Tigana Ltd. v Decoro Ltd. [2003] EWHC 23 (QB)

Case No 02/TLQ/0531

[2003]EWHC23(QB)

IN THE HIGH COURT OF JUSTICE

QUEENS BENCH DIVISION

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date Monday 3rd February 2003

Before

THE HONOURABLE MR JUSTICE DAVIS

Between

TIGANA LIMITEDClaimant

DECORO LIMITEDDefendant

Antony White QC and Jacques Algazy (instructed by Wakefields) for Claimant

Charles Hollander QC and Jasbir Dhillon (instructed by Baker & Mckenzie) for Defendant

Hearing Hearing dates : 2 nd– 6 th December 2002

Approved Judgment

I direct that 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 may be treated as authentic.

.............................

The Hon. Mr Justice Davis

Introduction

[1]By a written Sales Agreement dated the 1st January 1999 and made between Decoro Limited (“Decoro”: a company incorporated in Hong Kong) and Tigana Limited (“Tigana”: a company incorporated in the Isle of Man) Decoro appointed Tigana its sales representative for the purpose of procuring sales of Decoro’s leather furniture products in the United Kingdom and Eire, on the terms there set out. The initial term of the agreement was stated to be one year beginning on the 1st January 1999. There was provision for renewal for further yearly terms if the parties mutually so agreed. In the event there was no such further agreement and the Sales Agreement accordingly expired by effluxion of time on the 31st December 1999.

[2]By its Claim Form, issued on the 20th September 2000, Tigana claims commission and compensation said to be due to it under the terms of the Sales Agreement and by reason of the application of the Commercial Agents (Council Directive) Regulations 1993 (“the Agency Regulations”) which came into force on the 1st January 1994. The issues arising in this litigation include issues as to the true meaning and effect of certain of the Agency Regulations.

[3]The background facts, as I find them to be, are as follows.

(a) Mr Coleman

[4]Mr Stuart Coleman has since 1978 acted as a manufacturer’s and seller’s agent in the furniture business, with particular emphasis on the leather upholstery market. He became very well known in the trade in the United Kingdom and also had significant international connections. In the course of his business he had frequent dealings with major UK furniture groups such as DFS, Land of Leather, Queensway, Leatherland and many others. Mr Coleman’s practice was to act on a commission basis for manufacturers (who were usually foreign based). His usual role was to seek to introduce the importer, and its goods, to prospective UK customers (who ordinarily would be retailers of considerable size or, sometimes, wholesalers) with a view to securing the placing of orders. Thereafter Mr Coleman would act as a point of contact between the importer and retailer, seeking to secure repeat or further orders, organising the necessary administration, ensuring that deliveries were made on time and helping to deal with any service and specification problems that might arise. Mr Coleman (operating, as I understand, primarily from his home address) traded under the name Stuart Coleman and Associates. In most years, he was a sole trader but there were occasions, as he told me, when his wife was in partnership with him. He also employed between two and three administrative and secretarial staff to assist him in his work.

[5]The nature of Mr Coleman’s business involved frequent trips abroad: not only to international trade fairs but also to the factory premises of manufacturers with a view to inspecting their methods of manufacture and to assessing their products. Frequently Mr Coleman would be accompanied by buying representatives of existing or prospective UK customers. Nevertheless, customers (who in the first instance would have little more to go on than the manufacturer’s brochure and product specifications) would place considerable reliance on Mr Coleman’s own views as to the marketability of particular furniture products.

[6]In 1998 Mr Coleman held five agencies, all of which had lasted for a number of years. One was for an Italian furniture manufacturer called Ital Design. Another (relatively recently taken on) was for an Italian leather furniture manufacturer called Calia/Maxim. A third agency was for a Dutch manufacturer called Hetanker; a fourth was for an Italian manufacturer, specialising in marble topped furniture, called Stone International; and a fifth was for another Italian manufacturer called Presotto. The turnover of each in the United Kingdom was quite significant; the largest being Ital Design, which was, in 1999, in the region of £4million. In handling these agencies, Mr Coleman dealt with several of his contacts in the UK retail market. Not all required products from each of these manufacturers: although some took orders from more than one of them. On such orders Mr Coleman was paid a commission: the rate varied, depending on the nature of the product and whether it was a promotional or non-promotional sale. Although the commission might be as much as 10%, usually it was in the region of 5% (being in respect of promotional sales).

[7]For the leather furniture industry the most important international trade fairs are those held at High Point, North Carolina, USA. Such fairs are held twice in each year, in April and October. Some manufacturers retain permanent show rooms at High Point. (b) The introduction at High Point and subsequent events in 1998.

[8]Mr Coleman (as was his practice) attended the High Point fair in October 1998. Before he went he had been told by an American agent, whom he had known for some time, that a new Chinese based company, with Italian backing, called Decoro had been taking the US leather furniture market by storm. Decoro was, and is, a company based in Hong Kong and China, with its manufacturing operations sited at Shenzhen in China. Mr Coleman, with his experience, was aware that the US leather furniture market was very different to the UK market: the preference in the USA, for example, was inclined to large studded suites which was not the UK fashion. On the other hand, leather quality was not of prime importance to the UK market: and Mr Coleman also perceived that, for larger pieces, Chinese manufacturers with their lower labour costs could produce pieces at very favourable prices compared to, for example, Italian manufacturers. Moreover, Mr Coleman understood that, in Decoro, there would be the benefit of Italian know how and designs. Mr Coleman accordingly resolved to make contact with Decoro’s representatives at the October 1998 fair, which took place between around the 18th and 24th October.

[9]This he did. He spoke to Mr Giovanni Pratti, Decoro’s International Sales Director. Mr Pratti suggested that he return to speak to Mr Lucca Ricci, the president (and a shareholder) of Decoro. Later that day, Mr Coleman and Mr Ricci discussed the possibility of Mr Coleman’s acting as Decoro’s agent in the UK. The discussions ranged over model ranges, prices and production capacity. Mr Ricci was very keen on the proposal. The following day Mr Coleman introduced a number of UK corporate buyers to Mr Pratti and Mr Ricci, including representatives of Sterling Furniture, Dansk Design, Conroys and Cousens. Orders for some five containers of samples were taken. One buyer was heard to say, “ What’s the catch?” reflecting his surprise at the perceived value of the product. In addition, Mr Coleman telephoned Mr Paul Briant, Managing Director of Land of Leather, from High Point. Land of Leather is one of the UK’s largest leather furniture retailers. On the strength of Mr Coleman’s recommendation, Mr Briant ordered some $40,000 worth of pieces, leaving it to Mr Coleman to select the models and colour ranges.

[10]There is no doubt, and I find, that each of Mr Coleman and Mr Ricci and Mr Pratti was at this stage very keen on the prospect of Mr Coleman’s acting as Decoro’s UK agent. Mr Coleman considered that products of the quality and value which Decoro were manufacturing would be capable of finding a ready market in the UK and, as he saw it, he had the right connections to enable Decoro to break into that market. For its part, Decoro wanted to expand into the UK market: but, as I find, it had at that time no presence at all there and perceived itself as requiring just such a person as Mr Coleman to enable its products to be introduced to UK retailers and wholesalers.

[11]On his return to the UK from High Point, and before any formal agency contract had been agreed, Mr Coleman took steps to contact other potential customers in the UK whom (from his knowledge of them) he assessed as being likely to be interested in Decoro’s products. These included Furniture Village, Barker & Stonehouse and Kingdom of Leather. All in due course placed orders. In addition Mr Coleman discussed Decoro’s leather furniture with Julian Cox (a long-standing business contact) who was a director of Furnitureland. Furnitureland was to go on to become, for a while, Decoro’s largest UK customer.

[12]The intention was that orders placed in October and November 1998 should catch the Christmas and New Year sales markets. At various stages Mr Coleman communicated with the various customers, as well as with Decoro itself. Mr Coleman gave certain advice to Decoro, amongst other things concerning labelling requirements, referring to the Furniture and Furnishings (Fire)(Safety) Regulations 1988 (1988 SI No 1324).

(c) The agency contract

[13]In the meantime, although orders were being solicited and placed with Decoro for the UK market, the terms of the proposed agency had not yet been finalised. At the initial meeting at High Point, Mr Ricci had proposed 2% for promotional models and 7% for highly priced models, those rates corresponding to the rates Decoro paid in the US market. Mr Coleman’s counter proposal was 5% on promotional models and 10% on larger items. Mr Coleman made the point that Decoro maintained a US office whereas in the UK the administration would be undertaken by Mr Coleman who would bear the overheads. Nothing was finalised at this time.

[14]On 6th January 1999, Mr Coleman flew out to China via Hong Kong to visit Decoro. There were two reasons for the visit. The first was to introduce Mr Briant (of Land of Leather) and Mr O’Kane (another prospective customer) to Decoro and to enable them to view Decoro’s operation: those two individuals accompanying Mr Coleman for that purpose. The second was to enable Mr Coleman to finalise the terms of the agency: which he discussed with Mr Ricci in Hong Kong.

[15]On his return from Hong Kong Mr Coleman wrote to Mr Ricci a letter dated 12th January 1999. The letter enclosed copies of orders placed by Land of Leather and also referred to orders to be placed by Mr O’Kane. The letter went on to say, amongst other things:

“As for our discussions regarding my contract 1) I will have total exclusivity to promote your range in the UK. This covers England, Wales, Scotland, and Ireland south and north. 2) 5% commission will be paid on all models where the price of the 3.2. 1 combination does not exceed dollars 1130. This also applies to part orders of items in these price points. 3) the contract should run for one year with 3 months notice minimum on either side. European agents laws with an English Court jurisdiction……”

The letter went on to cover other points, including a proposal to convert a barn at Mr Coleman’s premises in Stowmarket, Suffolk, with a view to displaying Decoro leather suites in conjunction with Stone International marble top tables. This letter, it may be observed, connotes that (as one would expect) Mr Coleman was aware of the Agency Regulations and also that he desired them to apply to the agency contract, and expressly alluded to them accordingly. However, although Mr Coleman expressly alluded to them, it would appear that Decoro did not consider such regulations (or, if it did, see fit to seek to modify their application to the proposed agency). It would seem that neither side took legal advice at this time.

[16]On the 4th February 1999, Mr Ricci sent a draft Sales Agreement to Mr Coleman. This proposed rather lesser commission rates. It also provided that Mr Coleman should not during the period of the agency contract act as a representative for any competing products. Mr Coleman responded (having, in the interim, again referred to the European Law on Sales Agents): in particular he queried the proffered commission rates and also the “no competition” provision, in view, in particular, of his agencies with Ital Design and Calia/Maxim. Mr Ricci in due course indicated agreement to the various revisions to the draft put forward by Mr Coleman. In the event there were further discussions between the parties in Hong Kong during March 1999 (on a further visit by Mr Coleman, with his wife). Also during those discussions Mr Coleman recommended that Decoro should apply to become a member of FIRA (The Furniture Industry Research Association), providing some literature in that regard including a Technical Data Sheet which referred to the 1988 Fire Safety Regulations.

[17]As a result of those discussions the Sales Agreement was finalised. It was given the date of 1st January 1999 (being backdated for the purpose). The Agreement provides as follows:

“THIS AGREEMENT, made and entered into this the 1st day of January, 1999, by and between DECORO LTD, a Hong Kong Company (hereinafter referred to as the “Company”), and TIGANA LTD (hereinafter referred to as “Sales Representative”). In consideration of the mutual covenants, the parties hereby enter into the following Agreement: 1. Duties, Term Sales Representative agrees to sell for the Company in the Capacity of Sales Representative for an initial term of one year beginning on the 1st day of January 1999. The parties may by mutual agreement in writing renew this Agreement for additional one (1) year terms with such changes and amendments, if any, as may be mutually agreed upon and set forth in the renewal agreement. 2. Position The Sales Representative as an independent contractor will use his Best efforts to sell the Company’s products on a commission basis. This Sales Agreement is personal to the Sales Representative named herein and cannot be assigned without the prior written approval of the Company. The rights and obligations of the Company hereunder shall accrue to its successor and assigns. The Sales Representative shall bear all of his own selling expenses, without reimbursement by the Company. 3. Commissiona. The Sales Representative shall be paid a commission of five (5%) percent on all promotional merchandise, and a commission of ten (10%) percent for all non-promotional merchandise. All commissions shall be paid on the published factory price, and exclusive of freight and transportation charges, duty or customs fees, sales or similar taxes, and adjusted for returns, rejections, damage allowance, and uncollectible accounts. All orders must have credit clearance from the Company prior to shipment or delivery. b. Promotional merchandise is defined as a sofa group (sofa, loveseat and chair) that arrives paid in the UK for ONE THOUSAND ONE HUNDRED THIRTY US DOLLARS ($1,130.00) or less. c. Commissions shall be due and payable to the Sales Representative within thirty (30) days of full payment being received by the Company. d. The Company shall have full control of and full discretion as to the collection, adjustment or compromise of all accounts sold by Sales Representative, and shall not be liable to Sales Representative for any loss of commission or other claim whatsoever arising thereby. 4. Assigned Country UNITED KINGDOM and EIRE. 5. Trade and Business Secrets Sales Representatives will not, at any time, either during this employment or thereafter, reproduce, disclose or use any confidential information, trade or business secrets, customer lists, or confidential records of the Company unless specifically authorized in writing by the Company. 6. Termination This Agreement may be terminated by either party, with or without cause, upon giving ninety (90) days written notice certified mail to the other party. 7. Entire Agreement This Agreement constitutes the entire agreement between the Company and Sales Representative and supersedes all prior and contemporaneous statements, understandings or agreements. 8. Return of Company Property Upon termination of this Agreement, the Sales Representative shall return to the Company all samples, customer lists, price lists and other property furnished to the Sales Representative by the Company. 9. Applicable Law This Agreement shall be governed by and construed by the laws of the Country of the United Kingdom.”

