Spotlight on Commercial Agency

There were a number of interesting cases on the Commercial Agency Regulations and the Directive from which they are derived.

The High Court dealt with a case requiring the assessment of compensation due to an agent under the Commercial Agents Regulations 1993. It applied existing rules, that the compensation should be the notional price a hypothetical purchaser would be willing to pay for the agency, as at the date of termination. Experts on both sides agreed that compensation should be assessed on a future annual net earnings basis (earnings in this case being an annual retainer), to be multiplied on a limited basis, so as to reflect the risk of investing in the agency, taking into account factors such as the stability of the principal’s business, its place in the market, its financial position and trading relationships. The greater the risk, the lower the multiplier.

Both experts started their compensation calculations with data on price/earnings ratios from FTSE on the day of termination, although they used different market sectors for comparison. The judge made various findings of fact to arrive at a multiplier of 4. After other findings of fact relating to the calculation of future net earnings, in particular the correct figure for costs and expenses to be deducted from the annual retainer to produce a net figure, the judge applied the multiplier in order to arrive at the sum which he considered would be the price a notional purchaser would have been prepared to pay.

While this decision involved the application of existing law to particular facts, it is worth noting as it provides a useful recent illustration of the factors which the courts will take into account when calculating compensation under the Commercial Agents Regulations.

CJEU ruling on meaning of “new customers” for indemnity purposes in the Commercial Agents Directive

The CJEU ruled on the meaning of “new customers” in Article 17(2) of the Commercial Agency Directive (17(3)(a) in the Commercial Agents Regulations 1993). This states that on termination of a commercial agency agreement, the agent will be entitled to an indemnity if and to the extent the agent brought new customers to the principal. The reference asked the CJEU to determine whether this meant completely new customers with whom the principal had no previous relationship or whether it could include customers who are only new in relation to the specific goods sold by that agent. The CJEU held that it was the latter interpretation which applied. The customers must be regarded as new if they are new to the specific goods the agent is selling, even if they deal with the principal already in relation to other goods.

High Court says sale of software is sale of goods for purposes of Commercial Agency Regulations

In July, the High Court held that a sale of software counted as a sale of goods (despite being supplied in an intangible format) for the purposes of the Commercial Agency Regulations. Waksman J considered not only the reality of software supply but also the way it has been treated in legislation and applicable case law. He concluded that, for the purposes of the Commercial Agency Regulations, where software is essentially a non-bespoke product sold for a commercial purpose, whether it is physically or digitally supplied is irrelevant and it should be treated as a sale of goods.