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Cite as: 2002 SCLR 64, [2001] ScotCS 243

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OUTER HOUSE, COURT OF SESSION

CA17/01

OPINION OF LORD MACFADYEN

in the cause

HARDIE POLYMERS LIMITED

Pursuers;

against

POLYMERLAND LIMITED

Defenders:

________________

Pursuers: Ross; Maclay Murray & Spens

Defenders: Sandison; Morton Fraser

31 October 2001

Introduction

[1] This action arises out of a commercial agency contract, in terms of which the pursuers, who trade as commercial agents, were appointed to act as such for the defenders, who manufacture and sell engineering thermoplastic resins. The parties entered into a Sales Representative Agreement ("the Agreement") dated 10 January 1995 (No. 6/1 of process), which was subsequently amended in certain respects by a further agreement dated 29 May (not July, as averred by the pursuers) 1995 (No. 6/2 of process). By letter dated 21 September 1999 (No. 6/4 of process) the defenders, as they were entitled to do in terms of article 9.3 of the Agreement, gave the pursuers three months written notice of termination of the Agreement. The notice was said to take effect from the end of September 1999, and as a result the Agreement terminated on 31 December 1999.

[2] The pursuers conclude for payment of two separate sums. The first is the sum of £11,581.86, which is said to be the unpaid balance of a sum due by the defenders to the pursuers in respect of commission on sales arranged prior to the termination of the Agreement. The second is the sum of £120,000, which is claimed as compensation due in accordance with the provisions of Regulation 17 of the Commercial Agents (Council Directive) Regulations 1993 ("the Regulations").

[3] The case was appointed to debate on the issue of the relevancy of the pursuers' averments in support of the second conclusion. The defenders' contention was that on a sound construction the Agreement provided for indemnity rather than compensation, and therefore excluded any claim for compensation.

The Directive and the Regulations

[4] The Regulations were enacted for the purpose of giving effect to the Council Directive of 18 December 1986 on the co-ordination of the laws of Member States relating to self-employed commercial agents (86/653/EEC) ("the Directive"). The debate which I heard was conducted on the basis that it was not disputed that the Regulations properly implemented the Directive. It is therefore unnecessary for me to quote the Directive at length. It is, however, convenient to begin by recording the terms of Article 17.1 of the Directive, which provides that:

"Member States shall take the measures necessary to ensure that the commercial agent is, after termination of the agency contract, indemnified in accordance with paragraph 2 or compensated for damage in accordance with paragraph 3."

[5] Regulation 17 of the Regulations provides as follows:

"(1)	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.
(2)	Except where the agency contract otherwise provides, the commercial agent shall be entitled to be compensated rather than indemnified.
(3)	Subject to paragraph (9) and to regulation 18 below, the commercial agent shall be entitled to an indemnity if and to the extent that -
		(a)	he has brought the principal new customers or has significantly increased the volume of business with existing customers and the principal continues to derive substantial benefits from the business with such customers; and
		(b)	the payment of this indemnity is equitable having regard to all the circumstances and, in particular, the commission lost by the commercial agent on the business transacted with such customers.
(4)	The amount of the indemnity shall not exceed a figure equivalent to an indemnity for one year calculated from the commercial agent's average annual remuneration over the preceding five years and if the contract goes back less than five years the indemnity shall be calculated on the average for the period in question.
(5)	The grant of an indemnity as mentioned above shall not prevent the commercial agent from seeking damages.
(6)	Subject to paragraph (9) and to regulation 18 below, 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.
(7)	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 costs and expenses that he had incurred in the performance of the agency contract on the advice of his principal.
(8)	Entitlement to the indemnity or compensation for damage as provided for under paragraphs (2) to (7) above shall also arise where the agency contract is terminated as a result of the death of the commercial agent.
(9)	The commercial agent shall lose his entitlement to the indemnity or compensation for damage in the instances provided for in paragraphs (2) to (8) above if within one year following termination of his agency contract he has not notified his principal that he intends pursuing his entitlement."