In consideration of the mutual covenants, the parties hereby enter into the following Agreement:

[18]Tigana was named as the Sales Representative, rather than Mr Coleman, because, as Mr Coleman told me, he had been advised by his accountants that there might be advantages in using an Isle of Man company in this context. Tigana had previously been acquired as an “off the shelf” company for this purpose. In practical, if not legal, terms Tigana was Mr Coleman.

(d) Trading during 1999

[19]As has been mentioned, orders procured by Mr Coleman had been placed with Decoro from October 1998. These orders had to a considerable extent (although not solely) been by way of sample orders. Further orders came in January 1999, in the period before the Sales Agreement was finalised, including those resulting from the visit to China of Land of Leather (Mr Briant) and European Furniture (Mr O’Kane) in January 1999. On 20th January 1999 Furniture Village placed an order with Decoro. On the 19th February 1999 Furnitureland (Mr Julian Cox) placed a substantial prospective order with Decoro, via Mr Coleman, for its Easter promotion. In May 1999 Mr Coleman made a further visit to China, this time accompanied by representatives of Furnitureland and Conroys. Furnitureland were calculating that by that time their orders would come to as many as 170 container loads. It is clear that throughout this period Decoro was shipping to the UK very substantial quantities of leather furniture to the UK – Furnitureland alone placed orders of around $3.65 million for the period April, May, June 1999. It is further clear that the purchases were all by customers introduced through the agency of Mr Coleman.

[20]During this period there had been some difficulties. On occasion the shipping paperwork was defective. Also there were various problems with scuffmarks on some of the furniture, lack of feet (or screw holes for the feet) for some of the chairs, inadequate labelling and so on. Mr Coleman, and his staff, did his best to handle such complaints, communicating with Decoro when necessary. There is nothing to suggest that these particular problems, although tiresome, were such as to affect to any significant extent the overall saleability of Decoro’s furniture in the UK or its relations with its customer base.

[21]However, a far more significant problem was emerging.

[22]The fire safety regulations applicable to furniture sold in the UK would appear to be amongst the most stringent, if not the most stringent, in the world. Decoro appreciated in broad terms (if not specific terms) that the requirements might be different to other countries in which its products were sold. The Far Eastern manufacturers of foam required for Decoro’s leather furniture, Wah Tung and latterly Tung Ah, in due course obtained certificates from Intertek Testing Services (“ITS”) in Hong Kong at the end of 1998 which stated that the foam provided satisfied the UK 1988 Fire Safety Regulations. On the 4th February 1999 Mr Coleman wrote to say that certificates would be needed from the foam manufacturers that the foam satisfied British Safety requirements. The request was repeated by fax of 11th March 1999. By this time rumours were beginning to circulate – perhaps to some extent fostered by trade competitors of Decoro and of its customers in the UK who had been making their own inspections – that Decoro’s foam was not fire retardant to the requisite standard.

[23]On the 17th March 1999 Mr Coleman wrote to all of Decoro’s UK customers enclosing copies of the ITS certificates and informing them that Decoro was applying to become a member of FIRA, and was sending FIRA a sample for testing. In the meantime, as has been mentioned, substantial orders continued to be placed with Decoro.

[24]On the 25th May 1999 a sample from Decoro eventually arrived at FIRA for testing. On the 7th June 1999 FIRA notified Mr Coleman that the sample had failed the test with regard to the foam, the full report following on 9th June 1999. At that time Furnitureland indicated that it would not accept Decoro furniture without FIRA test certificates, and that it required an acceptance of full liability on the part of Decoro if the furniture was not compliant. In the meantime further tests were sought at FIRA. A replacement foam sample also failed. By this time local trading standards officers were taking an interest and visiting stores in order to inspect Decoro furniture products. On the 28th June 1999 a sample taken by Cardiff trading standards officers for non-foam filling testing failed as to the fibres incorporated in the cushioning. Mr Coleman notified Mr Ricci of this on 28th June 1999, asking for confirmation from Decoro’s fibre suppliers that the fibre was compliant with UK safety regulations.

[25]On the 29th June 1999 Furnitureland formally suspended all further deliveries from Decoro, and all further sales out of stock of Decoro products. In the meantime the rumours were gaining widespread currency within the furniture trade. Furnitureland commissioned a test of the fibre, which was recorded as failing on its being tested on 5th July 1999.

[26]A further testing session in respect of the fibre was held on the 12th July 1999 at the furniture technology laboratory of the independent testing organisation SATRA at Kettering. Present, among others, were several representatives of Furnitureland; Mr Ricci; Mr Pratti; and Mr Coleman. When the test was undertaken, the fibre failed. In consequence there were further discussions with Furnitureland. An arrangement was concluded on the 13th July 1999; it involved (amongst other things) the agreed recall of 63 containers, in storage or in transit, to China for reworking, at the expense of Decoro. Those goods, when reworked, and further outstanding orders amounting to 179 containers, were to be provided to Furnitureland at a discounted price of 7% to compensate Furnitureland for its own anticipated losses. Subsequently, on around 11th August 1999, Decoro agreed to bear $485,000 in respect of the ex-factory costs of recall.

[27]Other customers were notified that the furniture had failed the fibre tests and an article appeared in the “Cabinet Maker” (the trade magazine) to that effect. In addition, however, on a further test by SATRA at the request of Cardiff trading standards officers, the (grey) foam was also failed in a test undertaken on the 29th July 1999 (there being at this time two foams proffered by Decoro for testing – grey and yellow). Samples of Decoro products taken by West Yorkshire trading standards officers in early August 1999 failed both as to foam and as to fibre.

[28]On the 8th August 1999, Mr Coleman and two representatives of Furnitureland visited Decoro’s factory in Shenzhen, China. With them, at the behest of Furnitureland, went Mr Feltham–White, then employed by SATRA as a technical consultant. Mr Feltham-White submitted a detailed report as to the requirements for Decoro’s furniture to enable it to comply with UK regulations. He also stated that the foam, if of the yellow variety, was compliant.

[29]Throughout this time other retailers (such as Conroys) were putting pressure on Decoro and Mr Coleman to come up with solutions and also were seeking recompense. The position was sufficiently serious for Mr Ricci to be expressing concerns as to whether Decoro could survive. On the 19th August 1999 Mr Coleman advised that all Decoro products sent to the UK to date must be recalled. On the 26th August 1999 a meeting was held in London with Decoro’s major UK retailers (other than Furniture Village). An arrangement was reached which was reflected in a letter sent out the following day by Mr Coleman. That provides as follows:

“Further to our meeting yesterday in London please find my confirmation of the agreements reached by Decoro and the retailers present. 1) As from 1st September all materials used in the production of Decoro’s sofas will be fully compliant to the UK spec and batch tested prior to productions. 2) Decoro will grant an ongoing invoice discount of 6% to cover the costs of replacement orders for previous deliveries. All future deliveries will be a mix of special orders and replacement orders to ease the pain. 3) Any unused stock presently held by you can be sent back to China for reworking and redelivery. The transport costs of this will be met by the retailer and reimbursed by Decoro under their discount on ongoing orders. 4) Paul Briant will investigate the possibility of exporting the return stock to Belgium at £80 per seat. 5) I have booked the same hotel for next Wednesday 1st September from 9am to 3pm for a meeting with Cabinet Maker, the various T.S.O.’s and a solicitor provided by Furnitureland to discuss the law regarding compliance and numerous press releases. 6) All clients should provide Decoro with detailed lists of replacement stock broken down as: a) Replacement delivered stock b) Replacement warehouse stock to be returned c) Showroom models stock I trust this covers all of the items we discussed but if you require any further information please let me know.”

[30]Notwithstanding all these difficulties, it is the fact (as I find) that overall most of Decoro’s customers – Furniture Village being the principal exception – were supportive of Decoro. That may well have been in part because of the terms and discounts being offered by Decoro to help rectify the situation; but I have no doubt that it was primarily due to the customers’ perception that these were essentially good products, competitively priced. In the beginning of September 1999 Mr Coleman arranged a meeting with Cabinet Maker, the trade magazine, attended by representatives of Decoro’s major customers. The upshot was an article in that magazine of 10th September 1999. It was headed:

“Stockists unite to back Decoro and defy critics”

. The article started:

“Main Decoro stockists have issued a bullish message to trade critics. ‘It’s a good quality product and we will continue to sell it’.”

The article went on to name the four retailers – Land of Leather, Sterling, Conroys and Furnitureland - as participating in a product recall and recorded them as stating that they would continue to stock the product and were happy with the measures taken. The managing director of Furnitureland was quoted as saying with regard to Decoro:

“ Our relationship is more of a partnership now”

. I have no reason to think that the article does not accurately record the views of these retailers. By this time, as I find, by 1st September 1999 Decoro was in a position to manufacture UK compliant furniture.

[31]Throughout 1999 Mr Coleman had been receiving infrequent payments of commission which he calculated were due to him. On the 20th August 1999 Mr Ricci wrote to him, complaining of all the disruption and cost to Decoro and intimating that outstanding commission might not be paid and, indeed, such as had been paid should be repaid. Mr Coleman took the view that Mr Ricci was seeking to blame everyone but Decoro itself for the Fire Safety Regulations debacle. At all events he continued to act as its agent and continued to deal with its customers: for example, on one occasion he even held certain sums proffered by a customer as a kind of stakeholder. He sought to persuade Furniture Village to enter into an arrangement similar to that offered to the other retailers. He continued to deal with queries. He arranged for visits to the China operation by representatives of Kingdom of Leather and Conroys, Furnitureland and World of Leather. He continued to seek new introductions and attended the High Point fair in October 1999, where orders for Decoro products for the UK market were taken, and where he entered into preliminary discussions with other potential new customers, Allders and Reids. He also visited Decoro’s factory in China during November 1999, primarily to check that production and shipment was on course for pre-Christmas orders. On his return, he entered into negotiations with a furniture outlet called Crazy George, which had many UK stores, seeking to interest it in Decoro products.

[32]Nevertheless Mr Coleman’s contact with Decoro was diminishing. By October 1999 some of Mr Coleman’s staff had been complaining at the lack of information they were receiving from Decoro. On 14th September 1999 Land of Leather had (unbeknown to Mr Coleman) written to Decoro indicating that it was agreed they deal directly with each other (although this did not always happen: for example, provisional Heads of Agreement reached at High Point in October 1999 between Mr Pratti and Land of Leather were copied by the latter to Mr Coleman). During November Furnitureland were communicating directly with Mr Pratti and Mr Feltham-White on various matters. For example on 7th December 1999 Furnitureland’s managing director, Mr Peddar, wrote to Mr Ricci saying among other things. “…..we are very keen to promote heavily your models early in the New Year……. The success we have enjoyed together can be repeated during the year 2000 and we look forward to working with you…. I confirm our absolute desire to increase our turnover with Decoro….”. Further by the end of November 1999 Decoro was in discussion with Mr Feltham-White with a view to Mr Feltham-White becoming Decoro’s UK representative in place of Mr Coleman.

[33]On the 20th December 1999, Mr Ricci, in response to Mr Coleman’s query as to his payments of commission, wrote to stress the losses caused by the fire regulation problems but “notwithstanding the loss your commission have (sic) been and will be completely paid”. The letter also stated that it was not Decoro’s intention to renew the contract when it expired on 31st December 1999. This was a great disappointment to Mr Coleman. A further letter of 27th December 1999 confirmed that intention and stated that Decoro considered the contract terminated at the expiry date of 31st December 1999. On the 21st December 1999 Decoro had notified all its UK customers that Mr Coleman would cease to be its representative from 1st January 2000. On the 4th January 2000 the customers were formally notified that Mr Feltham-White would be Decoro’s representative. Mr Feltham-White in fact started in post on 1st February 2000, having served out his notice with SATRA, on a salaried basis (his current salary being around £60,000 p.a). The ostensible reactions of Decoro’s UK customers, expressed to Decoro, were mixed. Some expressed surprise and concern at Mr Coleman’s departure; others, however, indicated some unhappiness at Mr Coleman’s after-sales service (although they had never voiced such dissatisfaction to Mr Coleman himself) and a lack of concern at his departure.

(e) The events of 2000

[34]During the early part of 2000 Decoro continued to take substantial orders from UK customers. A considerable quantity of orders, for example, was placed by Land of Leather in January 2000. (Land of Leather told Mr Feltham-White on 5th January 2000 that they had sold nearly 30 containers over the Christmas/New Year holiday alone). These orders had been contemplated and, indeed, discussed with Mr Coleman at High Point in October 1999. The orders were, however, only formally confirmed and placed after discussions at a trade fair in Paris on around the 12th January 2000 and the orders entered into Decoro’s system on around 17th January 2000. (Notwithstanding the absence of the original order forms I accept Mr Pratti’s evidence, given in re-examination, to this effect). Orders from other customers continued to flow in, although Furniture Village, at least, seemed disinclined to deal further with Decoro in the early part of 2000 (mainly owing to a stated desire, as Mr Coleman told me and I accept, for “the dust to settle”). Comparative figures are set out in Appendices 1, 2 and 3 to Mr Coleman’s witness statement dated 31st October 2002. These were subsequently revised and, as so revised, are appended to this judgement: they are based on the details provided by Decoro on disclosure in these proceedings.

