Commercial Agents – the cost of getting it wrong

In Green Deal Marketing Southern Ltd v Economy Energy Trading Ltd, the High Court carried out a comprehensive review of the law relating to compensation under the Commercial Agency Regulations 1993 and although it provided no "new law", it's a very useful summary of the status quo regarding commercial agents' disputes.

Just about everything that could go wrong between contracting parties did go wrong and it ended up with the principal (Economy Energy) going into liquidation under an award of compensation in excess of £1million.

What are "goods" for the purposes of the Regulations? EE argued that electricity isn't but the Judge held against them.

Did "heads of terms" have contractual effect, notwithstanding that the parties clearly anticipated that they would subsequently enter into a formal contract? Although the judge held that it was the parties' intention to replace the heads of terms with a full agreement, they nonetheless had contractual effect in the meantime. A word to the unwary about assuming heads of terms can be of no contractual validity.

Was the agent entitled to compensation under the Regulations, notwithstanding the fact that the principal had terminated the contract as a result of the agent's breach of contract? In the circumstances of this case, yes but the water surrounding the alleged breach was very muddy and, plainly, a clear and unambiguous "breach" will come within the ambit of regulation 18(a).

How do you quantify compensation under the Regulations? There was a complete review of the established process by which compensation is calculated. The judge following "Lonsdale" and other cases, which determined that compensation is calculated on the basis that the agent is regarded as having a share in the goodwill in the principal's business which he helped to create.

Although the parties were agreed as to that approach, their expert witnesses differed as to what that meant. The agent's expert put the figure at over £8million but the judge held their calculation was flawed in a number of respects. He held in favour of the principal but at, over £1m, the award is probably a record for this type of compensation.

And can an agent claim damages for breach of contract in addition to regulatory compensation? The judge held that to do so would amount to a double recovery and rejected the claim in that respect.

Whilst the agent and its legal team were probably delighted with the outcome, they came up empty handed when EE went into liquidation. A huge investment in legal costs for no eventual return. More proof of that old Churchillian adage: "Jaw-jaw is better than war-war".