Commercial agents: entitlement to compensation or indemnity?

Charles Shearman (t/a Charles Shearman Agencies) v Hunter Boot Ltd concerned a claim by a commercial agent following the termination of his agency. The agreement provided, in essence, that, upon termination, the agent would receive an indemnity, unless compensation would be lower, in which case he would get compensation. The question for determination by the High Court was what was the effect of Regulation 17(2) of the Commercial Agents (Council Directive) Regulations 1993 on this provision? Regulation 17(2) provides: ‘Except where the agency contract otherwise provides, the commercial agent shall be entitled to be compensated rather than indemnified.’

This mattered because, following the House of Lords judgment in Lonsdale v Howard & Hallam, compensation is calculated by reference to the value of the agency depending on the circumstances existing at the time of termination, including earnings potential and the price that a third-party purchaser would pay for it. According to the claimant, this would be a value of not less than £1,454,000. Under Regulation 17(4), any indemnity would be capped at an amount equivalent to the claimant’s average annual commission over the last five years of his agency, which, the defendant maintained, was no more than £204,000…

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