[35]Mr Pratti in his 3rd witness statement also provides some figures. In paragraph 62 he records the approximate UK sales revenue of Decoro for 1999 as being in the region of $10m-$12m; for 2000, as $22m; for 2001 $17m; and for 2002 $24m. He goes on to record that in the year 2000 of the then 3 major customers, Furnitureland provided Decoro with nearly $11m of business; Land of Leather $6.8m of business; and Sterling $2.2m of business. Mr Pratti’s particular point was that those volumes were principally to be explained by the customers availing themselves of the discount arrangement reached with them to compensate for the problems with the non-compliant furniture delivered in 1999. I have no reason to doubt that this was a significant factor (a point illustrated by the heavily reduced orders from those customers in 2001 – in Sterling’s case, to nil - as set out in paragraph 64 of Mr Pratti’s statement). Nevertheless the fact remains that Decoro in 2000 (and thereafter) undertook considerable volumes of business with customers initially introduced by Mr Coleman. Paragraph 18 of Mr Pratti’s fourth witness statement indicates that Decoro makes a significant gross profit margin (before deduction of transport and other costs) on its products – doubtless reflecting its low cost base in China – and at no stage has Mr Pratti sought to deny that the sales in 2000 (even allowing for the discount arrangement) were anything other than profitable to Decoro.

[36]Mr Feltham-White commenced work full-time for Decoro on the 1st February 2000. His principal role at that time was to ensure compliance with the regulations and to provide good customer aftersales service. Subsequently, since 2000, Mr Feltham-White has succeeded in bringing in new customers for Decoro (in particular Reids, Allders and various other companies). However Mr Feltham-White in cross-examination openly accepted, and I find, that the orders which flowed into Decoro during 2000 primarily (and, at least up to October, exclusively) derived from the customers whom Mr Coleman had initially introduced: and that effectively during 2000 Mr Feltham-White administered those customers whom Mr Coleman had so introduced. The aim, at that stage, as he told me, was to consolidate the business which had been introduced by Mr Coleman: in Mr Feltham-White’s words, he was “handed the reins” for the customers introduced by Mr Coleman. Since Mr Feltham-White was on a salary, he did not receive any commission himself for these orders.

[37]Mr Coleman was pressing in the meantime for sums he was claiming were due to him. The only sums that had previously been paid to Tigana for commission totalled (as was ultimately agreed) $215,432. One point concerned expenses. Although the Sales Agreement had provided that Tigana should bear its own selling expenses, a separate agreement had been reached between Mr Ricci and Mr Coleman (as was common ground) that Decoro should pay the costs of Mr Coleman’s flights to and hotel expenses for Hong Kong and China, as well as those of his commercial invitees. Mr Coleman was pressing for reimbursement of such expenses. Eventually, after service of a Statutory Demand for the sum of £34,987 these were for the most part paid. On the 4th March 2000 Decoro sent a statement showing $404,703 due to Tigana for commission. However, notwithstanding Mr Ricci’s assurance given in his letter of 20th December 1999, this was not paid.

[38]A letter before action was sent on the 26th April 2000. This was met with a response from Decoro’s solicitors to the effect that Tigana, in breach of duty, had failed properly to advise as to 1988 Fire Safety Regulations; that no compensation or indemnity was due because the termination of the agency was by reason of Mr Coleman’s “fault”; and that Decoro’s own rights were reserved in respect of loss and damage which it had suffered as a result of Tigana’s alleged breach of contract.

[39]The Claim Form, with Particulars of Claim, was issued on 18th September 2000. The course of the proceedings

[40]By its claim form, Tigana claims sums said to be due to it under Clause 3 of the Sales Agreement. The amount said to be due (based on the details provided by Decoro itself) is pleaded as $404,703. In addition sums are claimed by reference to Regulations 7 and 8 of the Agency Regulations. Further a claim for compensation (amounting to the equivalent of two years gross commission based on the earnings of the Claimant) pursuant to Regulation 17 is made. There is also raised in the claim form an unquantified claim for damages.

[41]By its Defence and Counterclaim served in April 2001 (and amended in April 2002) it was admitted that the sum of $404,703 was owed to Tigana for unpaid commission. It was denied that any sums were due under Regulations 7 and 8. It was denied that any sums were due by way of compensation under Regulation 17 since(a) the Sales Agreement expired by effluxion of time and Regulation 17, on its true interpretation (so it is alleged), has no application in such circumstances and in any event

(b) the Sales Agreement was terminated by reason of the default of Tigana (reliance being placed on Regulation 18 in this regard). Further a substantial counterclaim was pleaded (plainly also intended to operate by way of set-off to the claim, as well as constituting a cross claim). What was alleged (to summarise) was that the failure of Decoro to supply furniture which was compliant with the 1988 Fire Safety Regulations, and the resulting loss, was caused by alleged breach of duty on the part of Tigana (by Mr Coleman) in failing to advise properly as to the existence and effect of such 1988 Fire Safety Regulations. Damages put at some $2,735,000 (and interest) were claimed.

[42]The Claimant took the view that the original defence and counterclaim contained no real defence and applied for summary judgment. Detailed evidence was put in: that put in by Decoro did not, in a number of respects, correspond to what had been alleged in previous correspondence or the Defence and Counterclaim as originally pleaded.

[43]The application came before Master Rose. By Order dated 1st November 2001, he dismissed Tigana’s application for summary judgment. In his careful and detailed judgment (judgment having been reserved) the Master made clear that his dismissal of the application was on the basis that the evidence of Decoro showed an arguable set off and counterclaim. Costs were ordered to be in the case. Subsequently the Defence and Counterclaim was amended in a way that, so it is said, does not seem altogether to mirror the way in which the matter was put before the Master. In due course, detailed witness statements and experts reports were put in which (so it is said by Tigana) advances a different case yet again.

[44]The trial was listed to start before me on Monday the 2nd December 2002. On the afternoon of Friday 29th November 2002 a note was sent by counsel for Decoro indicating that Decoro did not propose to pursue its counterclaim (and also abandoning certain other points under the Agency Regulations, including the argument under Regulation 18). One consequence of this was greatly to shorten what otherwise would have been potentially a very lengthy trial. Another consequence was that there was, after all, no defence raised as to the entitlement of Tigana at least to receive the unpaid commission.

[45]As has been mentioned, it was admitted in the Defence that the sum of $404,703 was due in respect of such unpaid commission. However at the outset of the trial before me Mr Antony White QC (who, with Mr Algazy, appeared for Tigana) very fairly indicated that the latest figures available indicated that may be an incorrect quantification and that he did not seek to hold Decoro to its admission. Ultimately the parties agreed that the correct figure was $350,000. Total commission earned for 1999 was agreed at $558,725 (with a further $6,707 earned for 1998).

[46]On the pleaded case, Tigana had also sought to argue (by reference to Clause 6 of the Sales Agreement) that Decoro had failed validly to terminate the Agreement on 31st December 1999 in that it had not given 90 days written notice. However at trial Mr White – mindful of the express provisions of Clause 1- disclaimed that point: in my view, rightly. Further it ultimately became common ground between Mr White and Mr Charles Hollander QC (who, with Mr Dhillon, appeared for Decoro) that, on the evidence and in the circumstances of this particular case, no further sums were payable under Regulation 7 or Regulation 8 (b). Further, Mr White advanced no separate claim for damages. Thus the only issues remaining were:46.1 To what sum (if any) is Tigana entitled under Regulation 8 (a) of the Regulations?

46.2 To what sum (if any) is Tigana entitled under Regulation 17 of the Agency Regulations? These raise issues of fact and law. I thus turn to them: but before doing so I should say a little about the witnesses who gave evidence before me at trial.

[47]Mr Coleman was cross-examined for almost a day. He struck me as an astute man and as a careful witness. I gained the impression on occasion that he was somewhat exasperated by what he considers to be tactical manoeuvering on the part of Decoro to avoid paying him what he considers to be his due: but, if so, he kept that under control. I considered his evidence reliable and not prone to exaggeration. So far as the Defence witnesses are concerned, Mr Pratti was also cross-examined for about a day. He, too, is an astute man. Although English is not his first language, his comprehension is excellent. However his answers on occasion tended to be rather long and diffuse, and did not always address the question actually asked. In the course of cross-examination, a number of discrepancies between his various witness statements were exposed, and also certain inconsistencies between them and his oral evidence were revealed. Overall, I was minded to prefer the evidence of Mr Coleman to Mr Pratti where they were in conflict; although in truth the differences were not, for the most part, very great. Mr Feltham-White gave candid evidence: albeit that, in some respects, it significantly modified his various witness statements. Mr Imrie, a director of Furniture Village, gave brief, but valuable and palpably reliable, evidence. I also allowed to be admitted in evidence (without objection from Mr White, subject always to questions of weight) two written witness statements of Mr Peddar, director of Furnitureland, who was said to be unavailable owing to business commitments. The Agency Regulations

[48]The Agency Regulations (SI 1993 No 3173) came into effect on 1st January 1994. Their origin is EC Directive 86/653 (“the Directive”), relating to the “co-ordination of the laws of the Member States relating to self-employed commercial agents.” The relevant recitals of the Directive read as follows:

“Whereas the restrictions on the freedom of establishment and the freedom to provide services in respect of activities of intermediaries in commerce, industry and small craft industries were abolished by Directive 64/224/EEC; 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-à-vis their principals and to the security of commercial transactions; whereas moreover those differences are such as to inhibit substantially the conclusion and operation of commercial representation contracts where principal and commercial agent are established in different Member States; Whereas trade in goods between Member States should be carried on under conditions which are similar to those of a single market, and this necessitates approximation of the legal systems of the Member States to the extent required for the proper functioning of the common market; whereas in this regard the rules concerning conflict of laws do not, in the matter of commercial representation, remove the inconsistencies referred to above, nor would they even if they were made uniform, and accordingly the proposed harmonisation is necessary notwithstanding the existence of those rules; Whereas in this regard the legal relationship between commercial agent and principal must be given priority; Whereas it is appropriate to be guided by the principles of Article 117 of the Treaty and to maintain improvements already made, when harmonising the laws of the Member States relating to commercial agents; Whereas additional transitional periods should be allowed for certain Member States which have to make a particular effort to adapt their regulations, especially those concerning indemnity for termination of contract between the principal and the commercial agent, to the requirements of this Directive.”

[49]There are then set out in the Directive the relevant Articles, being twenty-three in number. Article 22 provided that Member States should bring into force provisions necessary to comply with the Directive before 1st January 1990. However, by Article 22(3), such time limit was extended to 1st January 1994 for Ireland and the United Kingdom: connoting that the UK was one Member State which would have to “make a particular effort” to adapt its regulations to the requirements of the Directive. It is also to be noted that Article 17 (which provides for indemnification or compensation of a commercial agent “after termination of the agency contract”) expressly provides, by Article 17(6), for the submission by the Commission to the Council, within 8 years of the notification of the Directive, of a report on the implementation of the Article, providing (if necessary) proposals for amendments.

[50]The Agency Regulations are in lay out and in language very similar, although not identical, to that of the Directive. But there are differences – thus the lay out and wording of, for example, Regulation 17 is different to that of Article 17.

[51]In the respects relevant to these proceedings the Agency Regulations (as subsequently amended in relatively minor respects) provide as follows:

