It is not helpful, therefore, to seek to identify the mischief which the Directive was designed to achieve merely by reference to the need to protect agents of a particular class or type. Further, times have moved on since the Law Commission Report. The perception at that time that the Directive was an unwarranted interference with freedom of contract would or might have been different today, in the light of other directives since that date, particularly in the employment field. As the travaux preparatoires show, whatever its origins in principle the Directive is intended to provide minimum standards of protection for self-employed commercial agents who were, rightly or wrongly, perceived by the Council of the European Communities to be deserving of protection.

(3) Article 2(2) permits member states to derogate from the protection which the Directive is intended to confer on commercial agents. Such a derogation must not "substantially frustrate the purpose of the Directive itself and thus in practice remove the protection that the provisions of the Directive are intended to guarantee" (see Bellone v Yokohama SpA and in particular the Advocate-General's Opinion, para. 30)"

38. Other cases to which I was referred included Moore v Piretta PTA Ltd [1999] 1 All ER 174, an indemnity case where Mr John Mitting Q.C. had regard to German Law, Cybermedia Inc v Roderick Manhattan Group (12th February 1999) where Judge Perrett Q.C. sitting in the Birmingham Mercantile Court had regard to French Law and seems to have used agreed net commission as the basis for compensation (see pages 62-67 of transcript). Duffen v Frabo [2000] 1 Lloyd's Rep 180 (Judge Hallgarten Q.C. sitting in the Central London County Court Business List) and Barret McKenzie v Escada (1st February 2001) where in an extempore judgment Judge Bowers (sitting in the High Court) disagreed with King v T. Tunnock Ltd [2000] EuLR 531 in which the Inner House of the Court of Session (Lord Caplan, Lord Milligan and Lord Cameron of Lochbroom) gave a unanimous decision in a considered judgment delivered by Lord Caplan after detailed argument on the entitlement to compensation under Regulation 17(6) and (7) and the Court's approach to the assessment of that compensation.
39. In my judgment in so far as the Court of Session interpreted the purpose of the Regulations and enunciated principles of law I am and should be bound by the decision of the Inner House as a first instance judge. The Regulations expressly (Reg 1(2)) "govern the relations between commercial agents and their principals and....apply in relation to the activities of commercial agents in Great Britain". Separate and identical regulations apply to Northern Ireland. Clearly it would be undesirable that different principles of law were applied in relation to compensation in England and Wales from Scotland. (See by way of analogy the Revenue cases. In Re Hartland [1911] 1 Ch 459 per Swinfen Eady J. at page 466, followed in Brookes v. I.R.C. [1913] 3 KB 398 per Horridge J. at page 406, Income Tax Commissioners v Gibbs [1942] A.C. 402 per Viscount Simon L.C. at page 414, in relation to criminal statutes Daley v Hargreaves [1961] 1 All ER.552 per Salmon J. at page 555C - 556E and in relation to Selective Employment Premiums where the Divisional Court doubted the correctness of the Court of Session's decision in Sec. of State for Employment and Productivity v Clarke, Chapman & Co Ltd [1971] 1 W.L.R. 1094 per Widgery L.J. at page 1102B)
40. I do not accept the submission of Mr Moser that, because contiguous Member States have different remedies, France compensation and Germany indemnity, on termination, there is no need for uniformity within Great Britain. Parliament by the Regulations has provided a uniform regime directly from the Council Directive for England, Wales and Scotland albeit allowing for both remedies in the alternative, indemnity if provided for in the agency contract otherwise compensation (Reg 17(2)). In my judgment the Courts of England, Wales, and Scotland should all seek to achieve the purpose of the Regulations in a uniform manner. Thus principals and agents can know where they stand.
41. Nor do I accept Mr Moser's argument that the Court of Session's decision may be less binding because to some degree the ancestry of the Law of Scotland is the civil law and therefore temperamentally biased to France in memory of the Auld Alliance.
42. Although I consider myself bound by the Court of Session on matters of law, where the Court was giving guidelines as to appropriate methods of calculating or assessing compensation, I must remember that they are guidelines not rules of law. However, in my judgment unless the guideline is inappropriate on the facts and circumstances of the particular case, the guideline should be followed. If a principal and an agent, whether in a litigation situation or not, know the likely method by which the Courts will assess compensation on termination, that must ease the resolution of disputes and be in the overall public and commercial interest within the Community. My paramount consideration in assessing the compensation remedy having regard to the facts and circumstances of this case must be to achieve the purpose of the Regulations derived from the Council Directive. If it is appropriate to follow the Court of Session's guidelines, so much the better.
43. In my judgment the Court of Session laid down the following principles which I must follow at page 543:-

