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The question of how a commercial agent should be compensated for the termination of an agency agreement under European law has been settled by the House of Lords.
In Lonsdale v Howard & Hallam Ltd the law lords rejected the French approach of automatically awarding two years’ gross commission, ruling that compensation should mirror the market value of the agency business at the date of termination.
Under the Commercial Agents (Council Directive) Regulations 1993, a principal is required to compensate its agent if the agency agreement is terminated. However, the way compensation is calculated has until now been unclear.
Peter Ellis, partner at Browne Jacobson, says the Lonsdale case makes clear the approach to be taken in valuing compensation, but parties in this type of case may still be concerned by the cost of expert evidence to value the business.
“Often agencies are simply too small to warrant the cost of an accountancy expert. The House of Lords suggests that it should be possible for the court to have regard to the ‘going rate’ for buying and selling comparable businesses but to give greater certainty, one option might be to include a valuation clause in the agency agreement setting out the basis for the valuation on termination.”
Lord Hoffmann rejected the appellant’s request for a reference to the European Court of Justice, holding that the method for the calculation of compensation is a discretionary matter for the domestic laws of member states.