“1 Citation, commencement and applicable law (1) These Regulations may be cited as the Commercial Agents (Council Directive) Regulations 1993 and shall come into force on 1st January 1994. (2) These Regulations govern the relations between commercial agents and their principals and, subject to paragraph (3), apply in relation to the activities of commercial agents in Great Britain (3) A court or tribunal shall: (a) apply the law of the other Member State concerned in place of regulations 3 to 22 where the parties have agreed that the agency contract is to be governed by the law of that member state; (b) (whether or not it would otherwise be required to do so) apply these regulations where the law of another member State corresponding to these regulations enables the parties to agree that the agency contract is to be governed by the law of a different Member State and the parties have agreed that it is to be governed by the law of England and Wales or Scotland. 2 Interpretation, application and extent (1) In these Regulations- “commercial agent” means a self employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person (the “principal”), or to negotiate and conclude the sale of purchase of goods on behalf of and in the name of that principal;….” ……………………. “Form and amount of remuneration in absence of agreement 6. (1) In the absence of any agreement as to remuneration between the parties, a commercial agent shall be entitled to the remuneration that commercial agents appointed for the goods forming the subject of his agency contract are customarily allowed in the place where he carries on his activities and, if there is no such customary practice, a commercial agent shall be entitled to reasonable remuneration taking into account all aspects of the transaction. (2) This regulation is without prejudice to the application of any enactment or rule of law concerning the level of remuneration. (3) Where a commercial agent is not remunerated (wholly or in part) by commission, regulations 7 to 12 below shall not apply. Entitlement to commission on transactions concluded during agency contract. 7 (1) A commercial agent shall be entitled to commission on commercial transactions concluded during the period covered by the agency contract – (a) where the transaction has been concluded as a result of his action; or (b) where the transaction is concluded with a third party whom he has previously acquired as a customer for transactions of the same kind. (2) A commercial agent shall also be entitled to commission on transactions concluded during the period covered by the agency contract where he has an exclusive right to a specific geographical area or to a specific group of customers and where the transaction has been entered into with a customer belonging to that area or group. Entitlement to commission on transactions concluded after agency contract has terminated. 8. Subject to regulation 9 below, a commercial agent shall be entitled to commission on commercial transactions concluded after the agency contract has terminated if- (a) the transaction is mainly attributable to his efforts during the period covered by the agency contract and if the transaction was entered into within a reasonable period after that contract terminated; or (b) in accordance with the conditions mentioned in regulation 7 above, the order of the third party reached the principal or the commercial agent before the agency contract terminated. ……………… When commission due and date for payment 10 (1) Commission shall become due as soon as, and to the extent that, one of the following circumstances occurs: (a) the principal has executed the transaction; or (b) the principal should, according to his agreement with the third party, have executed the transaction; or (c) the third party has executed the transaction. (2) Commission shall become due at the latest when the third party has executed his part of the transaction or should have done so if the principal had executed his part of the transaction, as he should have. (3) The commission shall be paid not later than on the last day of the month following the quarter in which it became due, and, for the purposes of these Regulations, unless otherwise agreed between the parties, the first quarter period shall run from the date the agency contract takes effect, and subsequent periods shall run from that date in the third month thereafter or the beginning of the fourth month, whichever is the sooner. (4) Any agreement to derogate from paragraphs (2) and (3) above to the detriment of the commercial agent shall be void. 11 Extinction of right of commission (1) The right to commission can be extinguished only if and to the extent that- (a) it is established that the contract between the third party and the principal will not be executed; and (b) that fact is due to a reason for which the principal is not to blame. (2) Any commission which the commercial agent has already received shall be refunded if the right to it is extinguished. (3) Any agreement to derogate from paragraph (1) above to the detriment of the commercial agent shall be void ………………. Conversion of agency contract after expiry of fixed period. 14. An agency contract for a fixed period which continues to be performed by both parties after that period has expired shall be deemed to be converted into an agency contract for an indefinite period. ………………. Entitlement of commercial agent to indemnity or compensation on termination of agency contract 17. (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 indemnity shall not exceed the 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 amortise 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) and (8) above if within one year following termination of his agency contract he has not notified his principal that he intends pursuing his entitlement. Grounds for excluding payment of indemnity or compensation under regulation 17. 18. The [indemnity or] compensation referred to in regulation 17 above shall not be payable to the commercial agent where- (a) the principal has terminated the agency contract because of default attributable to the commercial agent which would justify immediate termination of the agency contract pursuant to regulation 16 above; or (b) the commercial agent has himself terminated the agency contract, unless such termination is justified- (i) by circumstances attributable to the principal, or (ii) on grounds of age, infirmity or illness of the commercial agent in consequence of which he cannot reasonably be required to continue his activities; or (c) the commercial agent, with the agreement of his principal, assigns his rights and duties under the agency contract to another person. Prohibition on derogation from regulations 17 and 18 19. The parties may not derogate from regulations 17 and 18 to the detriment of the commercial agent before the agency contract expires. Restraint of trade clauses 20. (1) A restraint of trade clause shall be valid only if and to the extent that- (a) it is concluded in writing; and (b) it relates to the geographical area or the group of customers and the geographical area entrusted to the commercial agent and to the kind of goods covered by his agency under the contract. (2) A restraint of trade clauses shall be valid for not more than two years after termination of the agency contract. (3) Nothing in this regulation shall affect any enactment or rule of law which imposes other restrictions on the validity or enforceability of restraint of trade clauses or which enables a court to reduce the obligations on the parties resulting from such clauses.” ………………… “commercial agent” means a self employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person (the “principal”), or to negotiate and conclude the sale of purchase of goods on behalf of and in the name of that principal;….”

When commission due and date for payment Entitlement of commercial agent to indemnity or compensation on termination of agency contract (ii) on grounds of age, infirmity or illness of the commercial agent in consequence of which he cannot reasonably be required to continue his activities; or Prohibition on derogation from regulations 17 and 18

Restraint of trade clauses

[52]Mr White and Mr Hollander were agreed that Tigana fell within the definition of “commercial agent” and that the Agency Regulations (as amended) applied to the Sales Agreement. The claim under Regulation 8 (a)

[53]As has been mentioned, the claim for unpaid commission is now agreed in the sum of $350,000 and, further, no issues under Regulation 7 or Regulation 8(b) now arise. The essential task, therefore, under Regulation 8(a) is to identify those transactions (if any) concluded after 31st December 1999 where(a) the transaction was “mainly attributable” to Tigana’s efforts during the period of the Sales Agreement and

(b) the transaction was entered into within a “reasonable period” after 31st December 1999. The overall task, therefore, is one of judgment and assessment (but not of discretion) by reference to the facts of the case.

[54]The wording of Regulation 10 and 11, as compared to that of Regulations 7 and 8, indicates that it is deliberately contemplated that (for the purposes of Part III of the Agency Regulations) a distinction is to be drawn between the “execution” of a transaction and the “conclusion” of a transaction. In the circumstances of the present case, I take that a view that a transaction is to be taken as concluded when the relevant order is placed. It is also clear that the phrase “mainly attributable” connotes a causative link between the efforts of the commercial agent and the conclusion of the transaction (albeit after the agency contract has terminated). One might perhaps see an analogy with the familiar English legal phrase “effective cause”: but it is perhaps better not to gloss the words actually used in Regulation 8(a).

[55]It is tersely said in Bowstead and Reynolds on Agency 17th ed. para 11-030 that:

“The requirements of [Regulation 8(a)] are somewhat imprecise and may give rise to difficulty”

. That may, or may not, be so in any given case: but there is no conceptual difficulty involved and the Regulation self-evidently designedly confers a degree of flexibility available to each case under consideration: for example, what may be a “reasonable period” in one case will not be in another case. Everything, therefore, will depend on the circumstances of each case.

[56]On behalf of Tigana, Mr White submitted that the evidence shows that the introductions effected by Mr Coleman continued through 2000 and thereafter. Mr White did not focus on each individual transaction concluded in 2000 and 2001 (which would have been a mammoth task); rather, he approached the matter as one of generality. He acknowledged, for example, that Furnitureland chose to engage as consultant Mr Feltham-White (as the evidence of Mr Feltham-White and Mr Peddar shows) from around mid-1999, via Satra, Mr Peddar then appreciating that it was essential to ensure technical compliance with the 1988 Regulations and perceiving Mr Feltham-White (not Mr Coleman) as the person to achieve that. Indeed Mr Feltham-White, on behalf of Furnitureland, visited the factory in China on several occasions in the second half of 1999 to ensure the procedures to achieve compliance were in place. But Mr White submitted that, even so, the business from Furnitureland (which had been introduced by Mr Coleman) was “mainly attributable” to Mr Coleman’s efforts. So also, he submitted, were the orders placed by all the other customers - who did not even use Mr Feltham-White in this respect - “mainly attributable” to Mr Coleman’s efforts. Mr White’s overall submission was that Regulation 8 (a) should apply to all orders placed with Decoro by customers initially introduced by Mr Coleman until at least the end of June 2001 – that is, a period of 18 months after the agency came to an end.

[57]For his part, Mr Hollander submitted that no orders placed after 31st December 1999 were “mainly attributable” to the efforts of Mr Coleman at all and he submitted, accordingly, that no payment under Regulation 8(a) should be ordered at all. He submitted that, after the debacle concerning the 1988 Fire Safety Regulations, Mr Coleman’s influence and involvement greatly decreased; and thereafter the customer connection was fostered (and, indeed, retrieved) by Decoro itself directly, through Mr Pratti and Mr Ricci and (latterly) Mr Feltham-White, and by the offer of the discount arrangements to customers. He cited the position of Furnitureland as one example: and Land of Leather as another example (which company concluded in principle Heads of Agreement on 19th October 1999 relating to future dealings by negotiating directly with Mr Pratti). He also pointed out, by way of example, that although Land of Leather had indicated an intention to place orders at the High Point fair in October 1999 (when Mr Coleman was present) it did not in fact place such orders until after discussions and communications with Mr Pratti at a trade fair in Paris between 10th and 12th January 2000 (by which time Mr Coleman had ceased, of course, to be Decoro’s agent). He drew attention to the position of customers such as Furniture Village (initially introduced by Mr Coleman) which refrained from placing further orders until well into 2000, after the “dust had settled” and Mr Feltham-White had satisfied them that all was now in order. Overall, Mr Hollander’s submission was that by the end of December 1999 Mr Coleman had been sidelined; that he “created” none of the orders placed in 2000 or thereafter; and that none such were mainly attributable to his efforts. Mr Hollander’s alternative submission was that no more than a proportion of the orders placed in a relatively short period (he suggested 3 months from the end of December 1999) could be said to be mainly attributable to Mr Coleman’s efforts.

[58]Considering the evidence, I am in no doubt that Mr Hollander’s submissions are to be rejected. It seems to me that Mr Coleman’s role was intended to be primarily introductory – that was the main purpose for which he had been retained as agent. To a considerable extent the agency was, if I may put it this way, “front loaded”: that is, dependent on his activities at the outset (although also, of course, it was intended that he bring in yet more customers thereafter). Of course an important part of his role was thereafter also to maintain regular liaison with customers (and, not least, secure repeat orders) and assist in after sales service: but that too was an aspect of cementing the relationship created by the initial introduction. Mr Imrie in his second witness statement made clear that the buying director of a customer is one who makes the decisions as to what models and ranges, and at what prices, he will buy. I accept that. But in cross-examination Mr Imrie (a conspicuously fair and objective witness) also gave evidence to the effect that he set store by having had a business relationship with Mr Coleman for some 25 years; and he relied on him for his knowledge and experience and that he expected to be able to rely on Mr Coleman’s indication given to him that Decoro products were saleable products in the UK. Mr Coleman’s reliable recommendation was, as he put it, “the extra ingredient” in the decision making process. I think that applied equally to other customers introduced by Mr Coleman. It was just because Mr Coleman had real standing and real clout in this particular business that these major customers were induced to be interested in Decoro’s products. Mr Imrie also – and in my view importantly – stated that in general business terms the key role of an agent such as Mr Coleman was at the first stage: that is, in arranging sales to the retailer rather than in procuring sales by the retailer to the public.

[59]As it seems to me, but for Mr Coleman’s efforts at the end of 1998 and during 1999 in introducing customers Decoro would have had no customer base. It is noticeable that in January 2000 Decoro was able to obtain substantial orders (from customers introduced by Mr Coleman) when it had no agent at all; and even when Mr Feltham-White started work for Decoro in February 2000 his initial activities were soley to service customers introduced by Mr Coleman. He was not in a position to achieve any new introductions until October 2000 (when there was the High Point fair at that time) and even during 2001 a very significant amount of Decoro’s business still derived from customers who had been introduced by Mr Coleman. It is of some note that at that time Mr Feltham-White’s experience had been entirely as a technical consultant: he simply did not have the general knowledge and experience of the retail customer side of the furniture industry, or the wide trade connections, which Mr Coleman had. It was Mr Coleman who, by his introductions, enabled Decoro to break into the UK market: and his efforts were, in my judgment, not significantly less causative of the conclusion of transactions in 2000 with customers introduced by him than they had been in 1999.

[60]Mr Hollander, however, submitted that the placing of the orders in 2000 was mainly attributable to the efforts of Decoro and Mr Feltham-White themselves. I reject that on the facts. It is of course true that the non-compliance with the 1988 Fire Safety Regulations had in 1999 been a very serious problem. Mr Hollander submitted that Mr Coleman had sought to minimise that in his evidence. I reject that. Mr Coleman accepted in cross-examination that it had indeed been a very serious, indeed potentially disastrous, problem. But his simple point was that the problem had, by September 1999, been overcome. That evidence – which is borne out by the subsequent conduct of most of the customers and by, for example, the article in Cabinet Maker – I accept. No doubt that overcoming of the problem was in part due to the preparedness of Decoro to offer discounts to retailers to help compensate for their own losses and business disruption (as well as by its acting on its technical appraisals, through Mr Feltham-White while at Satra, and incorporating compliant foam and fibre in its manufacturing processes by 1st September 1999); but in my view that does not detract from the essential and continuing importance of Mr Coleman’s role in having effected and maintained the introductions in the first place.

[61]I thus also reject the suggestion of Mr Hollander that it was Decoro and Mr Feltham-White who restored the customers’ confidence and that it was to their efforts (not Mr Coleman’s) that the orders placed in 2000 were mainly attributable. Mr Feltham-White’s witness statements on one reading might suggest that the fire-retardancy problems and customers’ perception of such problems, and lack of confidence, persisted into 2000. However it became clear in the course of his cross-examination that Mr Feltham-White was saying no such thing. The principal technical problems in 2000 (which were addressed) were certain difficulties with the flattening of Dacron contents in some of the cushions. As Mr Feltham-White expressly accepted, the fire-retardancy problems had been eradicated by the time he was appointed to act as agent. The overall effect of Mr Feltham-White’s evidence conveyed to me the same impression as the documents and other evidence (and as confirmed by the actuality of what happened): that at the end of 1999 most of Decoro’s existing customer base – Furniture Village being the one significant “doubter” – remained extremely keen to place orders for Decoro products, and had confidence in such products. For example, Sterling Furniture stated as much in a letter to Decoro of 21st January 2000; Cresta Furniture was another so to indicate at a meeting with Mr Feltham-White on 7th January 2000. By way of further example, Land of Leather alone sold over 30 containers of such furniture in the post-Christmas/New Year holiday period and placed substantial further orders in 2000: as did many other customers. As Mr Feltham-White conceded, he effectively took over the administration of customers Mr Coleman had previously introduced: he had the list of such customers from Decoro and his aim was to consolidate business with those customers so introduced by Mr Coleman. Moreover, many of the orders were repeat orders of models in existence in 1999.

