Scottish Court of Session Decisions

[1] This case is all about the meaning of a word. The word is "termination". It is a simple enough word in common use. It ought to have a simple meaning. It would seem it has not.

[2] The matter arises in this way. Mr David Frape is an agent. Since 1968 he has been the defenders' commercial agent in the business of ladies fashion wear. His area of operation was the Midlands of England towards Wales. His contracts with the defenders have been oral agreements, letters of appointment and finally in 1994 a written agreement. That provided that his engagement ended when he was 65 or on 31 May 1997, whichever was earlier. On 13 April 1997 he was 65 and the defenders terminated his agreement. I have quoted the clause giving rise to this event later in this opinion. Nothing turns on it as it was agreed that the contract had ended due to the effluxion of time. The defenders contend that in the events which have happened they do not have to pay the pursuer anything. The pursuer, relying on the Commercial Agents Regulations which apply contends that he is entitled to be paid the proper Statutory Compensation. The Regulations are European in conception but are part of Scots law and have been for some years. In the English version appears the word "termination". The defenders say there has been no termination; the pursuer says that there has. I now move to sketch in the arguments of the parties. One side submitted a detailed written argument. As it turned out most of the argument consisted of a detailed examination of many authorities in order to persuade me how to interpret the Directive and the Regulations. I will have to consider most of these cases and now give only in outline the general points of the argument.

[3] Mrs Swanson for the defenders maintained that the contract had expired through time and was concluded of consent on his birthday. There could be no claim for any losses. That was the position in Scots law and did not conflict with the Directive. It was accepted that the pursuer fell within the meaning of a Commercial Agent and he knew that the contract would end on his 65^th birthday. Unless he could show that what had happened was a "termination" his claim could not succeed. Where no "act" of termination was required Gloag on Contract (732) and the Scottish cases were consistent in saying that no claim was competent.

[4] In the Directive Article 17 "termination" was not defined. What it meant was being deprived of the proper performance of a contractual obligation. Article 18 gave certain exceptions and also mentioned age. The 1993 Regulations merely narrated the Directive and where they referred to "conclusion" and "termination" different meanings had to be given. "Conclusion" had to mean expiry of a fixed term since that was not covered elsewhere. [At this point I observed to the solicitor advocate that she was in effect saying, that the expressions meant what she wanted them to mean, no more no less. Such a method of construction was described by Lord Atkin in Liversidge v Anderson 1942 A.C. at 245 in this way "...when I use a word Humpty Dumpty said in rather a scornful tone, it means just what I choose it to mean - neither more nor less....". "....Through the Looking Glass c.VI."] I have to doubt very much if this is a proper way to construe "conclusion".

[5] The solicitor advocate argued that I should give a "purposive" construction to the word and referred me to certain recent Scottish authority. The particular agency would have had no value to the pursuer once it was ended. He had no earning potential and could not have continued for years once the contract had expired. The action should be dismissed and the first and second pleas-in-law upheld.

[6] For the pursuer Mr O'Neill disputed the generality of this argument and the cases detail by detail. I am indebted for his written argument to which I need not refer. It is before the court. What he said to me is this.

[7] The defenders argument was a blatant attempt to circumvent the Regulation. The new contract in 1994 after 25 years seems to have been deliberately framed in an altered way to impose a fixed term and avoid compensation. The question to decide was whether "termination" in the Regulations has cut out any remedy of compensation. Did it mean an actual breach of the contract or a mere expiry. The pursuer contended that the word did not have one meaning and simply meant "coming to an end".

[8] Words like repudiation and recession are active words but were significantly not used in the Regulations. These Regulations were put in place to implement the Directive and, importantly to ensure social protection of people who were commercial agents. The court should do everything to ensure that the Regulations achieved that desired result. Counsel then took me through the history of the Directive and how there were alternative schemes of compensation for the United Kingdom. Agreeing with Mrs Swanson, Mr O'Neill said that I had to adopt a purposive construction; and one which allowed for greater protection for agents at the end of contracts. No degree of sophisticated drafting should defeat the Regulations. Even to choose a foreign law as the proper law would not work. If he died the day before he was 65 he would get compensation. If he lived another day he would get nothing. That was absurd.