[6] Regulation 17(3)(a) reflects the first part of Article 17.2(a) of the Directive; regulation 17(3)(b) reflects the second part of Article 17.2(a); regulation 17(4) reflects Article 17.2(b); regulation 17(5) reflects Article 17.2(c); regulation 17(6) reflects the first paragraph of Article 17.3; regulation 17(7) reflects the remainder of Article 17.3; regulation 17(8) reflects Article 17.4; and regulation 17(9) reflects Article 17.5.

The Meaning of "Indemnity" and "Compensation"

[7] It is unnecessary for the purposes of the present case to examine in any detail the origins of the concepts of "indemnity" and "compensation" as they are reflected in the Directive and the Regulations. It is sufficient to note that indemnity derives from the German Commercial Code, whereas compensation has its origins in French law (King v T. Tunnock Ltd 2000 SC 424 at 429, paragraph [11]; Bowstead on Agency, paragraphs 11.042 and 11.045). Neither expression, however, is used in the Regulations in the way in which it is ordinarily used in Scots law.

[8] In King the court noted (at 435A, paragraph [35]) that:

"on any view indemnity and compensation, as set out by both Directive and Regulations, have different features".

Dealing with compensation, the court said (at 435G, paragraph [38]):

"The governing principle is that expressed in reg 17(6). The agent is entitled to compensation for damage he suffers as a result of the termination of his relationship with the principal. The word 'suffers' is in the present tense, which suggests that the point of time defining damage is the termination of the agency. Moreover, what is compensated is 'the termination of his relations with his principal'. The emphasis is not on his future loss but on the impact of the severance of his agency relationship with the principal. An agency generally has commercial value."

Turning to indemnity, the court observed (at 436C, paragraph [39]):

"Regulation 17(3) provides that the commercial agent will be entitled to an indemnity 'if and to the extent that' - then follows the specification of the qualifying cases. ... Moreover, the words 'to the extent' are linked to paras (a) and (b) of reg 17(3). This means that the concept of indemnity is linked to what actually happens and the relevant part of this linkage is what will happen commercially after termination of the agency. The payment of the indemnity is declared to be equitable and the equitable factor is a provision of new customers or business generated by the agent, when coupled with the principal continuing in fact to draw substantial benefits from such new customers or increased business. The loss of commission which in particular has to be taken into account is that lost by the commercial agent on the business transacted with such customers. It would be difficult to imagine a claim for indemnity being formulated without having a hard look at what was to be expected after termination of the agency."

[9] Moore v Piretta PTA Ltd [1999] 1 All ER 174 is a case which, unlike King, was concerned with an indemnity claim. The Deputy Judge, John Mitting QC, analysed what was involved in a claim for indemnity. He said (at 181f-182h):

"There are three stages in assessing the amount of the indemnity. First, it has to be asked what is the value of the business to the principal of new customers brought ... by the agent and of existing customers whose business has been significantly increased. The factors to be taken into account in making that judgment include the loss of the business of such customers after the agency has been terminated, whether due to causes beyond the agent's and principal's control (for example insolvency on the part of the customer or a decision on the part of that customer to buy goods elsewhere) or to factors within the agent's control, for example the agent taking the custom of that customer with him. That is because the thing that has to be assessed is the extent to which the principal continues to derive substantial benefits from the efforts of the agent. The value of the business which remains for the benefit of the principal can, and in some cases no doubt should be, assessed by reference to periods as short as a year. But there is nothing in the regulations that requires them to be thus limited. If on the evidence the benefits of the agent's efforts are likely to endure for more than a year after the termination of the agency then that fact can be taken into account in the assessment and need not be limited to looking at the period of one year after termination only.

The second factor is that the payment must be equitable having regard to all the circumstances and particularly the commission 'lost' by the agent. ... Other factors which can be taken into account under this head include ... the expenses which the agent would have incurred in earning the commission which was his due. Another factor common to all cases is accelerated payment: the indemnity is accrued as at the date of termination in respect of commission which would have occurred after it. Some discount on that account must be made.

