McQuillan & Anor v McCormick & Ors

Neutral Citation Number: [2010] EWHC 1112 (QB) IN THE HIGH COURT OF JUSTICE QUEEN'S BENCH DIVISION NEWCASTLE UPON TYNE DISTRICT REGISTRY MERCANTILE LIST Case No: 8LV90056 The Law Courts The Quayside Newcastle-upon-Tyne Tyne NE1 3LA Date: 17 th May 2010 Before : HH Judge Behrens sitting as a Judge of the High Court - - - - - - - - - - - - - - - - - - - - - Between : (1) MICHAEL McQUILLAN (2) LORNA McQUILLAN - and - (1) DARREN McCORMICK (2) WIZZEWEB LIMITED (3) PANDORA JEWELRY LIMITED - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Claimants Defendants Andrew McGee (instructed by EAD Solicitors LLP of Prospect House, Columbus Way, Liverpool, L3 4DB) for the Claimants Stephen Fletcher (instructed by Hathaways of 19 Regent Terrace, Gateshead, Tyne & Wear NE8 1LU) for the Defendants Hearing dates: 3, 4, 8, 9, 10 March 2010, 17th May 2010 - - - - - - - - - - - - - - - - - - - - - Judgment Approved by the court for handing down (subject to editorial corrections) Judge Behrens : 1. Introduction In these proceedings Mr and Mrs McQuillan seek damages or compensation under the Commercial Agents (Council Directive) Regulations 1993 (“the 1993 Regulations”). They contend that in February 2006 they were appointed by Mr McCormick as commercial agents to sell jewellery products on his behalf. They contend that the agency continued until February 2008 when it was wrongfully terminated by Mr McCormick. During the period of the agency Mr and Mrs McQuillan introduced several new customers and generated significant new sales on behalf of Mr McCormick thus increasing the value of the agency. Part of the claim is in respect of commissions that are due under the terms of the agency and/or regulations 7 or 8 of the 1993 Regulations. The remainder of the claim is for damages for wrongful termination and/or compensation under regulation 17 of the 1993 Regulations. Mr McCormick seeks to defend these proceedings in a number of ways. Whilst he accepts that there was an agency agreement in existence he does not accept that he was party to it. He contends that he was – at all times – acting as Director of and agent for Wizzeweb Ltd, the Second Defendant. There are disputes as to the terms of the agency. One of the most important disputes relates to “exclusivity”. Mr and Mrs McQuillan contend that they were granted exclusivity in relation to the territory in which they sold the jewellery. Mr McCormick denies this but contends that Mr and Mrs McQuillan were prevented from selling any jewellery other than Pandora jewellery. There is a further dispute as to whether it was ever agreed that there was to be a probationary period or not. Mr McCormick admits that the agency was terminated in February 2008. He contends that the termination was justified. The Notice of Termination sets out a number of grounds which are said to justify the summary termination. Not surprisingly these allegations are denied by Mr and Mrs McQuillan. Mr McCormick does not accept that the agency was governed by the 1993 Regulations. It is common ground that the 1993 Regulations only cover the activities of a commercial agent within the meaning of regulation 2 of the 1993 Regulations. In his opening submissions Mr Fletcher sets out a number of reasons why this agency is not within the Regulations. He contends that Mr and Mrs McQuillan were not “self employed intermediaries”; that they had no power or authority to negotiate, deal with or manage sales and that their activities were “secondary” with the meaning of the 1993 Regulations. There are disputes as to the amount of commission due. To some extent these overlap with the dispute over exclusivity and the application of the 1993 Regulations. If the 1993 Regulations apply and if Mr and Mrs McQuillan are right that they were entitled to an exclusive territory, they are entitled under regulation 7(2) to commission on all transactions within the territory during the agency. Mr McCormick, on the other hand contends that commission is only payable where they were the effective cause of the transaction. If Mr McCormick was entitled to determine the agreement summarily as he alleges it is common ground that no compensation is payable. If, however, he was not entitled to terminate a number of disputes arise. If the 1993 Regulations do not apply any loss would be limited to the commission he would have earned during a period of reasonable notice. If the 1993 Regulations apply it is common ground that Mr McQuillan would be entitled to compensation under regulation 17. At one time there was a substantial dispute both as to the basis and quantification of the compensation to which Mr and Mrs McQuillan would be entitled. There were substantial differences between the views of Mr Donaldson, the single joint expert originally instructed to provide valuation evidence and Mr Davidson the expert subsequently instructed by Pandora UK. Fortunately when the experts arrived at Court and had a further meeting after discussions with Counsel they were able to agree both the methodology and the assessment of the value of the agency on a number of bases. 2. Witnesses Mr McQuillan was, of course the principal witness called on behalf of Mr and Mrs McQuillan. In addition they called Mrs McQuillan who corroborated Mr McQuillan’s evidence, Marlies Armstrong another commercial agent for Pandora UK whose agency was terminated by Mr McCormick, Sarah Grundy a jeweller from Spalding who was satisfied with Mr McQuillan’s services and Sharon Shannon, another jeweller from Market Harborough who made a complaint to Mr McCormick about a telephone conversation made by Mr McQuillan to her daughter in October 2007. 10 Mr McCormick was, of course, the principal witness on behalf of Pandora UK. In addition there were 3 other witnesses called – Liam Kemp, Jayne Ackley and Claire Ketley. All 3 of these witnesses were employed by Mr McCormick or one of the Companies he controlled. Jayne Ackley is Mr McCormick’s sister. Claire Ketley is Mr McCormick’s partner. These witnesses were called primarily in relation to Mr McCormick’s allegations relating to Mr McQuillan’s attitude to his employees. 3. The Facts 3.1. Background Mr and Mrs McQuillan 11 According to the CV which was prepared in 2006 Mr and Mrs McQuillan were and are directors of Park Jewellery Ltd. Park Jewellery was incorporated in January 2002. It had shown considerable growth in the years between 2002 and 2006. 12 Mr McQuillan described himself as a professional manager with 20 years sales, logistics and production experience. In 2006 they describe themselves as sales agents for Kit Heath and Nomination. They had some 200 accounts in outlets including traditional and contemporary jewellers, gift and art galleries. They operated in the Midlands. Pandora Jewellery Pandora Jewellery originates from a Danish Company known as Pandora Jewelry A/S The concept of the jewellery involves taking a necklace or bracelet and buying charms / beads to put on to them. The items are interchangeable. Mr McCormick 14 Mr McCormick first became involved with Pandora Jewelry in about 2005. At the time he was the sole director of Wizzeweb Ltd, a company involved in the design of web sites. He had no experience in the sale of jewellery. He was on holiday and his partner purchased some jewellery. He was impressed by the concept and decided to investigate further. 3.2. Acquisition of rights from Pandora Jewelry 15 Mr McCormick contacted Pandora Jewelry in Copenhagen in Denmark. He discovered that there were plans to expand to the United Kingdom and that there was no UK distributor. There were a number of interested parties who had made enquiries for distribution rights for the product in the United Kingdom. 