[62]I was unimpressed by the submission that Mr Coleman had by the end of 1999 minimal involvement with the customers and that this indicated that the orders placed in 2000 were not mainly attributable to his efforts. Not only does this submission again unjustifiably down-play the importance of his initial introductions; it also down-plays the extent of his continued dealings with customers in the second part of 1999. Mr Coleman, I am satisfied, did still have a continuing significant involvement – albeit reduced by reason of Decoro’s unilateral (and uncommunicated) decision to seek itself to deal with customers direct. I also find as a fact that Mr Coleman was doing his best to help Decoro, during 1999, sort out the problems that had arisen relating to the 1988 Fire Safety Regulations: albeit that his ability to do so was reduced by reason of his own comparative lack of expertise in the relevant technical aspects and by reason of Decoro’s appropriating to itself much of the dealing with concerned customers. I add that I further find as a fact that Decoro felt able to deal directly with customers, and ultimately felt able not to renew Tigana’s agency at the end of December 1999, just because it felt it had now secured a sufficient UK customer base represented by the customers introduced by Mr Coleman.

[63]Ordinarily the lapse of time in any given case will, sooner or later, be likely to result in transactions ceasing to be “mainly attributable” to the efforts of the original agent. I find, in the present case, that UK orders placed with Decoro during 2000 (save in respect of those – relatively few – placed after October 2000 from new customers introduced by Mr Feltham-White) were mainly attributable to the efforts of Mr Coleman during the agency. I include Furnitureland in this, for the reasons above given. I attach no weight to the statement of Mr Peddar (who was not tendered for cross-examination) that Furnitureland’s decision to place new orders had “nothing to do with Mr Coleman”: since, among other things that statement was made in the context of a witness statement blaming Mr Coleman for inaction in dealing with the 1988 Fire Safety Regulation problems (which was not a matter pursued with Mr Coleman in evidence) and where Mr Peddar makes no reference to the potential significance of the initial introduction at all.

[64]It is to be noted, however, that the provisions of Regulation 8(a) are conjunctive and cumulative: the transaction concluded is to be mainly attributable to the agent’s efforts during the period of the agency contract and if the transaction is entered into within a reasonable period after the agency contract terminated. Thus the second part of Regulation 8(a) delimits the first part.

[65]What is a reasonable period in this case? I have come to the conclusion it is nine months. I so conclude for essentially the following reasons:65.1 By October 2000 Mr Feltham-White had become established as Decoro’s agent in place of Mr Coleman.

65.2 Up to October 2000, Mr Feltham-White’s activities had been confined to consolidating and administrating the customers introduced by Mr Coleman: by then, he had become familiar with existing customers and thereafter he also started to introduce some new custom himself.

65.3 By October 2000, there had been (or were about to be) High Point, and other trade fairs, where new Decoro models were displayed. Repeat orders for 1999 models were thus tending to disappear.

65.4 The significance of Mr Coleman’s erstwhile involvement with Decoro would by October 2000 be likely substantially to have diminished in the eyes of even his most loyal supporters.

65.5 For the purposes of Regulation 8(a), nine months seems to me to be a fair reflection, in the circumstances, both of the nature of Tigana’s agency and of the actual period of such agency.

[66]Accordingly, while I think that a proportion of the orders placed up to the end of 2000 (and, perhaps, even in the first part of 2001) could be said still to be mainly attributable to Mr Coleman’s efforts, in my judgment nine months is to be determined as the reasonable period for the purposes of Regulation 8(a). Quantum of commission payable under Regulation 8(a)

[67]In the bundles before the court were included helpful revised schedules (based on the documentary disclosure of Decoro, and, as has been mentioned, containing some - albeit relatively minor - departures from the Appendices to Mr Coleman’s witness statement) setting out the details of orders and totals of orders placed by customers over the relevant periods (including each quarter in 2000 and 2001). For the period from 1st January 2000 to 30th September 2000 the cumulative total orders placed (all being customers introduced by Mr Coleman, and the most significant being Land of Leather and Furnitureland) amounted to $12,867,613.61 (before transport costs). The commission payable was put at $606,836.64: see Appendix 2. If that were an agreed figure that (subject to one possible trifling arithmetical adjustment to $606,839.39) would be the sum accordingly payable.

[68]That Appendix was prepared before trial by Mr White’s solicitors, based on the then disclosed documents and then witness statements. In opening his case, however, Mr White said, without elaborating, that the evidence might indicate that the figures in Appendix 2 may not be accurate and that an account might be needed. Mr Hollander expressed disappointment at that stage that the figures, as set out in the Appendix, were not agreed. The trial continued. In due course, Mr Pratti verified his witness statements. Paragraphs 63 and 64 of his 3rd witness statement dated 7th November 2002 seem to indicate rather greater volumes of orders for 2000 than the schedules in Appendix 2 set out and thus that Appendix 2 may be something of an understatement of the true figure. Accordingly Mr White in his closing submissions duly sought an account in respect of the commission properly payable.

[69]In written submissions presented after the conclusion of the trial, Mr Hollander submitted that was a misunderstanding: that it was a regrettable that Tigana had not sought clarification earlier; and a further (6th) witness statement of Mr Pratti was proffered. This was designed to show that paragraphs 63 and 64 of his 3rd witness statement had set out inaccurate approximate figures and that the true position was indeed as revealed on disclosure and thus as reflected in Appendix 2. In a written response, Mr White protested at this further evidence (sought to be adduced after conclusion of the hearing without the leave of the court or the consent of the Claimant).

[70]I am not prepared at this stage, given the circumstances, to have regard to Mr Pratti’s 6th witness statement. Mr White, in my view, was and is entitled to take the stance that he has (given the evidence proffered at the trial) and it would be unjust for Mr Pratti’s 6th witness statement now to be accepted with no opportunity of challenge. Accordingly, if the parties cannot agree on the quantum of commission payable under Regulation 8(a), having regard to my determination in principle on that point, there will have to be an assessment of the sums due. In the circumstances, I reserve such assessment to myself. Decoro will be free at that stage to seek leave to adduce Mr Pratti’s 6th witness statement (and other evidence) and to seek to make good Mr Hollander’s assertion that Tigana now takes a “thoroughly bad point”. Does Regulation 17 apply to an agency contract expiring by effluxion of time?

[71]I turn then to the issues arising under Regulation 17. The essential issues are these71.1 Should the question of Tigana’s claimed entitlement in principle to compensation under Regulation 17 be referred to the European Court of Justice for a preliminary ruling?

71.2 If not, as a matter of interpretation of the Agency Regulations is Tigana entitled to compensation at all under Regulation 17, given that the Sales Agreement expired by effluxion of time?

71.3 If Tigana is entitled to compensation under Regulation 17, in what amount should that compensation be assessed?

[72]The first two issues arise in this way. Regulation 17 has effect, by Regulation 17 (1), “after termination of the agency contract”. Shortly put, therefore, the issue is whether such regulation can apply at all where - as here - the agency contract has expired by effluxion of time.

[73]Mr Hollander’s first submission was not, as it happens, that such Regulation (on its true interpretation) had no application at all to the Sales Agreement as having expired by effluxion of time. His first submission was that it was not clear whether Regulation 17 (itself based on Article 17 of the Directive) applied to agency contracts which expired by effluxion of time. The matter was not acte claire, he submitted, and accordingly there should be a reference to the European Court of Justice for a preliminary ruling, without more. In seeking a reference he placed reliance on certain general observations made by Sir Thomas Bingham MR in the Court of Appeal decision in R v International Stock Exchange of the United Kingdom and Republic of Ireland Ltd, ex.p Else 1993 QB 534. For his part, Mr White submitted that the discretion of a first instance Judge to refer, pursuant to CPR Pt. 68 and Art.234 of the EC Treaty, was not so circumscribed and that a degree of doubt did not necessitate a reference; but that in any event the matter was sufficiently clear so as not to warrant a reference.

[74]It is a necessary consequence of Mr Hollander’s case, in this context, that his own submission to the effect that Regulation 17 does not apply to agency contracts which have expired by effluxion of time is not plainly right. In my view, not only is that submission not plainly right: it is plainly wrong.

[75]The word “termination” can readily – and in English legal terminology frequently does – carry with it the notion of a unilateral act of bringing to an end. I agree with Mr Hollander on that. But all depends on the context in which the word is used. “Termination”, for example, can also be taken to connote simply “the coming to an end.” 75.1. Thus under Regulation 8 of those very Agency Regulations commission is payable (in the circumstances there set out) “after the agency contract has terminated”. It is evident that Regulation 8 extends to agency contracts which have expired by effluxion of time: were it otherwise, the clear purpose behind that Regulation would stand to be seriously undermined. Indeed, Mr Hollander expressly conceded that Regulation 8 applies to contracts which have expired by effluxion of time in the course of his submissions by reference to what sums (if any) should be paid to Tigana under that regulation. 75.2. Again, in Regulation 20(2) it is expressly provided that a restraint of trade clause (which, by Regulation 2(1), is defined to mean an agreement restricting the business activities of a commercial agent “following the termination of the agency contract”) should be valid for not more than two years after “termination of the agency contract”; again, it would be senseless to conclude that such provision did not apply to agency contracts which have expired by effluxion of time; again, Mr Hollander expressly conceded as much. That being so, it is plain that, within the Agency Regulations themselves, “termination” can extend to expiry by effluxion of time; and it is difficult indeed to see why “termination” should have any different meaning for the purposes of Regulation 17. 75.3. That interpretation also is consistent with Regulation 19. The restriction on derogation from Regulations 17 and 18 “before the agency contract expires” connotes that it is contemplated that Regulation 17 extends to agency contracts expiring by effluxion of time. Such interpretation also is at least consistent with the use of the word “termination” in the other sub-paragraphs of Regulation 17 itself: and, in particular, is consistent with the entitlement to compensation or indemnity on the termination of the agency contract by death. It is also consistent with the provisions as to retirement through age or ill-health under Regulation 18(b). Indeed it would seem surprising that Regulation 17 could apply to agency contracts “terminated” by death or retirement but not when they expire by effluxion of time. That view also, in my view, is consistent with the use of the word “damage” in Regulation 17(6), which plainly in this context has a broad meaning.

[76]It is true that Regulation 14 (contained in Part IV of the Agency Regulations, which is headed “Conclusion and Termination of the Agency Contract”) relates to an agency contract for a fixed period after that period has “expired”. The word “terminated” is not used. But that is readily to be explained by that regulation being deliberately designed to cover contracts being performed after the agreed fixed period has ended: the Regulation self-evidently does not deal with the termination of contracts generically.

[77]In my judgment, therefore, all the intrinsic indications are that the phrase “termination of the agency contract” in Regulation 17 extends to agency contracts which have expired by effluxion of time. But if there be adopted what is called a purposive approach to construction – and after all the court is positively required to seek to construe the Agency Regulations to accord with the Directive – then that conclusion is confirmed. Mr Hollander could advance no reason of policy or purpose for excluding agency contracts expiring by effluxion of time from the ambit of Regulation 17. To the extent that he submitted that it was simply a consequence of the bargain made(a) that does not fit well with Regulation 19

(b) that could be said of agency contracts which are (under the terms of the contract) terminable on notice: and yet Regulation 17, as is conceded, at all events applies to those. On the other hand, as the recitals to the Directive show, a principal purpose of the Directive was to afford protection to a commercial agent. Moreover one can discern from the Directive (and Article 17 and Regulation 17 themselves) a desire to prevent a principal from, as it were, unjustly enriching itself by appropriating to itself, without recompense, the goodwill and customer connection to which the efforts of the commercial agent have contributed; and to compensate the agent for the loss to him of his agency. There is no identifiable reason for there being an intention that that purpose should not be applicable to agency contracts which expire by effluxion of time: indeed that would seem to involve a major inroad into the protection otherwise designed to be offered.

[78]There is a yet further consideration. As has been mentioned, Article 17 of the Directive itself contemplated the submission in due course of a report by the Commission to the implementation of the Article. Such report (“the 1996 Report”) was in due course submitted on 23rd July 1996. Since it was sanctioned by the Article itself, I think it legitimate to have regard to it on these issues. At page 2 of the 1996 Report, it is expressly stated that the indemnity system (which, it is said, was modelled on Article 89b of the German Commercial Code) clearly provides for payment, inter alia, on the end of a fixed term contract. Accordingly, since Regulation 17 of the Agency Regulations extends both to indemnity and to compensation, it is very difficult to discern, as Mr White pointed out, any purpose in distinguishing, in principle, on so fundamental a point the position applicable to awards under Regulation 17 in the case of compensation. I might add that it is of some interest also to note from the 1996 Report that, subsequent to the Directive, France changed its own laws expressly to apply the right of compensation to non-renewal of contracts expiring by effluxion of time. It is further of some note that the comments with regard to the United Kingdom contained in Appendix B of the 1996 Report include the following:

“In relation to compensation, lawyers try to apply traditional common law principles which does not work well since under the common law termination of a contract in accordance with its terms or at the natural end of a fixed term contract does not give rise to a damages claim.”

This suggests that the 1996 Report considers that refusal to make payment at the “natural end of a fixed term contract” does not “work well” with the Directive.

[79]I therefore conclude that Regulation 17, on its true interpretation, extends to agency contracts which have expired by effluxion of time.

[80]I was referred to a number of authorities: and all reach the like conclusion. In Bowstead and Reynolds on Agency (17th ed) at para 11 - 041) there is a detailed discussion of this very issue. After noting that, without further background, a common lawyer might conclude that there was nothing due on the regular expiry of a fixed term contract, the text goes on:

“The general background of the directive, however, and the way in which it is understood, and similar forms of legislation have been understood, in other European countries suggests almost conclusively that not only indemnity, but also compensation where there is no indemnity, should be available in this case.”