... The purpose of the indemnity seems to me to be to award a share of the goodwill built up by the efforts of the agent to him on the termination of the agency. Otherwise the whole benefit of that goodwill will remain with his former principal. ...

The third step in the calculation is this. Having calculated the amount of the indemnity, a cap is applied. The cap is provided for in reg 17(4)."

The Agreement

[10] Before quoting the relevant provisions of the Agreement, I would observe that the drafting of it is unusual. There are a number of oddities of expression and syntax, the punctuation is not as helpful as it might be, and in some places there is real difficulty in understanding what is meant.

[11] The provision of the Agreement which is of direct relevance to the issue which was debated is in the following terms:

"ARTICLE 10. Compensation after termination
10.1.	On the expire or termination of the Agreement pursuant to Article 9.1 in case the Sales Representative is entitled to terminate the Agreement for the reasons stated in Article 9.1 or 9.3 thereof or by the SALES REPRESENTATIVE where such termination is justified by circumstances attributable to the COMPANY, the COMPANY shall within thirty days of the date of such termination pay the SALES REPRESENTATIVE a sum not exceeding one year's commission based on the average annual commission pay by the COMPANY to the SALES REPRESENTATIVE for the five years immediately preceding such expire or termination declaring that if the Agreement continues in force for a period of less than five years, the sum in question shall be calculated on the average commission paid for the period in question: declaring that the foregoing is without prejudice to:
	a.	any claim for damages which might exist at termination of the Agreement or as a result thereof; and
	b.	any continuing entitlement to commission on sales arranged by the SALES REPRESENTATIVE prior to termination but which has not been paid or on sales achieved after termination of the Agreement with customers introduced to the Company by the SALES REPRESENTATIVE.
10.2.	The SALES REPRESENTATIVE is only entitled to the goodwill payment under the following conditions:
	a.	the SALES REPRESENTATIVE brought new customers to the COMPANY, or the volume of the COMPANY's business was increased due to the services provided by the SALES REPRESENTATIVE and the COMPANY continues to devise substantial benefits from the business with these customers.
	b.	the goodwill payment is equitable having regard to all the circumstances and in particular the remuneration lost by the SALES REPRESENTATIVE on the business transacted with these customers."

Article 10.3 then sets out, in terms which it is unnecessary to quote in full, circumstances in which the Sales Representative "is not entitled to any goodwill damages".

[12] A number of the oddities of expression in those provisions can readily be corrected. For example, "expire" where it appears in article 10.1 should clearly be "expiry"; "pay" in the same paragraph should be "paid"; and "devise" in article 10.2.a should be "derive".

[13] The first few lines of the first paragraph of article 10.1, which define the circumstances in which the payment contemplated in the provision will fall to be made, seem to me to give rise to greater difficulty. After some thought, I would be inclined to read that passage as follows:

"On the [expiry] or termination of the Agreement -
	(1)	pursuant to:
		(a)	Article 9.1 in [a] case [where] the Sales Representative is entitled to terminate the Agreement for the reasons stated in Article 9.1; or
		(b)	[Article] 9.3 thereof; or
	(2)	by the Sales Representative where such termination is justified by circumstances attributable to the Company,
the Company shall within thirty days ...".

In the event, however, it is unnecessary to discuss that aspect of the article further, since it was accepted by both parties that, on a proper construction of article 10, the payment contemplated in that article, whatever its nature, fell to be made in the event which happened, namely termination of the Agreement by the defenders by notice under article 9.3.

The Defenders' Submissions

[14] For the defenders, Mr Sandison submitted that the question in issue between the parties was whether the Agreement, soundly construed, provided for indemnity. The express purpose of regulation 17 was to ensure that a commercial agent, on termination of his contract, obtained indemnity or compensation. Regulation 17(2) provided that the entitlement was to be to compensation, except where the contract provided for indemnity. Entitlement to indemnity in accordance with such a provision excluded entitlement to compensation. It followed that if article 10 of the Agreement was to be construed as making provision for indemnity, the pursuers had no entitlement to compensation, and accordingly their claim for compensation was irrelevant.