16 Mr McCormick made a presentation to Pandora in Denmark. According to his witness statement he decided that Wizzeweb Ltd would distribute Pandora jewellery. Although this would be a completely separate business, he had no reason at that stage to believe that Pandora would be a huge success and therefore, didn't feel it necessary to create a new Company. Following the presentation Mr McCormick was offered the sole distribution rights to the product in the United Kingdom. Following further discussions he signed an Agreement for the distribution rights. He did not have any legal advice before he signed. In his witness statement Mr McCormick suggests that the contract was made with Wizzeweb Ltd. However reference to the agreement itself shows that this is not the case. 0())9074 The Agreement is in English. The License Owner is defined as “Pandora Jewelry A/S”. The Sole Distributor is defined as “Darren McCormick, Wizzegroup”. Thus it can be seen that neither the word “Wizzeweb” nor “Ltd” appear in the distribution agreement. 3.3. The Agency Agreement There is, as noted above, a conflict of evidence between Mr and Mrs McQuillan on the one hand and Mr McCormick as to the terms of the agency agreement. It is common ground that Mr McQuillan and Mr McCormick met in February 2006 at the spring jewellery fair at the NEC, Birmingham. It is common ground that Mr McQuillan approached Mr McCormick’s stand and discussed Pandora products with him. Mr McQuillan felt that Mr McCormick might need an experienced jewellery agent with an established database of contacts to introduce Pandora to the UK market. He said that he and his wife would be interested in becoming agents and gave Mr McCormick their CV. Later in the week he returned to the stand. According to Mr McQuillan Mr McCormick said that he had read the CV and wanted to appoint them as agents for the Midlands in England. According to Mr McCormick he agreed to contact Mr McQuillan to discuss a possible business relationship. It is common ground that following this initial contact Mr McCormick visited Mr and Mrs McQuillan at their home in Melton Mowbray, Leicestershire sometime at the end of February 2006, or early March 2006 and that it was at this meeting that Mr and Mrs McQuillan were appointed as Pandora agents for the Midlands. The agreement was oral and there is a conflict as to what was agreed. 21 Mr McQuillan says that he was granted an exclusive territory, that they were to receive commission of 10% of all sales in that territory. Mr McCormick told him that there was no written contract. Mr McQuillan accepted this and said that all other terms were to be in accordance with the commercial agency regulations (by which he meant the 1993 Regulations). He asked for a letter of appointment confirming the territory, the commission rate and exclusivity. It is common ground that Mr McCormick provided Mr McQuillan with a business card which described Mr McCormick as “Managing Director, Pandora UK”. Thus the business card did not refer to “Wizzeweb” by name, nor did it use the word “Limited”. On the other hand it did describe Mr McCormick as a “Managing Director”, a phrase usually associated with limited companies. 22 Mr McCormick suggests that there was more than one meeting with Mr and Mrs McQuillan. There were discussions about Mr McQuillan’s experience in selling jewellery. He says he explained that he was distributing Pandora through Wizzeweb Ltd. He explained in detail how he intended to distribute Pandora in the UK including the initial starter pack. He provided Mr McQuillan with a pack. He discussed how Mr McQuillan would be given an area to operate in but made it clear that the area would be reduced depending on how many shops were opened. He accepted that he agreed a commission rate of 10%. It was agreed that there was to be no exclusivity and that the agency was to be on a probationary basis so that Mr McCormick could see how Mr McQuillan performed. Some time after the meeting Mr McCormick wrote an undated short letter to Mr and Mrs McQuillan. The letter is on writing paper headed “Pandora Jewelry” with an address, a web site and an e-mail address. There is nothing on the writing paper to give any indication that Mr McCormick is writing on behalf of a limited company. The material part of the letter reads: Dear Mick and Lorna I would like to welcome you both to Pandora and confirm your position as sales agents for the following areas of the United Kingdom. Counties included … Yours sincerely Darren Mccormick It will be noted that this letter makes no reference to the commission rate, the exclusivity, the probationary period or to the 1993 Regulations. 25 On 6th April 2006 Mr McQuillan wrote a letter of reply to Mr McCormick. The letter is addressed to “Darren McCormick, Managing Director, Pandora UK”. So far as relevant it reads: Dear Darren Further to our recent meeting and subsequent letter I am pleased to accept the appointment of Lorna and myself as agents for Pandora UK and would like to clarify a few points. 1. Our exclusive territory covers the following counties: … 2. Commission is payable on all orders placed at 10% of net invoice value and is payable monthly in arrears. All other aspects are covered by [the 1993 Regulations]. Many thanks for taking the trouble to come and meet with us and the early reaction from our customers has been very positive so we look forward to a successful working relationship. Yours Sincerely Michael and Lorna McQuillan. 26 Mr McCormick did not reply to that letter. He says he did not receive it. There were no further negotiations. Cross-examination on the terms of the contract. 27 As might have been expected both Mr McQuillan and Mr McCormick were cross- examined at some length over the controversial areas of the agreement. Parties to the contract 28 Mr McQuillan agreed that there were no express discussions about Mr McCormick trading as a “sole trader”. He agreed that he saw the words “Managing Director” on the business card provided by Mr McCormick. He did not question Mr McCormick about the words “Managing Director” and did not ask the name of the Company of which he was Managing Director. He noted the disparity between the fact that Mr McCormick described himself as Managing Director when no limited company was mentioned on the card. He said quite often small business men describe themselves as Managing Director when there is in fact no company. At the back of his mind he always felt that Mr McCormick was a sole trader. He believed that the invoices were submitted to Pandora UK. The question of whether the contract was with Mr McCormick or with some other legal entity did not become relevant until the application for disclosure in November 2007. 29 Mr McCormick was taken to a significant number of documents in relation to the identity of the parties to the agreement. These included: 1. A letter from the assay office which showed that the assay mark (“DJM”) used by Pandora UK was registered in the name of Mr McCormick and not Wizzeweb Ltd. 2. The Distribution Agreement which I have already mentioned. 3. Cheques for commission that were paid in July 2006, August 2006 and September 2006 from an account described as “D McCormick trading as Pandora”. Other documents which showed that commission payments continued to be paid from the same account right up to the date when the agency agreement was terminated in February 2008. 4. Wizzeweb Ltd’s annual accounts for the years ending 30/4/2006, 30/4/2007 and 2008. In each of the accounts describe the principal activity as being “web design and hosting”. More importantly a comparison between the turnover figures shown in the accounts of Wizzeweb Ltd and the sales achieved by Mr and Mrs McQuillan’s agency (as contained in the spreadsheet)1 show clearly that the Pandora UK sales were not included in Wizzeweb Ltd’s accounts. 