[9] I was then referred to the Regulations in many languages and I deal with this elsewhere. No consistent meaning emerged.

[10] Finally, counsel pointed up how the French had changed their earlier interpretation of the Regulations to secure harmonisation. Also an examination of the German Tax and Business Law Guide (1994) gave cogent reasons why there had to be compensation. In the result there could be no basis to deny compensation after a fixed term expired. There should be Proof Before Answer only on the first plea-in-law. I will return to the further details of counsel's final motion.

[11] The Council Directive 86/853 contains inter alia the following provisions:

[12] I have quoted these at some length for the purpose of demonstrating that they are in quite strict and restricted terms. It is obvious that they contain many imperatives and prohibitions.

[13]] The Commercial Agents (Council Directive) Regulations 1993 (S.I. 3053) contain inter alia the following regulations:

Once again it can be seen how strictly these are drawn and the governing word of Reg.17 is to "ensure" (my emphasis) indemnification or compensation after termination.

[14] The pursuer's written agreement of 15 November 1994 contains the following clause:

[15] I now move to consider the authorities cited to me. In Roy v Pearlman 1999 SC 459, a commercial agency agreement contained a clause that to determine the agreement either party would give six months notice in writing. The principals terminated the agreement and offered three months commission. The agent said he would cease to act but that the offer fell short of the six months notice. The commercial judge looked first to the existing rules of law and concluded that inquiry should be allowed into commission in lieu of notice. He also concluded that a claim for post cessation compensation under Regulation 17 was not fundamentally irrelevant. It seems to me from what was said at 470E that this final conclusion depended very much on the detail of the pleadings. The judge seems eager to preserve the rules of domestic law unless inconsistent (467A). Brenan v Campbell's Trs. (1898) 25 R 423 was next referred to. The pursuer was an architect and contracted to act as a factor for an estate owner for four years. At the end of that period another factor was appointed. It seems from the proof taken before the Lord Ordinary that the pursuer was aware that his appointment would not be continued. It was also of some importance that he was allowed to carry on other business apart from his duties as factor. The pursuer sought six months pay in lieu of notice. It was held that under the "very special contract" (426) he was entitled to no notice and to no payment. I did not find Renfrew District Council v Lornie 1996 SLT 1280 to advance matters. That case concerned the meaning of a termination where the employee took early retirement. The case is special on its own facts and within the context of the relevant Employment legislation. Birch v University of Liverpool [1985] IRLR 165 is in similar vein where the employee terminated his contract by taking early retiral.

[16] Next I was asked to look at Litster v Forth Dry Dock 1989 SC (HL) 96. It is not necessary to go into the facts of Litster which are complex. What is important is focused in the speech of Lord Oliver particularly from 120 onwards. There his Lordship says that greater latitude in construction is permissible in legislation introduced to give effect to this country's Community obligations. The ordinary rules of construction may have to be changed and in the instant case words "read in" which are simply not there; otherwise a purposive construction to Treaty obligations would fail.

[17] King v Tunnock Ltd 2000 SC 424 is a case of some importance where the Directive was argued. The facts were as follows. The pursuer was a commercial agent for the defenders for some 32 years in their bakery business. His job was to sell to retail outlets at wholesale prices on which he was paid a commission. When the defenders closed their bakery section his agency was terminated without notice. The pursuer sued for payment in lieu of three months notice which he had not been given. He also claimed compensation for loss on termination under Regulation 17.

[18] An Extra Division took a broad and purposive approach to the construction of the Regulation, holding that the pursuer in addition to his common law claim was entitled to compensation as well under the Regulation. The court looked (435/6:439) to the loss of the asset of the agency through termination and requiring that to be compensated. The case did not deal with termination through lapse of time and that is made quite clear at 440D where the broad outlines of what has to be compensated are stated. Also much of the case dealt with how compensation was to be calculated. Page v Commercial Shipping [1997] 3 All ER 656 concerned a four year contract by which the plaintiff as the defendant's agent bought and sold commodities on their behalf in return for half the net profit. The contract had an option to extend and also required 12 months notice to terminate. When the plaintiff learned that the defendant's parent company intended closing down its trading activities he terminated the contract on the grounds of repudiatory breach. Contending that he had lost commission, the agent sued for Regulation 17 compensation on the basis that he had suffered damage. The parent company could have organised the business in such a way that the plaintiff would have earned no commission (see 659 A to C).