[15] Mr Sandison recognised that the heading to article 10 - "Compensation after termination" - was prima facie unhelpful to his argument that the article provided for indemnity. He submitted, however, that a reading of the Agreement as a whole tended to suggest that the drafter's use of English was a little uncertain, and that accordingly less weight than usual should be given to his choice of language. It was, he submitted, significant that article 6 was headed "Compensation". The text of that article made it clear that it was not concerned with "compensation" as that term is used in the Directive and the Regulations, but rather with the agent's remuneration during the agency. Article 6.1 dealt with a retainer and commission. Article 6.2 referred to commission as "compensation ... [for] services rendered hereunder". Further, although article 10 was headed "Compensation after termination", the sum to be paid under the article was referred to in article 10.2 as "the goodwill payment" and article 10.3 set out circumstances in which the agent was not to be entitled to "any goodwill damages". The proper inference from these considerations, Mr Sandison submitted, was that the drafter of the Agreement, when he used the words "Compensation after termination" in the heading of article 10, meant no more than "termination payment", and did not intend thereby to express any election between the alternative remedies provided for in the Directive and the Regulations.

[16] Mr Sandison submitted that an examination of the terms of article 10 made it clear that the parties intended to provide for indemnity. That could be seen from the fact that the language of the article followed closely the language adopted in both the Directive and the Regulations to define indemnity.

In article 10.1 of the Agreement it was provided that the agent's entitlement was to be to payment of a sum not exceeding one year's commission based on the annual commission averaged over the five preceding years (or over the duration of the agency, if shorter). Although the language differed in detail, that was clearly intended to replicate the cap applied to the amount of the agent's claim for indemnity by Article 17.2(b) of the Directive and regulation 17(4). The Directive and the Regulations imposed no such cap on a claim for compensation.
The reservation of the agent's claim for damages in article 10.1.a of the Agreement replicated the reservation expressed in relation to indemnity in Article 17.2(c) of the Directive and regulation 17(5). In the Directive and the Regulations there was no equivalent reservation of the agent's claim for damages in connection with compensation.
Article 10.1.b of the Agreement did not reflect any provision of Article 17 of the Directive or regulation 17. That was a neutral consideration. Its purpose was simply to ensure that the agent's entitlement to commission earned prior to termination was preserved and was not affected by the cap.
The definition of the circumstances in which the agent was to be entitled to "the goodwill payment" set out in article 10.2 echoed the definition of the circumstances in which entitlement to indemnity would arise under Article 17.2(a) of the Directive or regulation 17(3).

In light of those considerations, Mr Sandison submitted that every feature of the provisions of the Directive and the Regulations that distinguished indemnity from compensation was to be found in the description of the payment provided for in article 10 of the Agreement. There was no feature of indemnity, as defined in the Directive and the Regulations, that was absent from article 10. No feature of compensation, as defined in the Directive and the Regulations, was present in article 10. The inescapable conclusion was that the parties to the Agreement had provided for payment of indemnity rather than compensation on termination of the agency contract. They were entitled to do so by virtue of regulation 17(2). Their election therefore fell to be given effect, to the exclusion of the pursuers' claim for compensation.

[17] Returning to the use of the word "Compensation" in the heading of article 10, Mr Sandison pointed out that in the body of the article neither the word "compensation" nor the word "indemnity" was used. He submitted that the proper approach to the use of the word in the heading was to be found in Mannai Investment Co. Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 per Lord Hoffmann at 774D:

"It is matter of constant experience that people can convey their meaning unambiguously although they have used the wrong words. We start with an assumption that people will use words and grammar in a conventional way, but quite often it becomes obvious that, for one reason or another, they are not doing so and we adjust our interpretation of what they are saying accordingly. We do so in order to make sense of their utterance: so that the different parts of the sentence fit together in a coherent way and also to enable the sentence to fit the background of facts which plays an indispensible part in the way we interpret what anyone is saying."

His Lordship went on to illustrate his point by reference to Mrs Malaprop's reference to "allegory" when she meant "alligator", and continued (at 774F):

"Mrs Malaprop's problem was an imperfect understanding of the conventional meaning of English words. But the reason for the mistake does not really matter. We use the same process of adjustment when people have made mistakes about names or descriptions or days or times because they have forgotten or become mixed up."