5. Pandora Jewelry Ltd’s annual accounts for the years ending 30/3/2007 and 30/3/2008. The principal activity is described as “the import and wholesale supply of jewellery”. Trading is said to have commenced in April 2006. The turnover figures are wholly consistent with the sales figures shown in the spreadsheet. Exclusivity Both Mr and Mrs McQuillan were asked about “exclusivity”. Both made the point that Mr McCormick had worked in the clothing industry as a sales agent and thus understood what was meant by “exclusivity”. Mr McQuillan made the point that it was very clear that they required exclusivity and that Mr McCormick fully understood the implications of it. He could not remember exact details of the discussion. He did say that there was a clear understanding that they would be the only agents operating the territory and that they would receive commission from trading in the territory. In cross-examination Mr McCormick painted a very different picture about exclusivity. He said that Mr McQuillan did not make clear that he wanted exclusivity. There was no such conversation. He told Mr McQuillan that in the future he might change the zone. [Mr and Mrs McQuillan’s territory was referred to as zone 4]. Mr McCormick said that he warned Mr McQuillan that as Pandora would grow things would have to change in the future. Probationary Period Both Mr and Mrs McQuillan said that there was no discussion of any probationary period. In his witness statement Mr McQuillan had made the point that he would not have considered a probationary period without a detailed understanding of the criteria by which the probation would be measured. 33 When he gave evidence Mr McCormick was adamant that a probationary period was expressly discussed. He said that he mentioned a period of between 6 and 8 months. He agreed that he did not mention the probationary period at the end of the 6 or 8 months. He did however refer to a letter dated 27th March 2007 sent at a time when he was attempting to persuade Mr and Mrs McQuillan to sign a new contract which refers to a probationary period of unspecified length. The 1993 Regulations There was a straight conflict of evidence as to whether there was express discussion as to the applicability of the 1993 Regulations. In the course of cross-examination Mr McCormick was shown a number of documents which appeared to show that he accepted that the agency was subject to the 1993 Regulations. These included the versions of the draft new agreements which Mr and Mrs McQuillan were being asked to sign, and a letter dated 19 th March 2007 in which Mr McCormick stated in terms that he did not dispute the applicability of the 1993 Regulations. 1 During the course of the litigation Mr McCormick has provided extensive disclosure of all the invoices and sales within Mr McQuillan’s territory together with details of payments made to Park Jewellery Ltd. [Mr and Mrs McQuillan were directors and shareholders of Park Jewellery Ltd and all payments were made to that company]. Mr McQuillan and/or his advisers have produced a spreadsheet containing and analysing in various ways the material disclosed by Mr McCormick. After the evidence was completed at the same time as the written closing submissions were sent a revised spreadsheet was submitted containing a number of amendments which took into account concessions made during the course of the evidence. A further version of the spreadsheet with a number of further minor amendments was submitted shortly before the final hearing. In the course of cross-examination Mr McCormick appeared to accept that the agency was subject to the 1993 Regulations. Despite this in his closing submissions Mr Fletcher pursued this part of the Defence. Other terms There was, as I understood the position, no dispute that the rate of commission was agreed at 10% and that payment of commission would be made in arrears in the month following payment by the retailer to Mr McCormick/Wizzeweb Ltd. 3.4. Performance of the contract Sales by the Agents 36 Mr and Mrs McQuillan started to act as agents immediately after the visit by Mr McCormick to their house. The precise date when this occurred is not completely clear. There is no documentary evidence giving the date of the meeting; Mr McCormick’s letter is undated; Mr McQuillan’s letter is dated 6th April 2006. It is plain from the terms of the letter that the agency had commenced by that date. In evidence Mr McQuillan said that the agency commenced in early March 2006. 37 When the agency commenced there were 2 retailers ("Argent" and "With Love and Best Wishes") who were retailing Pandora product within Mr and Mrs McQuillan’s territory. Mr McQuillan was told that he would be entitled to commission on these two retailers when he started to service them. According to Mr McQuillan he obtained his first order on 7th April 2006. 38 According to Mr McQuillan the product proved difficult to market at first. It represented a new concept in jewellery with retail jewellers and was foreign. Mr McCormick had made it clear that he was interested only signing up A1 jewellery retailers. In the result Mr McQuillan had to work very hard to sell the concept and the new brand. By the end of the first year a further 13 or 14 accounts had been opened. At the date of termination of the agency there were a further 35 new accounts and the volume of sales was increasing dramatically. The Appendix to this judgment contains a summary of the sales and commission figures taken from the revised spreadsheet2. As can be seen the figures paint a clear picture of the success of the Pandora product and of the rapid growth of sales within the territory from the middle of 2007. 40 On 6th February 2007 Mr McCormick sent to Mr and Mrs McQuillan a Performance Report on their activities since the commencement of the agency. The report was in general terms favourable to Mr and Mrs McQuillan although it did raise some issues to the growth rate which they had achieved. It however concludes: Finally to conclude, you have made a commendable start acting as an agent on behalf of Pandora UK and we are generally satisfied with your performance. However, we realise as a partnership you have an advantage over our other existing agents that as a team you can extensively cover your area and can devote more time maximising the sales potential of your stores. Therefore as a partnership we expect the rate of development and sales growth to be at a much higher rate. We hope that your recent performance standard over the last few months continues and develops in order for you to reach the high standards Pandora UK expects from you. The report is also relevant to some of the controversial contractual issues between the parties. It makes no reference to a “probationary period”. If, as Mr McCormick suggests, it was agreed that there would be a probationary period of 6 to 8 months one would have 2 I have omitted the sales figures for February and March 2006. Otherwise I have taken the figures from the spreadsheet sent to me shortly before the final hearing. I understood that Mr McCormick agreed these figures. expected some mention of it in this document. More importantly it contains two express references to Mr and Mrs McQuillan having been granted an exclusive territory. In the second paragraph there is a sentence that begins: You have been assigned a vast prime exclusive territory to operate in… In the third paragraph there is a sentence that reads: However this present rate of growth is not quite in tune with someone with your experience, contacts and the highly sort after exclusive area you have been assigned. Functions of the agent There was some debate in the evidence as to the functions that Mr and Mrs McQuillan were expected to carry out as agent for Pandora UK. In the end it did not seem to me that there was much difference between the evidence of Mr McQuillan and Mr McCormick. 