[19] The Court of Appeal allowed the claim and pointing to the Regulations and the Directive Staughton L.J. said this at 660 (of the purposes of the Directive)

[20] It respectfully seems to me that these remarks are correct and of great importance.

[21] The last case referred to by Mrs Swanston was one which was not in her favour and I am indebted to her for arguing against it in the best traditions of advocacy. She also arranged some time after the hearing to send me a further copy of the case after the proof was taken. The case is Whitehead v Jenks and Cattell Engineering Ltd [1999] Eu. L.R. 827 (and after proof in the Queen's Bench Mercantile Division at Birmingham before Deputy Judge Alton; 2 February 2001).

[22] The facts were as follows. The plaintiff worked as the defendants' marketing agent in the motor trade. In 1993 his contract was put in writing. The period was five years. Six months before it was due to end the principals indicated that it would not be renewed in its present terms. The plaintiff contended that the contract had been "terminated" within the meaning of Regulation 17. The defendants said the contract had expired through the effluxion of time. Smedley J devoted much consideration to considering whether any compensation could be due following the expiry of a fixed term. He referred to Bowstead on Agency 11-040. He wished an inquiry into the facts before coming to any conclusion or deciding whether, if at all, to refer the matter to the European Court.

[23] Proof was then taken before Deputy Judge Alton. I wish only at this stage to extract a few points from the proof. She clearly preferred the evidence of the plaintiff (p.2). At p.4 she found that the defendants' intent was to rid themselves of the plaintiff and that six months before expiry they offered terms which they knew would be unacceptable. In law she said that the contract was a five year fixed term subject to termination earlier on six months notice (pp.5 and 6). She did not entertain sufficient doubts about her view of the Directive and Regulation to refer the matter to the European Court (p.12/13). Relying on harmonisation being at the root of the Regulations she found that the word "termination" embraced inter alia effluxion of time. In that she relied upon the structure and wording alone and not any extraneous consideration (p.11).

[24] I move on now to deal with the authorities mainly relied on by the pursuer. There was some inevitable overlap with the cases I have already looked at.

[25] Cilfit v Ministero della Sanita [1982] G.C.R. 3415 was cited to me; especially for passages at 3430. The case was all about wool but is important because it emphasises that although the different language versions of community legislation accord with each other, Community law itself uses language peculiar to itself, and may have a meaning different to the law in various member States. Centrosteel srl v Adipol GmbH (2000 not yet reported) states that agency regulations and agency contracts must be interpreted in line with the purpose and intent of the Directive. Ekro [1994] E.C.R. 107 was cited for the need to interpret Community Law in a uniform way having regard to its context and purpose. In that vein Mr O'Neill drew my attention, by way of example, to Kontogeorgas v Kartonpak A E [1996] E.C.R. 1-6643. On its facts Barbara Bellone v Yukohama Sp A [1998] E.C.R. 1-2191 concerned whether an agent was or was not on a register. The opinion of the Advocate General importantly pointed out that the purpose of the commercial agents Directive was to protect agents in the best possible way. It was dismissive of the need to register as a prerequisite of any validity of an agency contract.

[26] Counsel referred me at some length to a case of importance. It is Ingmar G.B. Ltd v Eaton Leonard Technologies Inc. 9 November 2000 (unreported). In that case a foreign law was chosen (California), which would have had the effect of avoiding the provisions of the Agency Regulations. The European Court refused to accept this as a means of avoiding the Regulations. I was supplied with a copy of the judgment in McKenzie v Escada (UK) Ltd 1 February 2001 (Judge Bowers). Whatever else this case shows it is plain that the Deputy Judge was most reluctant to interpret the Regulations in the way the European Court would have wished. It is obvious that the opinion has not been revised and it contains a number of blatant errors. I therefore have to disregard it.

[27] Finally, I was referred to Ferguson Shipbuilders Ltd v Voith Hydro GmbH 23 September 1999. At page 6 of the copy supplied to me is pointed up the problems of the correct interpretation and translation of foreign words (in this case German). It is quite clear that expert evidence was required and this has a bearing on the present case.