And in Chitty on Contracts (28th ed) Vol 2 para 32-147 (in the chapter on Agency, the editor of which was Professor Reynolds) this is said:

“To a common lawyer it might appear that it should not apply where the contract is for a fixed term which has run, on the basis that in such a case the contract is not terminated but simply expires. This is clearly contrary to the intention of the Directive and the laws of other EU countries make clear that [that] interpretation is not correct……”

[81]In Page v Combined Shipping and Trading Co. Ltd

1997 3 All ER 656

(an interlocutory decision involving consideration of Regulation 17)

Lord Justice Staughton, after referring to the recitals to the Directive, said this:

“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 downtrodden race, and need and should be afforded protection against their principals. Those reasons seem to me to point fairly strongly to an intention to depart from the domestic legal provisions of the various countries in the Community or at any rate some of them, and achieve a regime which is new to some and will be the same for all.”

Those general observations at least accord with an approach which does not treat the word “termination”, as used in Regulation 17, in what might be styled the prima facie common-law sense; although, in any case, as I have sought to show, there are overwhelming reasons why, as a matter of ordinary construction, it is in any event not to be given such an interpretation. In Whitehead v Jenks & Cattell Engineering Ltd 1999 Eur LR 827 Judge Alton (sitting as a Judge of the High Court) in a carefully reasoned decision held that Regulation 17 of the Agency Regulations was apposite to include agency contracts which expired by effluxion of time. She placed – as would I – considerable emphasis on the fact that “termination”, depending on the context, variously may be focusing on the time of cessation of the contract or may be focusing on the mechanism by which the contract is brought to an end; and on the use of that word in the former sense in Regulations 8 and 20. Likewise, in the Scottish case of Frape v Emreco International Ltd 2002 Eur LR 10, Lord McEwan (sitting in the Court of Session, Outer House), who placed particular emphasis on the policy behind the Directive and on the requirement to seek to construe the Agency Regulations purposively so as to fulfil the policy behind the Directive, reached a similar conclusion. As he put it, the word “termination” was, in this context, “habile” to cover agency contracts which expire through effluxion of time. He expressly agreed with the decision of Judge Alton. I agree with the conclusion of each of Judge Alton and Lord McEwan.

[82]I would only add (although it is not strictly, I think, relevant) that in this case, in practical terms, as a matter of mechanism the Sales Agreement was brought to an end by the decision of Decoro. True it is that in law the contract expired by effluxion of time, no agreement for renewal having been reached as provided by Clause 1. But the mutual hope and expection at the outset of the agency was, I am satisfied, that the agency would last for considerably more than a year (that indeed in part explains the existence of Clause 6): and Mr Coleman wished it to continue. In the circumstances, it did not: Decoro unilaterally communicating its intention not to renew the contract by its letters of December 1999. I find it wholly unsurprising that Regulation 17 (and Article 17) should provide for compensation on effluxion of the Sales Agreement in such circumstances.

[83]In my judgment, as a matter of interpretation of the Agency Regulations by reference to their intrinsic terms; as a matter of interpretation of the Agency Regulations by reference to their (and the Directive’s) perceived purpose and policy; and on consideration of the authorities to which my attention is drawn, the answer to the question raised is clear. Since all the arrows point in the same direction, that is the direction I propose to follow. Accordingly, I decline to direct a reference to the European Court of Justice for a preliminary ruling; and I hold that Regulation 17 is capable of applying, and does apply, on the expiry of the Sales Agreement by effluxion of time on 31st December 1999. To what amount of compensation is Tigana entitled under Regulation 17?

[84]Regulation 17 is, in some respects, drafted in a way significantly different to Article 17. Article 17 provides as follows: “1. 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. 2(a) The commercial agent shall be entitled to an indemnity if and to the extent that : - 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 - 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. Member States may provide for such circumstances also to include the application or otherwise of a restraint of trade clause, within the meaning of Article 20;

(b) The amount of the indemnity may 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.

(c) The grant of such an indemnity shall not prevent the commercial agent from seeking damages. 3. The commercial agent shall be entitled to compensation for the damage he suffers as a result of the termination of his relations with the principal. Such damage shall be deemed to occur particularly when the termination takes place in the circumstances: - depriving the commercial agent of the commission which proper performance of the agency contract would have procured him whilst providing the principal with substantial benefits linked to the commercial agent’s activities, - and/or which have not enabled the commercial agent to amortize the costs and expenses that he had incurred for the performance of the agency contract on the principal’s advice. 4. Entitlement to the indemnity as provided for in paragraph 2 or to compensation for damage as provided for under paragraph 3 or to compensation for damage as provided for under paragraph 3, shall also arise where the agency contract is terminated as a result of the commercial agent’s death. 5. The commercial agent shall lose his entitlement to the indemnity in the instances provided for in paragraph 2 or to compensation for damage in the instances provided for in paragraph 3, if within one year following termination of the contract he has not notified the principal that he intends pursuing his entitlement. 6. The Commission shall submit to the Council, within eight years following the date of notification of this Directive, a report on the implementation of this Article, and shall if necessary submit to it proposals for amendments.” - 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 - 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. Member States may provide for such circumstances also to include the application or otherwise of a restraint of trade clause, within the meaning of Article 20; (b) The amount of the indemnity may 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. (c) The grant of such an indemnity shall not prevent the commercial agent from seeking damages. Such damage shall be deemed to occur particularly when the termination takes place in the circumstances: - depriving the commercial agent of the commission which proper performance of the agency contract would have procured him whilst providing the principal with substantial benefits linked to the commercial agent’s activities, - and/or which have not enabled the commercial agent to amortize the costs and expenses that he had incurred for the performance of the agency contract on the principal’s advice.

[85]Article 17 itself (as the 1996 Report observes) represents a compromise between the German system of indemnity and the French system of compensation. It seems there was a reluctance (notwithstanding the stated desire to remove differences between Member States as to the treatment of commercial agents and to achieve “approximation” and “harmonisation”) to achieve uniformity by plumping for just one type of reparation. Most Member States have since opted for the indemnity system. France has continued with its compensation system. The United Kingdom, however, has compounded the compromise, as it were, by providing for both. Thus if the overall policy is that parties compete on a level playing field (in Lord Justice Staughton’s phrase) parties, in the context of Regulation 17 and depending on whether the indemnity system or compensation system applies, could be said to be competing on different football pitches.

[86]One difference in the wording of Regulation 17 as compared to Article 17 is that under the Agency Regulations an indemnity only applies where the agency contract so provides. It also is to be noted that Regulation 17 (here reflecting Article 17) provides that there is to be a “cap” of one year’s remuneration (as averaged) where the indemnity approach applies: and that, in cases of indemnity, damages may also be awarded. No such cap is provided by Regulation 17 with regard to compensation. Nor is there any provision with regard to payment of damages in addition to compensation. This indicates, in my view, that, in cases of compensation where there is also loss caused by a breach of contract or duty, “damages” that would otherwise be payable are to be subsumed into, and taken into account as part of the assessment of, the compensation for the “damage” which is to be awarded.

[87]Mr White and Mr Hollander were agreed in this case on a number of points:87.1 Since the Sales Agreement contains no provision for indemnity, compensation is the only relevant remedy in this case. This is obviously right.

87.2 Common law principles of mitigation and avoidable loss have no part to play in the assessment. Mr Hollander’s concession in this respect is, in my view, also obviously right: having regard, for example, to the availability of compensation on the death or retirement of the agent (Regulations 17(8); 18(b)). As Mr Hollander put it, the focus is on the position at the time of termination: one looks back, not forward.

87.3 The amount of commission awarded under Regulation 8(a) is in this particular case (although not necessarily in all cases, as each of them expressly stated by way of qualification) a matter to be taken into account in deciding what compensation, if any, should be awarded under Regulation 17. Although Mr White did not accept this in his opening submissions, he did in his closing submissions; and in any case, in the circumstances of this particular case and given the nature of this particular agency, (and including the point that repeat orders would feature significantly) I am in no doubt that it is a factor that should be taken into account. Otherwise there might be an unfair element of potential double counting in favour of Tigana.

87.4 No question of breach of contract or duty now arises.

[88]Mr White and Mr Hollander were also agreed that, in assessing compensation, the court necessarily had to adopt something of a broad brush approach: as put in King v T.Tunnock Ltd 2000 SLT 744; 2000 Eur LR 531 (a decision of an Extra Division of the Inner House, Court of Session) “a broad approach is both inevitable and a practical requirement of the law”. I agree with this: but I also agree with the submission of Mr Hollander that a court cannot simply alight on a figure by reference to its “feel” of a particular case. There must be some methodology to the assessment, even though the approach is necessarily broad.

[89]The question then is: what are the factors to be taken into account in making the assessment and in deciding what compensation (if any) to award? I would venture to suggest that the following factors are likely to feature or to require consideration in such cases. I would not for one moment seek to offer this as an exhaustive list: further, some may not in fact feature at all in some cases; yet further, the weight (if any) to be given to each of such factors will vary from case to case. But at least the following can, I think, be identified:89.1 The period of the agency, as provided for in the contract.

89.2 The period for which the agency in fact lasted up to termination.

89.3 The terms and conditions attaching to the agency as provided in the agency contract.

89.4 The nature and history of the agency and of the particular market involved.

89.5 The matters specifically mentioned in Regulation 17(7) (a) and (b).

89.6 The nature of the client base and of the kind of contracts anticipated to be placed (for example, “one-off” or repeat).

89.7 Whether the principal has appointed the agent as its exclusive or non-exclusive agent.

89.8 The extent to which the agent has bound himself during the agency to act exclusively for the principal and the extent to which the agent is free to act for others (and whether in the same field of goods or services or not).

89.9 The extent to which the principal retains after termination of the agency benefit (for example, by way of enhanced trade connection or goodwill) from the activities of the agent during the agency.

89.10 The extent to which an agent is free, after termination, to have dealings with customers with whom he dealt during the agency (A restraint of trade clause will be a relevant consideration in this context).

89.11 Whether there are any payments under Regulation 8 (or other Regulations) which ought to be taken into account.

89.12 The manner in which the agency contract is ended: for example by notice given by the principal; or by notice given by the agent; or by effluxion of time; or as the case may be.

89.13 The extent to which the principal and agent respectively have financially contributed to the goodwill accruing during the period of agency.

89.14 The extent to which there may have been loss caused by any relevant breach of contract or duty.

[90]It is clear that the “damage” suffered by a commercial agent as a result of the termination of the agency (Regulation 17 (6)) is – generally speaking (and breach of contract cases aside) - to be regarded as a putative loss and not simply (by common law standards) actual loss. This is shown by the exclusion of principles of mitigation and applicability of the compensation provisions to termination on death or retirement. Clearly one important element, as the recitals to the Directive show, is to avoid a principal being unjustly enriched by retaining for itself without payment the entirety of the benefit of goodwill to which the activities of the agent during the agency have contributed. But another element (which finds both reflection and emphasis in Regulation 17(7) (a)) is to compensate the agent for the loss of a beneficial agency contract. One can perhaps there see some analogy with redundancy payments in an employment context: although the analogy cannot be pushed too far, since the policy considerations behind redundancy payments for employees are rather different.

[91]A very striking illustration of the potential reach of Regulation 17 is to be found in the case of King v Tunnock itself. In that case, the pursuer’s father had acted for many years as agent for the defenders, Tunnocks, a manufacturer of cakes and biscuits, selling their products at wholesale prices to retailers. In 1962 the pursuer took over the business for his father, his business consisting exclusively of selling Tunnock’s products. On 14th July 1994, Tunnocks closed down their bakery operations and the agency was terminated on that date in consequence. The pursuer was held entitled in the Sheriff Court to payment of £4,762 in lieu of any notice given (cp Regulation 15 of the Agency Regulations) but, notwithstanding that his agency had lasted over 30 years, not entitled to any compensation under Regulation 17: since it was not shown that he had suffered any loss entitling him to compensation. The decision was upheld by the sheriff principal; but reversed by the Inner House of the Court of Session. The Court awarded the pursuer an additional £27,144 (and interest), representing the total gross agency earnings in the last two years of the agency contract. Thus although Tunnocks retained no benefit from the termination of the agency (since they had closed down their bakery operation) and although the pursuer suffered, on the common law approach, no actual loss (in that he was compensated for the failure to give 3 months notice and there would thereafter have been no Tunnocks bakery products for him to sell) he nevertheless was awarded substantial compensation.

[92]That decision was much debated before me, and in consequence I will have to deal with Counsel’s submissions on it. I would at the outset like to point out, however, that it is (as a matter of decision) clearly distinguishable on the facts from the present case: not least because, as I find, in the present case Decoro has received very substantial benefits by reason of the activities and efforts of Mr Coleman as agent which it has, after termination of the agency contract, retained and used for itself (without payment): viz the customer base introduced by Mr Coleman; and because here the agency lasted for a very much shorter period than in King v Tunnock.