44 Mr McQuillan said that it was part of the agent’s function to identify suitable jewellers to retail the product. He had contacts with good quality jewellers with a track record. He had to approach those jewellers and see if they would be interested in taking the product. He would also discuss the suitability of the retailer with Mr McCormick. Once they had opened an account with Pandora UK it was the agent’s job to support them by visits and telephone calls. The agent would demonstrate the concept of the product, check the stock levels – it was Mr McQuillan’s view that their sales were directly related to the stock they held. It was the agent’s job to encourage sales. He would visit the shop with new product ranges and try to encourage the retailer to extend their range and to place the product in a prominent place in the shop. 45 Once the account was opened it was common ground that most of the orders were placed by the retailer direct with Pandora UK. It was also common ground that the agent had authority to accept orders for the starter pack. There was, however, some dispute as to whether Mr and Mrs McQuillan could accept orders for subsequent orders. Whilst the normal practice was for orders to be placed direct, Mr and Mrs McQuillan were provided with order forms and I think, in the end Mr McCormick accepted that they were authorised to accept orders. Exclusivity in Practice It was Mr McQuillan’s case that he did in fact have an exclusive territory in practice. This led to the discussion of a small number of retail outlets in the territory: Love and Best Wishes This was one of the original accounts in existence at the time of the commencement of the agency. It was originally supported by a different agent – Marlies Armstrong. According Mr McQuillan he met with Marlies Armstrong and it was agreed in October 2006 that the account would be transferred to him. Mr McCormick accepted that this account was transferred to Mr McQuillan but thought this happened in March 2007. Michael Roberts of Doncaster This account was supported by Karen Moore. Mr McQuillan could not remember when he first became aware of this account. It was after the first 12 months. In any event Karen Moore told him that it was a small account with a personal friend of hers. In those circumstances Mr McQuillan decided not to object. Pigotts of Cambridge. Pigotts really only featured in the evidence because of a complaint that Mr McQuillan had provided poor service to Pigotts. Mr McQuillan drew attention to a letter from Mr McCormick dated 21st June 2007 in which Mr McCormick specifically removed Cambridgeshire from his territory and gave it to another agent. On 25th June 2007 Mr and Mrs McQuillan replied to the effect that they were disappointed with the decision but accepted it. There was a training appointment with Pigotts on 6 th July 2007 which was kept by Mr McQuillan. Thereafter they had nothing further to do with Pigotts. Fenwicks of Leicester Fenwicks is, of course, a well-known department store. Mr McCormick opened an account with the Leicester branch in early 2007 without consulting Mr McQuillan. Mr McQuillan discovered about the account in February or March 2007. He never received any commission in respect of Fenwicks. It was his view that Fenwicks was not an appropriate place to put the product as Fenwicks was a department store rather than a jeweller. He did not get to Fenwicks till later in the year. He found that they had very little product and had not seen anyone since the early part of the year. 51 Mr McQuillan raised his concerns with Mr McCormick. In a letter dated 31st October 2007 Mr McCormick acknowledged the concerns, and that he was unhappy with the performance of the store. He suggested that if Mr McQuillan was able to find a better A1/A2 jeweller in that area he would assess whether it was worth withdrawing Pandora from Fenwicks into another store. John Greed John Greed was a retailer introduced to Pandora UK by Mr McQuillan in about October 2006. He had a high street retail premises in Lincoln (within Mr McQuillan’s territory). He also had a web site which generated significant online sales. The spreadsheet provided by Mr McQuillan shows that between October 2006 and August 2007 there were regular monthly orders from John Greed to Pandora UK totalling between £1,000 and £6,000. The size of the orders increased dramatically from September 2007 and were between £13,000 and £34,000 for the rest of the year. 53 On 16th November 2007 Mr McCormick wrote to Mr McQuillan stating that as the sales were on line John Greed would become a “house account” from 1st December 2007 and that no further commission would be paid on “on line” sales. 54 On 21st November 2007 Mr McQuillan replied not accepting that John Greed should become a house account in that he was a retailer trading within the territory who had been introduced by Mr McQuillan. CMJ 55 On 30th January 2008 Mr McCormick wrote a letter to all his agents (including Mr and Mrs McQuillan) informing them that Pandora UK had struck up a partnership with CMJ. The letter went on to say that no commission would be payable in respect of companies who fall within their group. A list of CMJ retailers was provided. The agent was informed that commission would cease on these retailers. 56 On 1st February 2008 Mr McQuillan wrote back making the point that he was entitled to commission on all sales made to customers within his exclusive territory. 57 On 2nd February 2008 Mr and Mrs McQuillan received the letter terminating the agency. The attempt by Mr McCormick to persuade Mr and Mrs McQuillan to sign a new contract 58 According to Mr McCormick he was considering providing his agents with a written contract from about November 2006. The agreement had a long gestation period and he did not send Mr and Mrs McQuillan a draft of the agreement until about 2 nd March 2007. It is not clear (and does not matter) from what source Mr McCormick obtained the precedent for the agreement. It does not appear that he was in receipt of legal advice. It should perhaps be noted that the draft agreement describes the principal as Pandora UK, purports to grant Mr and Mrs McQuillan (described as Park Jewellery) the exclusive territory of zone 4 Central Eastern England. It also refers to Fenwicks as an account in respect of which Mr McQuillan is entitled to commission. 60 Mr McQuillan was a member of a trade association which provided him with (free) legal advice and he took advantage of that. In any event Mr McQuillan regarded the agreement (and the further draft agreement which was sent to him later in March) as being to his commercial disadvantage. There followed detailed and lengthy negotiations on the terms of the proposed agreement. In the course of those negotiations (on 19 th September 2007) Mr McQuillan set out the legal advice he had received as to the compensation to which the agency might be entitled under the 1993 Regulations. He asserted this could amount to between £250,000 and £300,000 Eventually on 20th September 2007 Mr McCormick gave Mr McQuillan an ultimatum requiring him to sign the new agreement within 7 days and threatened to terminate the agency if he did not sign. Mr McQuillan replied on 24th September 2007 setting out in detail the legal advice he had received in relation to the calculation of compensation. He made it clear that if there was a termination Mr and Mrs McQuillan would have no option but to litigate for compensation. He made the additional point that their costs were being funded by Amicus. 62 Mr and Mrs McQuillan did not sign the new agreement. Mr McCormick did not carry out his threat to terminate the agency at the end of September. The period between October and the termination of the agency. 