"33. In our view there can be little doubt as to the objectives of the 1986 Directive. The preamble to the Directive states its objectives very plainly. It is quite clear that the Directive is aimed at removing restrictions on the activities of commercial agents caused by the differing laws of the member states. The aspiration is to harmonise the laws so that conditions for commercial agents throughout the European Community are equivalent to those of a single market. A major aim is to remove inconsistencies in the laws of member states as they relate to commercial agents. Moreover, the differences in the national laws are said to be detrimental to the protection available to commercial agents vis-a-vis their principals, particularly where principal and agent are established in different member states. It must be noted that the requirement of protection is focused on the position of the agent and not on that of the principal who, presumably, will normally be in a stronger position and thus able to look after himself. The aspect of a Directive in protecting the agent is reinforced by a reference in the preamble to Art. 117 of the EC Treaty. This narrates that member states agree upon the need to promote improved working conditions and an improved standard of living for workers.

34 No matter what objectives underlie the legislation there can never be a guarantee that it will deliver the required results. However, in the present case if the national courts treating their country's application of the Directive under their own national regulations continue to produce divergent results then the whole objective of the Directive has failed.

at page 547:-

45. In respect of the report of the European Commission dated 23 July 1996 we find acknowledgement that the compensation system was based on French law, and that judgments of the French court have justified payment of compensation on the ground that it represents the cost of purchasing the agency to the agent's successor or the time it takes to reconstitute the client base of which the agent has forcibly been deprived. The report also confirms what the other authorities set forth, namely that compensation in France is customarily paid on the basis of two years' purchase of gross commission, although the court always has an ultimate discretion to deviate from the standard.

at page 548:-

48. It is obvious in our view, that on the basis of its own terms reg. 17(6) and (7) provides for a different basis of making compensation than our traditional common law approach. However, as stated, the regulation does fit in well with the French approach to such compensation. The legislation provides for valuation at the date of termination rather than requiring an explanation of the future prospects for the agency. During the currency of the agency the agent has owned a valuable asset and what he chooses or omits to do after he has lost that asset has no bearing on the value of what he has lost. If he had assigned the agency he would normally have received some compensation for that assignation, observing that he could do so only with the principal's agreement and been free thereafter to do as he chose. Thus the French conclusion that mitigation of loss by the agent is not a factor when compensation is approached as we have described, is, in our view, persuasive. The implication would be (and in our view we consider this to be inevitable) that in the present case the post-termination activities of the pursuer and any sums of sickness benefit he received have no application to the measure of his loss. The Directive and Regulations, as presented, seem to harmonise with the French approach and, given their terms, and the general objective of achieving harmonisation, we see no justification for construing the Regulations as being radically different from the French approach."

44. The judgment went on to say:-

"49. The matter of fixing an appropriate level of compensation remains. It seems that even in France the two-year-rule is only a benchmark and can be varied at the discretion of the judge. However, this does not mean that we are precluded from considering what will happen in France, for the rulings of a judicial system applying the same legislation (intended, indeed, to operate in the same way between the relevant systems) must be entitled to some respect. There are also practical considerations. The French law obviously considers that there is some merit in finding a clear and practical basis for determining a fair level of loss. We equally consider that given the particular type of loss we are dealing with, a broad approach is both inevitable and a practical requirement of the law. This approach is emphasised when we consider that they are seeking an overview of the commercial situation where one of the dominant aims is to protect the agent.