[93]In the course of giving the reserved judgment of the court (the court having been supplied with, and referred at length to, materials as to French Law) Lord Caplan said this:

“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-à-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 preamble to Art. 117 of the European Community 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. ………….. 38. Looking therefore to the terms of reg.17(6) and reg.17(7) we must say that in the eyes of UK lawyers the draughtsmanship is at best somewhat clumsy. However, by construing these provisions within the context of the Regulations there is an obvious pattern. In doing so we take into account that reg. 17(1) appears to envisage that paras (6) and (7) should be read together for the purpose of giving compensation for damage. 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 his principal. An agency generally has commercial value. This is acknowledged by the fact that under reg.18(c) the commercial agent may, with the agreement of his principal, assign his agency contract to another. If he does that he does not get compensation since he has an opportunity to cash in on the value of his agency (assuming it has value at all). He thus has suffered no damage through loss of agency. There are two aspects of the termination situation which must be considered. The first is the fact and circumstances of the termination (certain causes of termination excluding compensation). The word “damage” is used to connote the factor that mainly introduces the eligibility for compensation. However, it is important to keep in mind that the reference is to damage or iniura and not to “damages”. Looking, therefore, at damage, he is entitled to compensation. The question of course remains as to the level of compensation and the specific reference to circumstances deemed to be damage is even more immediate than it is in the Regulations. …………………. 40. Transferring attention to reg.17(6), the entitlement to compensation is not stated to be dependent on any particular type or extent of loss. The only requirement is damage through the termination of the agent’s relation with his principal. Reference to the termination of the relationship with the principal is important. There is no equivalent provision regarding indemnity. Indemnity can arise if the agency is terminated and the principal continues to gain through the agent’s efforts. Thus one has to pay regard particularly to commercial factors such as commission lost to quantify the indemnity. However, compensation is payable upon rupture of the relationship with the principal. At that point of time the value of the lost agency must be ascertained and there is simply no reference to the actual course of events to be expected after termination. Indemnity hinges upon the principal continuing in business and exploiting the agent’s connection. Unless reg. 17(7) represents a restriction or qualification of reg 17(6), it is not necessary for the agent to project his actual prospective loss. All he needs to prove is that after termination he had lost the value of an agency asset which, prior to the termination, existed. The importance of the asset to the agent is emphasised by consideration of the definition of a commercial agent with his “continuing authority” (reg.2(1)) and the obligation of the principal to notify a downturn below that which the agent “could normally have expected” (reg. 4(3)). If what is lost has little or no value than of course the level of compensation may be fixed at a low level, but that is a different matter. 41. Under reg.17(7) damage is deemed to occur “particularly” when termination takes place in various defined circumstances. Now the sheriff and sheriff principal construe reg.17(7) as meaning, in effect, that damage will be deemed to occur “only when the specified circumstances apply” or at least “in particular” when these circumstances apply. It must be observed that if the intention had been to provide that compensation should be paid when reg.17(7) (a) or (b) apply then it would have been much easier to say that rather than to employ the circuitous draftsmanship occuring in reg 17(6) and (7). In any event the deemed damage is said to occur not “only” in certain circumstances, but “particularly” in certain circumstances. The meaning of the word “particularly” received careful consideration in the debate before us. We agree with the view that “particularly” is used in its normal meaning of “especially noted” or “more than others”. It has to be observed that in the French text the word “notamment”, which is defined as meaning “notably” or “among others”. Why two special situations should be expressly directed is not clear. It may be that the directive was seeking to say that in these particular circumstances there can be no doubt that damage will have been suffered. The agent is safe from having to demonstrate that he has suffered damage when these particular situations arise. 42. However, once one were to accept that reg.17(7) does not set out the exclusive circumstances giving rise to compensation the only guidance that is left as to what other circumstances might give rise to compensation are the governing provisions of reg. 17(6). If it can be shown that damage has been done to the agency relationship, then compensation will arise and the remaining question is the level of that compensation. We do not claim that the import of reg.17(7), when it is viewed in isolation, is without difficulty, but the matter becomes much clearer if the whole of the regulations are considered. First, there is no particular equitable requirement to link compensation to what the principal gains from the termination. Exploitation of the agent by the principal would generally be prevented by reg.8, which gives the agent a right to commission on sales to his own customers even after this agency has ended. Regulation 17 obviously acknowledges that compensation can be payable to an agent even over and above what he will gain from commission from sales gained by the principal, with the agent’s customers, after the agency ends. 43. Regulation 18 is curious because the heading to the regulation refers to “grounds for excluding payment of indemnity or compensation under Regulation 17”. The terms of the regulation thereafter relate to “the compensation referred to in Regulation 17”. The regulation itself distinctly differentiates between “compensation” and “indemnity”. Be that as it may, the agent who has given up his agency because of age, infirmity or illness remains eligible for compensation. Under reg.17(8) the agent who dies is likewise entitled to compensation. These arrangements suggest that the entitlement is not limited to a situation where the agent’s future earnings are critical to his entitlement. The vital difference between indemnity provisions and the compensation provisions is that indemnity requires that the principal should continue his business. If the principal does not continue in business after the termination the requirements of reg.17(3) cannot be satisfied. In the case of compensation there is no prerequisite to entitlement that the principal continues in business. Thus compensation may arise where (as in this case) the principal shut down the relevant part of his business, or, say, ceases to trade because the company goes into receivership. We can thus conclude that in so far as entitlement to compensation is concerned, the Directive is not troubled with what happens after the date of termination. It is the value of the rupture of the agency relationship that is the source and justification of compensation. …………………….. 48. It is obvious in our view, that on the basis of their 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 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. 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. ” The Court went on to award a figure representing the total of the last two years of the pursuer’s gross earnings. The court indicated that that figure represented a sum he would have been likely to have required to have surrendered his agency and further stated (at the end of paragraph 51):

“We are reassured that under French law compensation of two years commission would be regarded as a standard compensation for the loss of the agency, so that it is difficult to believe that in the present case such compensation could be other than reasonable.”

[94]Mr White supported that decision, both as to its reasoning and its conclusions. In his opening written submissions, indeed, he submitted that I was bound by that decision: although, in this context, Mr White disclaimed, on my query, any reliance on the choice of law clause in the Sales Agreement identifying the applicable law as that of “the United Kingdom” (sic). Mr White referred me to the decision of Mr Justice Morland in Ingmar GB Ltd v Eaton Leonard Inc 2001 Eur L.R 756 – a case involving questions of compensation under Regulation 17. In the course of his judgment Mr Justice Morland, having referred at length to King v Tunnock said this (at paragraph 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.”

Mr Justice Morland went on to stress the desirability of courts in England and Wales (Northern Ireland has its own regulations) in applying the same principles as the courts of Scotland by reference to the Agency Regulations: which in terms apply to the activities of commercial agents in Great Britain.

[95]Whilst there is a general practice that in revenue and taxation cases English courts will regard themselves as bound by relevant decisions of superior Scottish courts, I am not aware of any practice or precedent (and none was cited to me) that in other cases an English court is so bound: although there are, of course, cases stressing the desirability of English and Scottish courts reaching the same conclusion on common legislation. Of course, the English court will treat a decision of the Scottish Court with the greatest respect and will be disinclined to depart from it (the more so, in the present context, given the general applicability of the Agency Regulations to Great Britain). But that is a different matter to being bound by the decision. In the event, Mr White in his closing submissions withdrew his suggestion that I was strictly bound by the decision in King v Tunnock: and I have to say that, in my own view, I am not strictly bound to follow it. But in any case the actual decision was, as I have said, one on its own facts.

[96]I would state my respectful agreement, however, with the Inner House of the Court of Session in its ruling that an award of compensation is not solely confined to situations where one or other of the sets of circumstances set out in Regulation 17 (7) (a) and (b) is established and the Regulation does not delimit the kind of loss for which compensation may be awarded. I think that is so, in agreement with the Court of Session, because, firstly, Regulation 17(7) “deems” damage - which is to be contrasted with “damages” - to have occurred “particularly when” those circumstances occur: the word “particularly” clearly connotes that there may be situations where compensation can be awarded (and “damage” has occurred) even though those circumstances specified in Regulation 17(7)(a) or (b) are not shown to exist; and, secondly, because (as explained by the Court of Session) such interpretation better accords with the policy of the Directive.

[97]Where I must, with great respect, express reservations as to certain aspects of the judgment in King v Tunnock is with regard to the degree of primacy apparently given by the Inner House to French law and practice in deciding on the general level of awards of compensation. In the 1996 Report there is a useful summary of the applicable French law. It seems that the French courts customarily award compensation of two years gross remuneration on termination of an agency contract (although that is a bench-mark only and the court retains a discretion). The Inner House of the Court of Session, citing the 1996 Report and passages from a French text-book and other materials as to French law, and stressing the importance of harmonisation as between Member States on these provisions, seems to endorse the general application of a “two-year rule” (albeit the court stressed that it is a bench mark only and can be “varied” at the discretion of the Judge: see paragraph 49 of the judgment). That decision was, in due course, described by Judge Bowers (sitting as a Judge of the High Court) in Barret Mckenzie v Escada (UK) Ltd (unrep: 1st February 2001) as setting a “tariff”. As to that, Judge Bowers stated that he disagreed with King v Tunnock.

[98]My approach is as follows. 98.1 First, it seems to me as a matter of principle that if it were intended by the Directive that, on matters of compensation, French law were to apply, then it would and should have said so. Thus in Nicolaus Corman & Fils SA v Hauptzellamt Groman 1982 ECR 13, the court said (at paragraph 8):

“…….the Community legal order does not in fact aim in principle to define its concepts on the basis of one or more national legal systems without express provision to that effect.”

In R v Customs & Excise Commissioner ex p. EMU Tabac 1998 ALL ER (EC) 402, the court said (at paragraph 30):

“First it is clear from the case law of the court that the Community Legal order does not, in principle, aim to define concepts on the basis of one or more national legal systems unless there is express provision to that effect….”

Accordingly in the case of Bell Electric Ltd v Aweco Systems Appliance Gmbh 2002 EWHC (QB) 872 (8th May 2002) to which Mr Hollander referred me, Mr Justice Elias, speaking in the context of the approach to assessing compensation under Regulation 17, observed that courts in England and Wales are not obliged as a result of European Union law itself to apply the principles of French law in determining compensation. I agree. 98.2 This general principle is not alluded to in the judgment in King v Tunnock. This may be because the Court of Session was taking the view that the court was not seeking to apply French law, as such, as a matter of decision but only having regard to it with a view to achieving a harmonised approach: cp the comments of Lord Hamilton in Roy v M.R Pearlman Ltd 1999 SC 459 at p 469 G-H and the comments of Mr John Mitting QC (sitting as a deputy Judge of the High Court) in Moore v Piretta PTA Ltd 1999 1 ALL ER 174 at p176. I can, at all events, certainly see that a court which is concerned with questions of compensation under Regulation 17 would wish to have regard to statements as to French law and practice – which in my view can sufficiently be garnered from the 1996 Report itself – as explaining the background to and purpose of the Directive. I would also regard it as unexceptionable for a court to choose to have regard to it as one factor, by way of a comparator, in the overall consideration of an award of compensation under Regulation 17. Indeed it may well be, judging by the contents of paragraphs 50 and 51 of the judgment in King v Tunnock (and particularly the last sentence of paragraph 51) that the Court of Session considered that that was what it was doing: although it must be said there are passages elsewhere in the judgment which seem to be putting it rather more strongly. Be that as it may, I do not think what is said to be French law and practice can be used to dictate the approach to, or operation of, the assessment of compensation under Regulation 17; and to the extent that Mr White’s submissions went that far I reject them. 98.3 The Directive has left it to each of the Member States to implement the Directive. Courts in England and Wales will be assessing compensation awards under Regulation 17, applying the Agency Regulations under an agency contract governed (ordinarily) by English law. Where an English court is concerned to construe, or give effect to, a contract governed by French law then of course it will (on production of appropriate expert evidence) seek to ascertain what the French law is and then apply it (see, indeed, the express provisions of Regulation 1(3), as amended). Apart from that, however, it seems to me wrong for the English court, when considering the issue of compensation under regulation 17, to attempt to put itself in the shoes of a French court in the case of a contract governed by English law to which the Agency Regulations (applicable in Great Britain) apply. Otherwise (in the words of Judge Hallgarten QC in the County Court decision of Duffen v Frabo 2000 ILL Rep 180) “ it will find itself drawn into attempting to mimic what a French court would actually have done, a task which it is ill-equipped to perform”. Besides, given that under French law the Judge has a discretion to depart from the “two year rule”, it would seem to be an impossible hypothetical task to identify on the facts of a particular case how or to what extent a French court would exercise such a discretion. It is, surely, for the court actually seised of the case to make its own decision and exercise its own judgment under Regulation 17. 98.4 The approach indicated in King v Tunnock could lead to the conclusion that in particular cases evidence as to French law may be needed. Indeed the Court of Session so indicated: see paragraphs 44 and 47 of the judgment. But many of these cases for compensation will be for relatively modest sums and will involve claims brought in the County Court or Sheriff Court. It seems very doubtful that it was contemplated by the drafters of the Directive or Regulations that local solicitors should be required to familiarise themselves with and adduce expert evidence of the French law (or, in cases of indemnity, German law) and obtain access to French (or German) legal advice - even if they had the resources and facilities to do so - with regard to a particular case; or that parties should have to pay for that. 98.5 The Court of Session thought that if application of the Directive under a country’s own national regulations produced divergent results then the “whole objective of the Directive had failed.” Obviously “approximation” is the aim and “harmonisation” is the object and it is clear that the Directive was concerned to protect commercial agents generally. Such agents’ right to indemnity or compensation, equally applicable to all Member States, is spelled out in the Directive. But the remedy (that is to say, whether the indemnity or compensation approach is to be adopted and how quantification is to be worked out) is to a significant degree left to each Member State. Thus not only does the Directive build into itself a divergence by allowing for a choice between an indemnity system or compensation system (or, as the UK has chosen to interpret it, both) in the first place: the Directive also ascribes to Article 17 a further degree of divergence by letting Member States (and the courts of Member States) work out - subject to the requirements spelled out in Article 17 - the method of assessment for themselves. The report contemplated by Article 17(6) (and as submitted in 1996) was, in part, I infer, to assess whether the anticipated divergence might prove to be too great to be acceptable. Moreover, Regulation 17 of the Agency Regulations having then chosen to build into its own provisions the potential divergence between indemnity and compensation, by allowing for both, it seems – to me at least – odd positively to enhance the potential divergence by applying a two year tariff for compensation cases whereas indemnity cases are capped (and it is a cap, not a tariff) at one year. One would have thought that a court might at least be rather slow (save in a very meritorious case) to make an award of compensation very significantly in excess of the maximum available under the indemnity provisions of Regulation 17. 98.6 Finally, it is a point of comment that aspects of the French Civil Code applicable to commercial agents have since been significantly modified, as the 1996 Report notes – the clear inference being that the Civil Code was modified to bring it in line with the Directive. That is not consistent with an understanding that French law (as it stood in 1986) with regard to compensation was to be taken as determining the whole approach as to compensation under Article 17 of the Directive.