63 On any view relations between Mr McQuillan and Mr McCormick were difficult over this period. Mr McQuillan described them as difficult but did not accept the agency was unworkable. As can be seen from the Appendix the sales of Pandora jewellery from the territory increased dramatically from September 2007. Despite the difficulties in the relationship Mr McQuillan maintained that it was possible for him to continue to act as agent. 64 Mr McCormick, on the other hand, maintains that there was a complete breakdown of trust between himself and Mr McQuillan with the result that it was impossible for the agency to continue. The failure by Pandora UK to provide commission statements or pay any commission after August 2007. 65 One of the most important sources of the difficulties between the parties was Mr McCormick’s unilateral decision to cease providing the agents with commission statements and the failure to make any commission payments after August 2007 It had been the practice since the agency began for commission statements to be sent and payments to be made on a monthly basis with payment of commission being made in the month after the relevant invoice was paid by the retailer. In practice Mr McCormick would send an e-mail early in the month sending details of the payments Pandora UK had received from retailers within the territory. Mr McQuillan would prepare a commission invoice based on these figures and submit it to Pandora UK. Pandora UK would then pay the invoice. As almost all of the orders from the retailers were placed direct with Pandora UK, Mr McQuillan did not have the relevant information to prepare the invoice without the commission statement from Pandora UK. 67 On 26th October 2007 Mr McCormick wrote to Mr McQuillan explaining why he had taken the decision to pay Mr McQuillan on a quarterly basis. He sought to explain it by reference to the time taken by retailers to pay and the discounts received from Pandora A/S. Neither of these are particularly impressive reasons. As commission was only paid after the monies had been received from retailers the time taken by retailers to pay should not affect the time within which commission was payable. It also has to be remembered that Pandora sales were taking off so that there was a massive increase in turnover. In any event there was no suggestion that Mr McQuillan ever agreed to the unilateral attempt by Mr McCormick to vary the payment terms of the agency contract. On 26 th October EAD (Mr and Mrs McQuillan’s solicitors) wrote to Mr McCormick pointing out that payments of commission were late and demanding to see the underlying data to enable them to check that the payments of commission made were correct. Legal action was threatened if he did not comply. On 29th October 2007 Mr McQuillan wrote to Mr McCormick rejecting the proposal to alter the way commission payments were made. On 19 th November 2007 Mr McQuillan wrote a further letter to Mr McQuillan repeating the rejection of quarterly commission payments. He reluctantly accepted that for the months of September, October and November there would be a quarterly payment and asked for a commission statement for these 3 months by 5th December 2007. He threatened court action if Mr McCormick did not comply and stated that he would be obliged to notify Pandora A/S of Pandora UK’s failure to meet its obligations to the agency. 69 On 13th November 2007 Mr McCormick sent EAD substantially the same letter as he had sent Mr McQuillan on 26th October 2007. On 23rd November 2007 EAD wrote to Mr McCormick pointing out that no payment had been made for September or October and threatening proceedings together with a claim for interest under the Late Payment of Commercial Debts Act. The letter also enclosed an application that had been made to the Liverpool County Court for disclosure of information relevant to the calculation of commission pursuant to the 1993 Regulations. 70 Mr McCormick did not provide commission statements nor make any payment of commission by 5th December 2007. On 6th December 2007 Hathaways (solicitors for the Defendants) responded to EAD. The letter raised the question whether the principal was Wizze Group. 71 On 18th December 2007 Mr McQuillan wrote to Mr McCormick. Included with the letter was an estimated commission invoice based on information received from his retailers in the sum of £61,000 requiring payment in full by 31st December 2007. He repeated the threat of court action if it was not paid. He also repeated his threat to inform Kenneth Ramstrup of Pandora A/S of the dispute if no commission statement was received by 5 p.m that day. There was no response to the letter with the result that on 19th December 2007 Mr McQuillan wrote a letter to Mr Ramstrup, the Sales Director of Pandora A/S. The letter set out the history and the fact that no commission payments had been received since August 2007. He pointed out that there was a disclosure hearing scheduled for 14th January 2008 and that he intended to issue fresh proceedings on 1st January 2008. The purpose of the letter was to make him aware of the situation as an interested third party and to ask him to discuss the situation with Mr McCormick to see if there was any solution short of court action. 73 On 3rd January 2008 Mr McQuillan wrote to Mr McCormick pointing out that there was no reply to previous correspondence. The letter sent estimated invoices for the months from September to December 2007 totalling £70,150 and indicating that he had instructed solicitors to issue proceedings for those sums together with appropriate interest. 74 On 14th January 2008 an appropriate order for disclosure was made in the Liverpool County Court. On 18th January 2008 Mr McQuillan sent a long letter to Mr McCormick setting out what was required under the order, indicating that he had agreed not to commence proceedings until after the end of January 2008. This was in the light of a statement by Mr McCormick that all commissions would be paid by the end of January 2008. The letter concluded by stating that Mr and Mrs McQuillan would like to put the events of the past 5 months behind them and concentrate the efforts on working for the benefit of both parties. Mr McQuillan asked for a meeting to discuss what could be done to improve service and increase sales of Pandora Jewellery in 2008. 75 A copy of the letter was sent to Mr Ramstrup. Matters arising between Mr McCormick and Mr McQuillan 76 A number of matters arose between October and November 2007 which, according to Mr McCormick added to the problems between himself and Mr McQuillan. Mr McCormick felt that Mr McQuillan disagreed with him on a number of matters of policy and this added to his view that the relationship between himself and Mr McQuillan had totally broken down and that Mr McQuillan was hindering initiatives that he was introducing. 77 Mr McQuillan accepted that there were a number of occasions where he had expressed opinions on matters of policy. As the agent whose duty it was to look after the retailers in his territory he was fully entitled to express an opinion. However, at no time did he refuse to comply with Mr McCormick’s instructions. If and in so far as the instructions differed from his opinion he deferred to Mr McCormick’s instructions as the principal. Exclusivity Prior to October 2007 it had been Mr McQuillan’s practice to offer a few of his retailers an exclusive area. This would mean that there would be no other retailer within that area selling Pandora products. According to Mr McQuillan there were only about 6 retailers out of the 51 on Mr McQuillan’s books to whom exclusivity was offered. In general exclusivity depended on the size of the town in which the retailer traded and the sales generated by that retailer. The offer was usually made informally and, according to Mr McQuillan, could be withdrawn if the retailer did not generate sufficient sales. 