His Lordship returned to the point later (at 778D), and said:

"In fact, of course, words do not in themselves refer to anything: it is people who use words to refer to things."

Mr Sandison also cited Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR896, where Lord Hoffmann returned to the same theme (at 913B):

"The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter for dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax".

Adopting that approach, Mr Sandison submitted, it could be seen from the whole terms of article 10 of the Agreement that the parties meant to opt for indemnity rather than compensation, and that in the heading of the article they did not use the word "compensation" to mean compensation in the technical sense in which it is used in the Directive and the Regulations.

[18] On the basis that article 10, properly construed, constituted an election in favour of indemnity, and thus excluded any right to compensation, Mr Sandison submitted that the defenders' first plea-in-law should be sustained to the extent of excluding from probation the averments in article 6 of the condescendence, the pursuers' third and fourth pleas-in-law should be repelled, and decree of dismissal should be pronounced in respect of the second conclusion of the summons.

The Pursuers' Submissions

[19] Mr Ross for the pursuers agreed that the issue between the parties was whether on a sound construction of the Agreement the parties had made the election in favour of indemnity rather than compensation, as provided for in Article 17(2). In terms of that provision, compensation was the default remedy, which would be available in the event of failure to "provide otherwise", i.e. failure to provide that the remedy would be indemnity. That being so, a provision that there should be indemnity could be regarded as an exclusionary provision, ousting the remedy that would otherwise be available. That would affect the approach to construction of the contract.

[20] In approaching the construction of article 10 of the Agreement, Mr Ross made five submissions.

(1)	There was, he submitted, no relevant factual matrix to be taken into account, although he accepted that the existence and terms of the Directive and the Regulations formed part of the legal context in which the Agreement was entered into.
(2)	There was no need to look for the commercial purpose of the Agreement or the commercially realistic construction. In view of the terms of regulation 17 it was equally intelligible that the Agreement should provide for indemnity or that it should provide (actually or by default) for compensation.
(3)	The effect of regulation 17(2) was that, if there was to be a right to indemnity, the parties required to provide for it in their agency contract. In determining whether on a sound construction of the Agreement the parties had done so, the ordinary cannons of construction adopted by Scots law should be applied.
(4)	In determining whether there had been an election in favour of indemnity, it was appropriate to look for clarity of expression of intention that the default remedy of compensation should be excluded in favour of indemnity. In support of that submission, Mr Ross cited Mars Pension Trustees Ltd v County Properties and Developments Ltd 1999 SC 267, in which Lord Prosser said (at 271F):
		"According to the authorities thus far noted, it does not appear to me that 'strictness' in interpreting a provision of the type in question [an 'exclusion' clause] involves anything more startling than this -that where the general common law imposes an obligation or liability upon one party to a contract, the contract will not be read as excluding that obligation or liability unless it makes it clear, at least by necessary implication, that that was the intention of the parties. I do not myself think that the word 'strict' is particularly useful. ... To say that there is no special rule of construction is to my mind going too far: the proposition that the common law rule will prevail unless the contract clearly negates this, or unless there is a direct contradiction, is rather more demanding than our basic rules of construction. And much may depend on the particular context. But while such a rule may be described as special, it does not appear to me in its essence to be a particularly strict one, far less to involve any positive requirement that exclusion or exemption clauses must take particular forms, or describe or list excluded rights individually rather than generically. What is needed is clarity of intention."
	According to Mr Ross's submission, the one thing that was clear about article 10 of the Agreement was the reference to "compensation" in the heading. Although the word had been used in a different sense in article 6, in article 10 it was clear that the parties had had regulation 17 in mind. It could not be supposed that in that context the word "compensation" had been used to mean anything other than compensation in the sense used in Article 17 of the Directive and regulation 17.
(5)	Recognising the close approximation between the terms of article 10 of the Agreement and the provisions of the Directive and the Regulations concerning indemnity, Mr Ross submitted that that was nevertheless not to be construed as a clear election in favour of indemnity. Regulation 17 described with some precision the content of indemnity, but the content of compensation was much more uncertain. It would therefore be of critical importance for parties contemplating compensation to regulate the computation of it. The express provisions of article 10 could and should be read as such an attempt to regulate the computation of compensation. If what was intended was an election of indemnity, the provisions of article 10 repeating the content of regulation 17(3), (4) and (5) would be otiose. There was a presumption against treating contractual provisions as mere surplusage (Lewinson, The Interpretation of Contracts, second edition, paragraph 6.03). Article 10 should therefore be construed not as an election in favour of indemnity, but as a means of measuring the amount of compensation, albeit in terms equivalent to indemnity. Mr Ross recognised that that approach, if adopted at this stage, would be likely to have a limiting effect on the amount of the compensation claim in due course. He
	submitted, however, that the parties could not be said to have elected in favour of indemnity with the requisite clarity to exclude the pursuers' claim for compensation.