[99]Mr White urged that the two year “tariff” led to certainty and that it was desirable for parties to know where they stood. If it were otherwise, he submitted, they, and their legal advisers, would be unable to predict, in any given case, the outcome. (He did not altogether demur when I put it to him that, if he were anatomically to be judged, he seemed to prefer to be judged by a rule of thumb rather than a rule which he feared would accord to the length of a judge’s foot). But uncertainty, I am afraid, is not uncommon in legal contexts; and in any event there must be occasions when the desideratum of certainty should, in the interests of justice, yield to the desideratum of flexibility. Besides, an appeal to certainty is rather weakened when it is seen that in any event the court has a broad discretion to depart from the asserted two-year rule when justice so requires in a particular case. Moreover, my wariness as to a two-year rule, so called, being applicable to the Agency Regulations is considerable. I find it difficult, speaking for myself, to think there is, or at all events should be, precisely the same benchmark for a commercial agency which has been lawfully terminated in circumstances where the principal has retained no benefit resulting from the agency itself and where the agent would have derived no benefit from the agency after termination in any event, on the one hand, as compared to a commercial agency which has been terminated by the principal in circumstances where the principal retains substantial benefit (by way of enhanced goodwill and trade connection) arising from the efforts of the agent and where the agent would have continued to derive considerable sums of commission had the agency continued, on the other hand. Nor is it clear as to whether the “two year” rule is designed (presumably by use of projected or extrapolated figures) to apply to agency contracts lasting less than two years and (if so) on what basis. These are but examples reflecting the wide variety of circumstances that may apply in each case; and point against a tariff system being designed to apply under Regulation 17.

[100]In my judgment, therefore, and in rejection of Mr White’s submissions on this point, I am not bound to seek to apply what is said to be French law and practice, and I am not bound to apply a “two year tariff” (albeit subject, as Mr White accepts, to a discretion to depart from it) in this case. There is no “tariff” applicable under English law, in my judgment, for the purposes of determining compensation under Regulation 17. Nor, in my view, is an English court, where the agency contract is governed by English law, bound to enquire into French (or any other Member State) law. Rather, in my view, the court has to make its assessment of the compensation (if any) to be paid under Regulation 17 having regard to the “balance sheet” (as Mr Hollander put it) of relevant considerations, by reference to the circumstances of each case.

[101]In the present case, it is plain, on the facts, that the circumstances identified in Regulation 17(7) (a) obtain here. “Damage” is thus deemed to have occurred. Further, in the present case, it is plain, on the facts, as I have already said, that Decoro has retained for itself - thus far, without any payment - the “substantial benefits” of the customer connection introduced by Mr Coleman (I unhesitatingly reject, on the facts, for the reasons already given, Mr Hollander’s submission that, as at 31st December 1999, there was a “negative goodwill”). For these reasons alone I take the view that Tigana is entitled to significant compensation under Regulation 17. Mr White also stressed the continuing availability of these customers to Decoro and that Decoro, notwithstanding that it had in effect dispensed with Mr Coleman’s services (relieving itself of the obligation to pay him commission in the process), had been able seamlessly to continue to manufacture and deliver its furniture for the UK market through the year 2000. Mr White further submitted that the agency had been of some length; that its very nature, in particular the introductory element, meant that it was to a significant extent “front-loaded”; that it came to an end, in practical terms, by the choice of Decoro, not Tigana; and that upon termination Mr Coleman and Tigana were in practical terms to an extent restricted in their ability to offer corresponding leather furniture made by other manufacturers to those customers, given that they had now established a connection with Decoro. Mr White submitted that in all the circumstances of this case compensation of not less than the equivalent of two years gross remuneration should be awarded.

[102]For his part, Mr Hollander pointed out that, on the other side of the balance sheet, the agency had been relatively short: the situation thus was very different to that in King v Tunnock and Ingmar GB Ltd. In formal terms it had lasted just for one year: and in practical terms no more than 15 months (Mr Hollander fairly and realistically disclaiming any argument to the effect that in the months of October and November and December 1998 it might be said that it was Mr Coleman, not Tigana, who was acting). He also stressed – and I think these are points of considerable weight – that the agency had not been exclusive: Mr Coleman thus had been free to carry out (and had carried out) his valuable agency contracts with other furniture manufacturers; and Mr Coleman (and Tigana) had been subject to no restraint of trade provision and had been free, after termination, to solicit business from the customers he had introduced to Decoro. He also validly pointed out that, in the circumstances of this case, commission payable under Regulation 8(a) - and, in the result, I have determined that such is payable in a substantial sum – was a relevant factor, to ensure that there was no element of double benefit in favour of Tigana. He further added that Tigana had gained significant commission already under the Sales Agreement and, for good measure, that an award assessed as at 31st December 1999 involved a degree of accelerated payment.

[103]Mr Hollander re-emphasised the point that he had made in his argument on Regulation 8(a), to the effect that much of the success was due to the fact that the products of Decoro were excellent products, keenly priced: further, that the customer base had, after the problems with the 1988 Fire Safety Regulation, been retrieved, and then consolidated, by Decoro’s own efforts: not least by its preparedness to offer substantial discount arrangements to customers affected by the problems under the 1988 Fire Safety Regulations. I again attach little weight to these points in the circumstances. That the product was, essentially, an excellent product, keenly priced, was a given: it was, indeed, a fundamental reason for Mr Coleman entering into the agency contract in the first place. That Decoro itself greatly assisted in retrieving the position, after the problems with the 1988 Fire Safety Regulations, has to be set in context: these problems arise through no default of Mr Coleman (as evidenced by the abandonment of the counterclaim and of reliance on Regulation 18(a)). More generally, I consider that an enquiry as to the respective non-financial contributions by principal and agent to achieving the business of particular customers is likely, in the usual case (and at all events in this case) to be unhelpful. As pointed out by Mr John Mitting QC in Moore v Piretta PTA Ltd at p182:

“The parties have after all agreed a percentage to reward the agent for his efforts which reflects their judgment of the value of his efforts.”

There may be cases where such an enquiry is appropriate: for example, where the agreed remuneration is significantly out of step with the industry norm; or perhaps - albeit generally the performance of an agent retained on a commission basis will in any event find reflection in the commission he earns - where the performance of the agent has been lamentable (albeit falling short of “default” for the purposes of Regulation 18 (a)). This is not such a case. It is, I think, sufficient for me simply to reaffirm my finding that Tigana (through Mr Coleman) throughout carried out the agency effectively (being instrumental in introducing major customers) and diligently.

[104]Mr Hollander also submitted that it was a relevant consideration that it was Decoro which had to bear all the losses occasioned by the non-compliant furniture, whereas (so he said) Tigana had not borne any part of those losses. I am not moved by that. Decoro must (at least vicariously) bear the responsibility for what happened: Tigana itself (the counterclaim being abandoned and it not being put to Mr Coleman that he had been at fault) does not bear the responsibility. Further, Tigana was, on Mr Hollander’s own approach, adversely affected: to the extent that sales were lost, Tigana itself lost commission. Moreover, Tigana had to bear an extra administrative burden in dealing with the complaints and Mr Coleman himself had to devote much time to helping sort out the problems.

[105]A further issue arose, in that Mr White submitted that compensation awarded under Regulation 17 should be assessed by reference to gross remuneration. Mr White again relied heavily on King v Tunnock in this regard and on French practice – whereby, as the 1996 Report states, compensation is usually awarded by reference to gross remuneration. For his part, Mr Hollander submitted that it should be by reference to net remuneration (that is, after making allowance for expenses incurred in the operation of the agency). Mr White did not seek to say that the court was always required to make an award on a gross basis: it had, he said, a discretion to make an award on a net basis; but he submitted that a court ordinarily should. For his part Mr Hollander, as I understood him, submitted that it would never be appropriate for an English court to award compensation under Regulation 17 on a gross remuneration basis. In this context, Mr Hollander referred me to comments of Judge Hallgarten QC in Duffen v Frabo to the effect that it would be “offensive” to award the claimant compensation on a gross basis (although I think Judge Hallgarten QC may have been speaking by reference to the facts of the particular case before him); and to the use of the like word “offensive” by Judge Bowers (speaking more generally on the operation of Regulation 17) in Barret Mckenzie v Escada (UK) Ltd. Both judges clearly and understandably were concerned that otherwise there might be something of a windfall for the agent.

[106]For myself, I do not think it would be wrong in principle, or necessarily “offensive” in all cases, for an English court to award compensation by reference to gross remuneration. I say this for three reasons in particular:106.1 First, under Regulation 17, an indemnity can be calculated by reference to gross remuneration (see Regulation 17(4) and the comments on the indemnity system in the 1996 Report). Why should the compensation system necessarily and invariably be different?

106.2 Second, it seems clear that the Directive contemplates that goodwill established by an agent for the benefit of the principal can be treated, as it were, as a quasi–proprietary right in which the agent is taken to have a share and of which he is divested on termination. It would not necessarily be commercially unusual, for example, for the price for the sale of the goodwill of an agency (if assignable) to be calculated by reference to gross earnings. Indeed it is of note that in King v Tunnock the court adopted that very approach in deciding on the level of compensation to be awarded to the pursuer, on the facts of that particular case: see paragraph 51 of the judgment.

106.3 Third, once it is accepted (as it has to be) that common law principles of loss and damage do not govern the operation of Regulation 17, it is no real extension to the assessment of the compensation for “damage” under Regulation 17(6) to permit an award of compensation by reference to gross remuneration.

[107]Nevertheless, I am also firmly of the view that an English Court is fully entitled to award compensation by reference to net remuneration, rather than gross remuneration; and it is not required to take gross remuneration as a starting-point or to treat it as the norm. To the extent that (if relevant) this may involve some degree of divergence from what may be standard French practice (albeit the position in any event is discretionary in France) then that divergence seems to me to be within the margin of divergence which is contemplated by the Directive. After all, as Mr Hollander cogently pointed out, the fact that common law principles as to loss and damage do not govern awards of compensation under Regulation 17 does not mean that the English court is required altogether to shut its eyes to what the actual loss is: and in any case considerations of loss are consistent with the wording of Regulation 17 itself.

[108]Considering the various factors which I have mentioned in paragraph 89 above, and the “balance sheet” of points advanced on behalf of Tigana and Decoro respectively, I have come to the conclusion that the compensation to be awarded to Tigana should be assessed by reference to the net remuneration of Tigana in the period of its agency. That is not just a period of 12 months: it should also, in my judgment, extend the first two and a half months or so in which Mr Coleman acted (before the agency contract formally commenced) since these were very important in initiating some of the valuable introductions of customers to Decoro. The total (gross) is thus $558,725 + $6,707 = $565,432. I consider that expenses should be deducted, in all the circumstances of this case, not least because it was agreed that Tigana would bear its own expenses (excluding flights to and hotel costs in China and Hong Kong) and because I consider to do so fairly reflects the nature and history of this particular agency. I had no precise figures as to these expenses (Tigana not, it seems, having prepared any accounts). Moreover a considerable part of Mr Coleman’s overall overheads and expenses are attributable to his other agencies. Mr Coleman told me, however, that of the $215,432 that was paid to Tigana, all went to Stuart Coleman & Associates to defray expenses. Some in fact went to pay expenses properly payable by Decoro for flights to and hotel costs to China (including the £34,987 ultimately recovered in that regard from Decoro in 2000); some, I anticipate, having regard to Mr Coleman’s evidence, were in respect of extra secretarial costs incurred by Tigana to deal with customers complaints about fire regulation problems. I do not think an inquiry need be directed as to the expenses. I assess the appropriate deduction as 20% of the gross remuneration. Thus the award of compensation which I make is in the sum of $452,346.

[109]In making that assessment, I have also asked myself, by way of a check, whether such an award is fair and proportionate: if it seemed to be prima facie to be too high (or too low) I would have reconsidered the weight I had been minded to give to the various factors. (I observe that a similar approach seems to have been adopted by Mr Justice Morland in the Ingmar GB Ltd case in deciding, in the event, not to adopt a two year purchase approach: see paragraph 52 of his judgment). In my view, an award of $452,346 (reflecting the net remuneration in the effective period of the agency) is, in the circumstances of this case, the appropriate award under Regulation 17.

[110]I add that, even if I had regarded myself as bound to take a “two year gross remuneration” starting point, I would in my discretion unhesitatingly have departed from that in all the circumstances – in particular, given that the agency here lasted for significantly less than two years, that it was non-exclusive, that there has been the award under Regulation 8(a) and that Mr Coleman had free access to the customers after termination. I would thus in any case not have reached any different conclusion on the ultimate assessment of compensation under Regulation 17.

Conclusion

[111]In conclusion, therefore, I will order that:111.1 Decoro is to pay Tigana the agreed sum of $350,000 by way of commission due under the Sales Agreement.

111.2 Decoro is to pay Tigana commission under Regulation 8(a) in an amount to be assessed (but being not less than $606,836.64).

111.3 Decoro is to pay Tigana compensation under Regulation 17 in the amount of $452,346.

[112]I will hear counsel as to any further directions or orders that may be needed and on questions of interest and of costs.