Commercial agency termination compensation – case studies

Termination of Agency
Valuation of Commercial Agencies for Regulation 17

The firm has advised on many commercial agency termination compensation claims in accordance with Regulation 17 of The Commercial Agents (Council Directive) Regulations 1993 and subsequent case law.  We have also occasionally advised parties when this was only being contemplated. Almost all the cases where we have acted have settled, either by negotiation, at mediation or at arbitration, thereby saving time and professional costs.


To see some client testimonials following commercial agency compensation negotiations, please click here.


Our founder has given oral expert evidence in a wide range of confidential commercial disputes, including cases concerning commercial agency compensation. We have also acted as advisors in many commercial agents termination compensation disputes. Our founder has given oral evidence in two commercial agent termination cases heard at the High Court in London. These are described in the following two case studies:


Case Study – Commercial Agents Regulation Termination – Software

The claim arose as a result of the principal terminating the agreement summarily on the basis that the agent was in repudiatory breach of its obligations to devote “substantial time and effort” to performing its obligations and not to engage in any activity competing directly with the principal’s software.


Our expert was appointed by solicitors acting for the agent to quantify the compensation due following the termination of the agency agreement. In his initial report the principal’s expert claimed there had been no loss but following submission of our expert’s report the principal provided further expert evidence that provided a basis for quantifying compensation. The case progressed to a hearing and both experts presented reports and oral evidence. (The Software Incubator Ltd v Computer Associates UK Ltd [2016] EWHC 1587 (QB)).


Experts evidence focussed on the expected maintainable level of earnings at the valuation date and the appropriate multiplier for the quantifying compensation.


Size of Principal

Computer Associates UK are part of CA Inc., a $19bn US Corporation.



Size of Agent

An individual that worked alone.



Context

Charles was appointed by solicitors acting for the agent to quantify the compensation due under Regulation 17 of The Commercial Agents Regulations 1993 on termination of the agency agreement.



Outcome

The principal claimed there was no loss but on hearing both experts the court awarded compensation of £475,000 under this head of claim.



Challenges

The agent has achieved limited sales over a very short period at the very beginning of the life-cycle of this software.  As a result the quantification relied on projections over several years based on a few months’ sales history.



The case is significant as it concerned the sale of software, which was considered to be outside the scope of the Regulations.  As a result on 28 March 2019 the Supreme Court decided to refer two questions on the meaning of “goods” in the Directive to the CJEU.



The second case study concerning calculating the compensation due on termination of a commercial agency was in connection with a professional negligence claim against the agent’s former solicitors.


Case Study – Commercial Agents Regulation Termination – Aircraft Spares


This case addressed the compensation due on termination of a commercial agency, but in this case it concerned allegations of solicitor negligence (Berry v Laytons & Anor [2009] ECC 34, [2009] EWHC 1591 (QB)). The case highlighted the risk of professional negligence when advising on this specialist areas. Charles was appointed by the defendants and both experts gave evidence concerning the level of earnings at the valuation date and the appropriate multiplier for the quantification of compensation.


Size of Claim

£400,000 plus interest and costs.



Size of Agent

An individual and his small team.



Context

Charles was appointed by Laytons to quantified Berry’s damages on the basis of Regulation 17 of The Commercial Agents Regulations 1993 on termination of the agency agreement.



Outcome

The Agent’s compensation was reduced by 40% when the Court awarded £240,000 plus interest and costs.



Challenges

The appropriate level of salaries for partners where the accounts exclude remuneration and the fair allocation of the agency’s overheads to individual products for the valuation of multi-agency businesses.



Significant lessons

The case highlighted the risk of professional negligence claims when advising agents on the level of compensation to expect on termination of agency agreements.




Charles Lazarevic is the author of the chapter on the compensation aspects of commercial agencies in Susan Singleton’s Commercial Agency Agreements: Law and Practice (5th Edition, 2020).


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