79 According to Mr McQuillan Mr McCormick was aware of the practice and was content for it to take place. Mr McQuillan said that he informed Mr McCormick’s office on each occasion he granted any retailer “exclusivity”. 80 On 12th October 2007 Mr McCormick wrote to all his agents informing them that Pandora UK was changing the way it managed the relationship with retailers. Agents were no longer permitted to make any deals or exclusivities with retailers. All retailers were to trade on the same terms and conditions as each other. 81 On 19th October 2007 Mr McQuillan wrote seeking clarification of the instruction. He wanted to know whether requests for exclusivity were to be referred to Mr McCormick for a decision. He made the point that he had granted a number of exclusivity arrangements. He hoped they would be honoured as it would otherwise damage his reputation as agent. The 2½% discount 82 On 16th August 2007 Mr McQuillan sent an e-mail to referring to a local advertising campaign that had taken place in the north east. He suggested that he was willing to use part of his commission (20 – 25%) to the agents as a contribution to the cost of a local advertising campaign. He asked Mr McCormick for feed-back. None was forthcoming at that time. By October the matter had progressed and Mr McQuillan was intending to provide 25% of his commission (2½% of the purchase price) to retailers to subsidise local advertising. On 17th October 2007 Mr McCormick wrote to Mr McQuillan asking him to cease providing the discount to retailers on the ground that Mr McCormick wanted a level playing field between all retailers. The scheme had not in fact started and Mr McQuillan accepted this instruction though he did not agree with it. The loan to retailers This issue concerns the very first order made by retailers who were signed up by Mr and Mrs McQuillan. The starter pack cost of the order of £1,500 and the retailers were required to pay this sum with the order. Mr McQuillan was dealing with A1 jewellers and found that some of them were balking at having to pay this sum before delivery of the goods. Many other wholesalers offer credit terms for the first order. Accordingly Mr McQuillan offered credit for the first order. In effect he wrote the cheque for the first order and accepted a cheque from the retailer for payment in 90 days. In this way he gave the retailer 90 day credit in order to secure the first order. It is Mr McQuillan’s case that Mr McCormick was fully aware of the practice and up till October 2007 approved it. 87 On 16th October 2007 Mr McCormick wrote to Mr McQuillan asking him to stop funding the purchases on the ground that he wanted a level playing field between retailers. 88 On 19th October 2007 Mr McQuillan wrote to Mr McCormick explaining the rationale for offering credit and pointed out that it might impact on his ability to open new accounts. However he made it clear that he accepted the instruction and made no further loans. 6 weekly visits 89 At or around the same time Mr McCormick indicated that he wished Mr and Mrs McQuillan to visit each of their retailer clients every 6 weeks and to phone them on a weekly basis. Mr McQuillan felt 6 weekly visits were unnecessary and that weekly phone calls were counter productive. 90 He agreed a compromise whereby visits would be made on an 8 weekly basis. Price Increases Sometime in October 2007 Mr McCormick informed retailers that there would be a price increase in Pandora products. The letter indicated that it would be “effective immediately” but there was some confusion as to its implementation. Accordingly Mr McQuillan spoke to Mr Hutchinson and was given the impression that it was being proposed from 1st November 2007. On 22nd October 2007 Mr McQuillan wrote to Mr McCormick asking, among other things, if it would be possible to defer the price increase until after the Christmas period. Mr McCormick answered the letter on 15th November 2007. His letter set out in detail the reasons for the increase and in effect made it clear that the price increase would take place from 15th November 2007. 92 On 22nd October 2007 Mr McQuillan wrote a long letter to Mr McCormick setting out 11 actions (including all of the above) that had been taken by Mr McCormick since he withdrew the threat of termination at the end of September 2007. Mr McQuillan suggested that Mr McCormick was seeking to frustrate their activities as agent as a result of their failure to sign the new contract and that his actions were being taken with a view to future litigation. Complaints by customers Some evidence was adduced about complaints from 3 retailers – Topset in Oakham, Halo in Market Harborough and Pigott’s Cambridge. Before giving brief details of the complaints it is I think worth remembering that the only independent witness who gave evidence was Mrs Shannon of Halo. She was actually called by Mr McQuillan. Thus Mr McCormick called no independent evidence in relation to the complaints. Mr McQuillan also called Mrs Grundy – the proprietor of Number One in Spalding. It was plain that Mrs Grundy was more than satisfied with the service provided by Mr and Mrs McQuillan. There were in addition some 47 other retailers from whom no evidence was called. It is also perhaps worth remembering that this was a time when sales were rising fast. Topset 94 On 19th October 2007 Catherine Firmin, the proprietor of Topset, Oakham wrote to Mr McCormick complaining in effect that Mr McQuillan had refused to grant her exclusivity in Oakham and that a rival jeweller – Pearce & Sons – was going to open in Oakham one minute from her shop selling Pandora. 95 Mrs Firmin did not give evidence. Mr McQuillan however explained that Pearce & Sons were trading in Melton Mowbray and were to open a shop in Oakham. As a matter of courtesy he informed Mrs Firmin of this. He also told her that she should not stock the rival product – Lovelinks. Both of these were in accordance with the policy laid down by Mr McCormick. Halo This complaint relates to a written complaint made by Mrs Sharon Shannon to Mr McCormick about a telephone conversation between Mr McQuillan and her daughter Ciara Shannon on 16th October 2007. The background to the complaint is that Mr McQuillan was well-known to them because, as agent for Nomination he had been trading with them for about 4 years. There had been the odd problem with payment and Mr McQuillan had informed Mr McCormick of this when consideration was given to accepting Halo as a retailer of Pandora. In fact Halo became a Pandora retailer in August 2007. Mr McQuillan says that on 16 th October 2007 he had been told by Julie Davies (the office manager at Pandora) that Halo were behind with their payments. He decided to ring up and discuss it. He spoke to Ciara Shannon (who is a partner in the business with her mother). In retrospect he accepts that he spoke too sharply to her. In any event he made it clear that Pandora UK would not tolerate late payment and that other accounts had been closed in similar circumstances. Mr McQuillan says that he was given wrong information by the office and that in fact Halo were not in arrear with their account. When he discovered this he rang up and apologised to Mrs Shannon. 