[28] What then am I to deduce from all these cases. In my view the answer is clear and admits of only one solution. I have to interpret the word "termination" in a purposive way that will protect all Commercial agents, otherwise the Treaty objectives in the community would not be attained. I should return at this point to the Regulations.

[29] Partly through my fault, vanity, and genuine interest I was taken through several language versions of the Regulations where counsel considered I had some knowledge of the tongues viz French, Italian, German, Spanish and Portuguese. The written submission also deals with this. I am not so easily flattered, as I am well aware of my serious limitations in these languages. Succumbing briefly to temptation to research into the various words like "scandenza", "Abschluss", "Celebração, "fin" I quickly abandoned the unequal struggle. There can be very few judges with the detailed and precise language skills who are properly able to translate these words in context. It would require knowledge and experience of the foreign laws in question. Words may have many nuances. The best dictionary may be of no help. In my opinion it is not a proper task for the judge alone to undertake and form his own view. The proper approach is in my view to look at such words with the benefit of expert evidence (Ferguson supra).

[30] I am firmly of the opinion that I am compelled by authority and by the need to give commercial sense and effect to the Regulations that I have to interpret them in a way that will allow the pursuer compensation. This means as I have said giving a wide purposive meaning to the word "termination".

[31] Times have changed and now in the new century it seems to me that the old, well loved, and established rules of contractual interpretation may have to give way to a bigger picture which is "the European dimension". It is not an approach I find easy to accept nor do I embrace it with unbridled enthusiasm. I am troubled that like public policy this may be in the future a very unruly horse to control, and at times it plainly involves gymnastics with some of our canons of interpretation of words and Statutes. I fear that it may lead us far from the sound law we have hitherto known and understood.

[32] Be all that as it may it is my duty to apply the law as it now is in a modern age. Scots law must not be seen to be timid or conservative where our Treaty obligations are in issue.

[33] In the present case that means, and I so decide, that the word is habile to cover contracts which expire through the effluxion of time. In common-sense it seems to me that such an interpretation does no serious violence to the word "termination". Apart from the broad general principles laid down by the European cases which have to be treated with great respect, the authority of Whitehead is eloquent and persuasive of the proper way forward. I am impressed by the carefully worded decision of the deputy judge and adopt it and follow it. I cannot improve on her analysis on page 11 of the copy supplied. In so doing I consider I am following the "purposive" approach laid down by Lord Oliver in Litster, which is binding on me. A recent example of such a purposive construction is Rossiter v Pendragon plc 2000 IRLR 256.

[34] I notice with interest the change in the position in French law after some thirty years. That fact is not decisive in my decision. I am clear that Scots law can effect its own harmonisation unaided. I am more impressed to read the reasons behind the need for harmonisation in the copy of the German Tax Guide supplied to me (213). The reason seems to be a need to compensate for goodwill no matter why the agreement ends. That publication is of importance as it is circulated worldwide for International Business.

[35] It now falls to me to decide the future progress of the case. I will accede to the pursuer's motion to this effect. I uphold the pursuer's third plea-in-law to the extent of deleting from Answer 4 at page 12E the words "Separatim esto" to the end of that answer on 13B ending with the word ".... Regulations". I repel the defenders' pleas-in-law 2 and 9. I also repel their pleas-in-law 4, 5 and 6 for want of insistence. Thereafter before answer I allow a proof reserving the defenders' first plea-in-law. The case will require a further hearing on expenses.

[36] I wish to add one postscript. In Scotland, judges have no assistance in preparing a judgement. Unlike our colleagues in other jurisdictions we do not enjoy the luxury of a research assistant.

[37] Exceptionally and by happy chance on this occasion I did have such help. For some years now the British Council have encouraged young lawyers from Europe to come to Scotland to learn our ways. It is normal for a judge to have a "Eurodevil" for a week. They are all young men and women of great charm and ability. I was lucky to have Miss Katarína Lenghardtová from the Slovak Republic to sit in on part of the case. She asked to research it for me. I agreed. She rapidly found me Singleton's Commercial Agency Agreements (Butterworths: 1998) and the case of Moore v Piretta [1999] 1 All E.R. 174 which was not cited to me. I have found it most helpful, to the point and it confirms the conclusion I have reached by other means. I am in my researcher's debt.