50. In the present case the sum of two years' gross past commission was found by the sheriff to amount to £27,144."

45. In my judgment Lord Caplan was laying down not a principle of law but a guideline that in many cases the two-year purchase of average gross commission may be appropriate.
46. In King v T. Tunnock Ltd the facts were far removed from the present case. King, father and son, had for very many years been under an oral arrangement agents for selling cakes and biscuits manufactured by T. Tunnock Ltd who closed their bakery thus terminating the agency. The scale of the business can be measured by the sum of the final two years' gross commission amounting to only £27,144.
47. This should be contrasted with the facts in the present case. The defendants were the manufactures of sophisticated products including specialist equipment costing up to and beyond £100,000 designed for a limited but high quality market, the aircraft and automotive industries. An agent selling such products had to have engineering training and experience and expert knowledge of the qualities and performance of the defendants' products so as to be able to sell to the limited potential customer base which would also be expert and knowledgeable. The annual average gross commission received by the claimants for three years preceding the 6th September 1996 was £105,810.98 (see Bundle B tab 8A p.61A).
48. The report of the commission dated the 23rd July 1996 stated at page 5:-

"There is no maximum level of compensation

The compensation system was based on French law, which dated from 1958 and whose aim was to compensate the agent for the loss he suffered as a result of the termination of the agency contract. As for the indemnity system in Germany, a body of case-law has developed in France concerning the right and level of compensation. Various judgments of the French courts have justified the payment of compensation on the ground that it represents the cost of purchasing the agency to the agent's successor or on the ground that it represents the time it takes for the agent to re-constitute the client base which he has been forcefully deprived of.

By judicial custom the level of compensation is fixed as the global sum of the last two years commission or the sum of 2 years commission calculated over the average of last three years of the agency contract which conforms with commercial practice. However, the courts retain a discretion to award a different level of compensation where the principal brings evidence that the agent's loss was in fact less, for example, because of the short duration of the contract or where, for example, the agents loss is greater because of the agent's age or his length of service."

49. This accords with the written evidence of Professor Ferrier which was before me who stated:-

"The amount of compensation, because it represents the counterpart of the loss suffered by the agent, must be evaluated solely by the judges.

In calculating the level of compensation, the judges usually fix the level of compensation to two years of gross, i.e. without deduction for the expenses to the agent of making the sales, commissions calculated on the basis of an average of the three previous year.

This calculation is considered to be simply a practice and not a custom.

The courts are very careful to exclude any notion of tariff when calculating the level of compensation."

50. In my judgment on the facts of the present case to apply the French customary method of calculation of compensation based upon two years of gross average commission of the previous three years would result in an injustice to the defendants and an excessive windfall to the claimants way above the value of the agency on the 7th September 1996 and therefore would be inappropriate.
51. I entirely agree with the dicta of Judge Hallgarten Q.C. in Duffen v Frabo, although on the facts that case was wholly dis-similar to the present case, as there the agent was paid by way of retainer and conducted the agency very poorly, when he said at page 198:-

"...the regulation is after all framed so as to provide compensation and not to provide a windfall. It is one thing to disregard what the agent was able to do or in fact did upon and in consequence of termination; it is quite another artificially to inflate what would have been the true benefit to the agent had the agency continued."

52. In this case the average gross commission for the previous three years was £105,810.98. Using a two-year purchase, the assessment of compensation would be £211,621.98 which in my judgment would be excessive and result in a considerable degree of windfall.
53. Taking into account the following factors: the length of time of the agency, approaching 8 years, the inevitable lack of profitability in the early years, the high degree of engineering and sales expertise required and put into the agency in obtaining, nurturing and developing the customer base, and the degree of profitability of the agency at the time of its rupture, in my judgment a fairer and more realistic result is achieved by aggregating Mr Craig's remuneration and pension with the Management Charge, which in effect was Mrs Leese's take although paid to Ingmar Ltd. In this case that method will achieve the purpose of the regulations.
54. To extract the figures I have used the document entitled "Summary of Information in the Accounts of Ingmar G.B."
55. I consider it fair to use the years 1993, 1994 and 1995 but not 1996 because it is not representative.

Calculation.

Year	1993	1994	1995
Salary	£26,000	£34,000	£24,000
Pension	£7,800	£4,800	£1,800
Management Charge	£24,000	£24,000	£37,000
	£57,800	£62,800	£62,800
	£61,200	Average Multiplicand
	3	Years multiplier
	£183,600

56. I therefore award compensation under Regulation 17 of £183,600.