100 Mrs Shannon’s letter of complaint followed a conversation she had with Mr McCormick when he asked her to set out her complaint in writing. There were two strands to her complaint. First she objected to the manner of the conversation in which she accused Mr McQuillan of being abrupt and possibly rude to her daughter. The conversation caused her daughter to be upset. It was also humiliating for her. The second strand to the complaint was that when she subsequently discussed the matter with Julie Davies, Julie Davies knew about the problems with Nomination. She regarded it as a breach of confidentiality for Mr McQuillan to discuss this with Pandora UK. 101 When she gave evidence it was clear that Mrs Shannon had forgiven Mr McQuillan. She said she was angry at the time but that Mr McQuillan had made a thorough and genuine apology and she was satisfied with it. She also made the point that he was very enthusiastic about the product, flattering about Mr McCormick’s organisation. He visited them on 3 separate occasions at around the time of the first order. Pigott’s 102 The only evidence of this complaint is an e-mail from Tony Hutchinson to Mr McCormick dated 29th November 2007. That e-mail refers to a conversation between Mr Hutchinson and “Jayne” who is alleged to have spoken to Pigotts. The person from Pigotts is alleged to have said that they were not happy with Mr and Mrs McQuillan who gave poor service, were not there to demonstrate the product and had a bad attitude. The e-mail suggests that Mr Hutchinson will follow up the complaint. There are a number of comments to make about this: 1. There was no direct evidence from Pigotts . 2. There is no evidence that either Mr Hutchinson or Mr McCormick followed up the complaint 3. Pigott’s was the account that was taken away from Mr and Mrs McQuillan in the letter of 21st June 2007. Reference to the spreadsheet shows that the initial order from Pigotts was dated 11th June 2007 and, according to Mr McQuillan he did attend on 6 th July 2007 to demonstrate the product. 103 It is difficult to see how a complaint made in November 2007 could possibly relate to Mr and Mrs McQuillan. Complaints by members of staff. 104 As already noted Pandora UK called Mr Kemp, Mrs Ackley and Claire Ketley to substantiate allegations about Mr McQuillan’s relationship with the staff. In effect their evidence suggested that Mr McQuillan was abrupt when he spoke to them; when he spoke to Mrs Ackley he gave the impression he wanted to be passed on to someone else. Ms Ketley felt he was arrogant. His demeanour gives that impression. Mr Kemp had dealings with Mr McQuillan over the commission statements. He would from time to time query them and Mr Kemp felt he was being told off. He described the tone as being “abrupt” rather than “rude”. Other Matters 105 Two other matters were relied on by Mr McCormick in the course of his evidence: Information given to Pandora A/S 106 On any view Mr McQuillan sent the letters dated 19th December 2007 and 18th January 2008 to Mr Ramstrup in Denmark. I have set out above the circumstances in which they were sent. 107 In the course of his evidence Mr McCormick asserted on more than one occasion that Mr McQuillan was trying to acquire the Pandora UK distributorship for himself. Indeed he went so far as to assert that a large amount of other unspecified correspondence was being blind copied to Mr Ramstrup. This point was not particularised and not put to Mr McQuillan. Letter written to the Bank 108 As already noted in December 2007 Hathaways raised the issue of whether the principal was Wizzeweb Ltd or Mr McCormick. In the course of his investigations into this issue Mr McQuillan noted that the commissions payments that had been received were paid in under reference “P”. Accordingly he sought from his bank the identity of the account holder. His bank was able to supply him with the account number and the sort code but not the name of the account holder. His bank advised him to contact the paying bank. Accordingly on 3rd January 2008 Mr McQuillan wrote to Lloyds TSB set out the position and asked if it could confirm the account holder as Mr McCormick trading as Pandora Jewellery or, if not, if it could give the name of the account holder. 3.5. Termination 109 On or about 1st February 2008 Mr McCormick sent a 3 page termination letter to Mr McQuillan. It is not necessary to set out the letter in detail. It terminated the agency with immediate effect. It made a number of allegations which were said to be examples of lack of good faith or an attempt to damage the interests of Pandora UK. These include a refusal to follow instructions, contacting Pandora A/S, discrediting Pandora UK with customers, undermining attempts to organise the sale and marketing of Pandora Jewellery, inappropriate and rude comments to customers and staff employed by Wizzeweb Ltd. 4. Credibility 110 Many of the issues on liability depend on the resolution of the conflicts of evidence between Mr McQuillan and Mr McCormick. As between Mr McQuillan and Mr McCormick I have no hesitation in preferring the evidence of Mr McQuillan. 111 First and most important Mr McCormick’s evidence was inconsistent with a number of documents. I do not intend to lengthen this judgment by providing an exhaustive list of the documents. Examples are as follows: 1. Mr McCormick said that the Distributorship agreement between Pandora A/S and himself was made with Wizzeweb Ltd. It was not. Reference to the agreement shows it was made with “Darren McCormick, Wizzegroup” 2. Mr McCormick said that all payments for Pandora UK products went through Wizzeweb Ltd. An examination of the Wizzeweb Ltd and the Pandora Jewelry Ltd filed accounts plainly shows that they did not. Importantly the commission cheques dated 7 th July 2006, 24th July 2006 and 16th August 2006 were from an account with the name: “D McCORMICK T/A PANDORA” 3. Mr McCormick was adamant that there was no discussion of an exclusive territory in the meeting at Mr and Mrs McQuillan’s house when the agency was granted. Yet in the Performance report dated 6th February 2007 Mr McCormick expressly referred (in 2 places) to the exclusive territory that Mr and Mrs McQuillan were granted. 4. Mr McCormick was adamant that there was no mention of the 1993 Regulations in the negotiations for the agency agreement. Yet there are a number of documents (notably a letter dated 19th March 2007) where the applicability of the regulations was both acknowledge and accepted. 112 Second Mr McQuillan’s evidence was substantially consistent with the documentation. Mr McQuillan had a clear grasp of the issues, wrote (with the assistance of legal advice) clear and comprehensible letters dealing with the issues. In my view he was an impressive witness. 113 Third, Mr McCormick was willing to make wild and wholly unsubstantiated allegations about Mr McQuillan’s actions and motives. The two best examples of this are the allegation that Mr McQuillan was sending a large amount of correspondence to Mr Ramstrup and that Mr McQuillan was seeking to get the Pandora distributorship for himself. There is absolutely no evidence to support either of these allegations. 114 Fourth, there was little or no corroboration for most of Mr McCormick’s allegations. If, as Mr McCormick alleges, Mr McQuillan was undermining Mr McCormick’s organisation to the retailers one would have expected some corroborative evidence from some of the 51 retailers that Mr and Mrs McQuillan were servicing. Not one was called by Mr McCormick. 115 Overall Mr McCormick was an unimpressive and unreliable witness. I prefer the evidence of Mr McQuillan wherever the evidence differs. 5. Issues on Liability 5.1. Parties to the Contract 116 I find as a fact that the negotiations for the contract took place substantially as described by Mr McQuillan . In particular I find as a fact that there was no mention of Wizzeweb Ltd during the course of the negotiations. Equally there was no mention of Pandora Jewelry Ltd which did not begin to trade until April 2006. 