[21] Mr Ross's submission was therefore that the compensation claim had not been shown to be irrelevant, and that the whole case should accordingly be remitted to proof before answer.

Discussion

[22] I agree with counsel that the issue between the parties depends on the proper construction of article 10 of the Agreement. Article 17.1 of the Directive requires Member States to ensure that the commercial agent, on termination of the agency contract, is either indemnified or compensated. In implementing the Directive in the United Kingdom, regulation 17 preserves the possibility of either remedy, by entitling the agent on termination of the agency contract to indemnity or compensation. Regulation 17(2) enables the parties to choose which remedy will in due course be available to the agent on termination of the contract. The choice, if it is to be made, must be made in the agency contract. The regulation caters for the case where the parties fail to express their choice. It does so by providing that the entitlement will be to compensation unless the agency contract otherwise provides. The only way consistent with regulation 17 in which the parties may provide otherwise is by providing for indemnity. The question in the present case is therefore whether the contract is properly to be construed as providing for indemnity.

[23] Leaving aside for the moment the use of the word "compensation" in the heading of article 10, I approach the construction of that article by asking myself: what does it provide for? The answer to that question may be provided in stages. The first stage is that it provides for a payment on termination of the agency contract. The second stage is that the nature and extent of the payment is defined in terms which, apart from minor verbal variations, closely reflect the provisions of Article 17 of the Directive and regulation 17 relating to indemnity. To avoid repetition, I refer to the numbered points made by Mr Sandison and recorded in paragraph [16] above. I agree that the payment provided for in article 10 presents all the features of indemnity, and none of the features of compensation, as those concepts are deployed in the Directive and the Regulations.

[24] Although I accept that there is a presumption against construing a contractual provision in a way that renders it redundant or otiose, I do not consider that that presumption prevents me from construing article 10 as a provision for indemnity. To set out that a payment will be made, and that it will be of a certain nature and a certain maximum amount and will have certain other attributes, all in terms that reflect the provisions of the Directive and the Regulations dealing with indemnity, may be a long-winded way of saying, "On termination of the agency contract the agent will be entitled to indemnity in accordance with regulation 17(3) to (5)". But such a provision is, in my view, one way of expressing that election. It is not in my view otiose or redundant merely because it is expressed less concisely than it might be.

[25] Nor, in my view, can article 10 sensibly be construed as amounting to an attempt to define contractually the scope of the agent's claim for compensation. Compensation and indemnity are distinct concepts. It is not surprising that there are elements of similarity between them, since they are alternative ways of making provision for the same situation, namely the termination of the agency contract. The fact, however, that they are distinct concepts renders unattractive the submission that article 10 should be construed as an attempt to regulate the agent's claim for compensation, when the contractual provision takes the form of echoing the provisions of the Directive and the Regulations which define the concept of indemnity. Moreover, as Mr Sandison pointed out in reply to Mr Ross's submissions, regulation 19 provides that:

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

It is, in my view, difficult to see how a contractual provision purporting to restrict the computation of compensation (a) by requiring it to be computed exclusively by reference to the considerations set out in regulation 17(3) as the measure of a claim for indemnity, and (b) by imposing on it the cap which applies in terms of regulation 17(4) to the claim for indemnity, but finds no place in regulation 17(6) or (7) in relation to the claim for compensation, could be regarded as doing anything other than derogating to the detriment of the agent from the provisions of regulation 17 defining his right to compensation. Further, Mr Ross's attempt to characterise article 10 as regulating the compensation claim rather than as opting for indemnity sits unhappily with the claim for compensation actually made in the pursuers' pleadings, which is expressed as something separate from and untrammelled by the provisions of article 10. In my view (still leaving aside the use of the word "compensation" in the heading), the only realistic way of reading article 10 is to view it as a cumbersomely expressed but nevertheless clear expression of the parties' intention that, on termination of the agency contract, the pursuers' claim should be for indemnity in accordance with regulation 17(3) to (5).

[26] There remains for consideration the effect of the use of the word "compensation" in the heading of article 10. The strongest argument in favour of giving weight to that consideration is that it is, as Mr Ross pointed out, quite clear that, whatever its ultimate effect, article 10 was intended to deal with the remedy available to the pursuers under regulation 17 in the event of the termination of the agency contract. In that context, one would ordinarily expect the two concepts of compensation and indemnity, and the need for a choice to be made between them, to be in the minds of the parties, and consequently one would expect the word "compensation" to be used in the technical sense in which it is used in regulation 17. On the other hand, it is clear that elsewhere in the Agreement, i.e. in article 6, "compensation" is used in a broader, non-technical sense. It is also clear from the language and syntax of the Agreement as a whole that it would be unsafe to apply too strict a standard to the interpretation of the words used. Mr Sandison was, in my view, well justified in relying on Lord Hoffmann's dicta in Mannai and in Investors Compensation Scheme Ltd. The fact that the word "compensation" is used in the heading of article, even in a context in which one would expect the parties to have in mind the distinction between compensation and indemnity as those terms are used in the Regulations, is in my view insufficient to negate the clear inference from the terms of article 10 that the intention was to opt for indemnity. Further support for that view of the meaning of the article is, in my view, to be gained from the use of the expression "the goodwill payment" in article 10.2. I agree with the view expressed by the Deputy Judge in Moore at 182c that the purpose of indemnity, defined as it is in regulation 17(3) to (5), is to award to the agent a share of the goodwill built up by his efforts. That being so, the use of the phrase "the goodwill payment" in article 10.2 is in my view confirmation that the parties did indeed intend to elect for indemnity.

[27] Although I share Lord Prosser's concern that "there is ... perhaps no true or readily identifiable boundary between clauses which are, and clauses which are not 'exclusion' clauses" (Mars Pension Trustees at 272I), I recognise some force in Mr Ross's submission that a provision making the election in favour of indemnity, viewed against the background of the provision in regulation 17(2) that the agent's entitlement is to be to compensation "Except where the agency contract otherwise provides", requires clarity in the expression of the parties' intention. In the light of the whole circumstances of the present case, however, I am unable to conclude that there is any real lack of clarity in article 10. I am of opinion that, notwithstanding the use of the word "compensation" in the heading, the parties attained the requisite degree of clarity in expressing their intention that the remedy available to the pursuers on termination of the Agreement was to be indemnity, not compensation.

Result

[28] For the reasons which I have given I am satisfied that on a sound construction of article 10 the parties agreed that on termination of the Agreement the pursuers would be entitled to indemnity. Consequently, the pursuers are not entitled to claim compensation. Their pleadings, in so far as they seek to express a claim for compensation, are therefore irrelevant. I shall accordingly sustain the defenders' first plea-in-law to the extent of excluding from probation the averments in article 6 of the condescendence. I shall repel the pursuers' third and fourth pleas-in-law. I shall grant decree of dismissal in respect of the second conclusion of the summons. Quoad ultra I shall allow a proof before answer. I shall put the case out By Order with a view to affording parties an opportunity to review their positions in light of this decision, and make such further submissions as they think appropriate in relation to further procedure.