117 The only suggestion that Mr McCormick was acting on behalf of a limited company was the use of the words “Managing Director” on his business card. However the business card does not identify the Company. Furthermore the letter of welcome that Mr McCormick sent after the meeting at Mr and Mrs McQuillan’s home made no mention of any limited company. If the letter had been written on behalf of a limited company there would have been a breach of section 349(1)(a) of the Companies Act 1985 which was in force at that time and section 4(1)(a)(iii) of the Business Names Act 1985 both of which create criminal offences. As already noted the only commission cheques that were sent to Mr and Mrs McQuillan were on an account entitled “D McCORMICK T/A PANDORA”. 118 In my view little if any assistance can be gained from the sole distributorship agreement entered into between Mr McCormick and Pandora A/S. First it was not referred to in negotiations. Second it is by no means clear who the contracting parties are in that document. 119 Looking at all the circumstances objectively I have come to the conclusion that at the time this contract was made between Mr McCormick personally trading as Pandora UK and Mr and Mrs McQuillan. 120 If contrary to that view Mr McCormick was in fact acting as agent for Wizzeweb Ltd as he alleges then this was a contract on behalf of an undisclosed principal and Mr McCormick is as agent liable to be sued on that contract.3 121 Pandora Jewelry Ltd did not, according to its accounts start trading until April 2006. It occurred to me that there might be some form of novation of the contract making Pandora Jewelry Ltd a party. However there is no evidence that Mr McCormick informed Mr McQuillan that Pandora UK was the agent for Pandora Jewelry Ltd; it was not Mr McCormick’s case that the contract was ever with Pandora Jewelry Ltd. Furthermore commission invoices at least until August 2009 were paid out from Mr McCormick’s account trading as Pandora. Thereafter the payments came from the same account. In the circumstances I am satisfied that Pandora Jewelry Ltd was never a party to the agency contract. 5.2. Terms of the contract 122 I find as a fact that the agreed terms of the agency contract were as recorded in the letter dated 6th April 2006 signed by Mr and Mrs McQuillan. 3 See Chitty on Contracts 30th Ed Vol 2 paragraph 31-089 and the cases cited in footnote 56. A similar passage appears in Bowstead on Agency 18th Ed at paragraph 9-012. However as both books are under the authorship of Professor Reynolds it may be that that does not add much to the passage in Chitty. Exclusivity 123 In my view Mr and Mrs McQuillan were granted an exclusive area in which to practice their agency. In reaching this conclusion I place heavy reliance on the 6th February report. 124 In my view the granting of an exclusive territory has the meaning ascribed to it in the 1993 Regulations. In particular Mr and Mrs McQuillan were entitled to commission in accordance with reg 7(2). Probationary period 125 There was no agreement for any probationary period. If there had been, I would have expected it to have been mentioned in the February 6 th report. In any event it is by no means clear on what basis and for how long the agency was probationary. Any probationary period must have ended after the report of 6th February 2007. The 1993 Regulations 126 I am satisfied that it was expressly agreed that the agency would be subject to the 1993 Regulations. As already noted the 1993 Regulations are expressly referred to in the letter of 6th April 2006. Furthermore in March 2007 Mr McCormick said that he did not dispute that Mr and Mrs McQuillan were entitled to the protection of the 1993 Regulations. 127 I note that in paragraph 11-011 of Bowstead on Agency Professor Reynolds is of opinion that there is no reason why parties cannot expressly incorporate the regulations. I agree with that view and consider that is what happened here. 128 In those circumstances it is not strictly necessary for me to consider the interesting submissions on whether (but for the agreement) this agency would have been subject to the 1993 Regulations. 129 I would however have held that it was subject to the 1993 Regulations. 1. 2. I would have held that Mr and Mrs McQuillan did have the necessary continuing authority to negotiate and (if necessary) conclude the sale of Pandora products on behalf of Mr McCormick. I would have placed considerable reliance on the decisions of Patten J in paragraphs 16 to 21 of his judgment in Fryer v Firth following as it did the decision of Fulford J in PJ Pipe & Valve Co Ltd v Audco India Ltd [2005] EWHC 1904. I would have concluded that Mr and Mrs McQuillan’s activities as commercial agents were not secondary. In my view the activities fall squarely within paragraph 2 of the Schedule. The indicia in paragraphs 3(a),(b)(c) of the Schedule are satisfied. Mr Fletcher relied on paragraph 4(c) as an indication that this was a secondary activity. In fact in this case the customer normally placed the order direct to Pandora UK. Furthermore the customer’s selection of the goods will have owed something to the demonstrations and negotiations of Mr and Mrs McQuillan. In any event paragraph 4(c) is only one indicator. Overall I am satisfied that the activities were not secondary. 3. I would have held that Mr and Mrs McQuillan were self-employed within the meaning of the 1993 Regulations. See Bowstead paragraph 11-05 and the cases cited at footnote 53. On no view were Mr and Mrs McQuillan employees of Pandora UK. 5.3. Breach Breach by Mr McCormick 130 Mr McCormick was in breach of contract in failing to pay Mr and Mrs McQuillan the commissions due after August 2007. The sums due were significant. According to the spreadsheet the commission due for the months of September 2007 to January 2008 total in excess of £89,000. None of this was paid prior to the termination. The attempts by Mr McCormick to change the dates of payment from monthly from monthly in arrear to quarterly in arrear were a unilateral attempt by him to vary the contract and of no contractual effect. He did not in fact keep to his revised terms as he did not pay commission for 5 months. 131 Mr McCormick was also in breach of contract in asserting that no commission was payable in respect of John Greed. As already noted from September 2007 orders from John Greed increased very dramatically. As the spreadsheet shows he was one of Pandora UK’s best customers. It is not in fact clear whether Mr McCormick did in fact carry out his threat to make John Greed a “house account” as he did not in fact pay Mr and Mrs McQuillan any commission after his letter of 16th November 2007 and did not reply to Mr McQuillan’s letter of 21st November 2007. 132 I am, however, satisfied that commission was payable in respect of John Greed sales. Breach by Mr and Mrs McQuillan 133 The allegations of breach against Mr and Mrs McQuillan relate to the period between September 2007 and February 2008. I have considered this period in some detail in section 3.4 above and it will therefore be possible to deal with the allegations relatively shortly. 134 In considering the allegations it has to be borne in mind first that over the period the sales in the territory were increasing dramatically and second that Mr McCormick was himself substantially in breach of contract as set out above. Loss of Trust 135 It is plain that relations between Mr McQuillan and Mr McCormick were difficult from August 2007. Both were strong characters. Furthermore Mr McQuillan would not accept Mr McCormick’s unilateral attempts to vary the terms of the agency. It may be that Mr McCormick did not trust Mr McQuillan. I am, however, satisfied that any loss of trust was not caused by any breach of contract by Mr and Mrs McQuillan. Any such loss of trust did not justify summary termination of the agency agreement. Letters written by Mr McQuillan to Mr Ramstrup 136 I reject the assertion by Mr McCormick that Mr McQuillan was attempting to obtain the Pandora distributorship from Pandora A/S behind his back. I reject the suggestion that a large amount of the correspondence was being blind copied to Mr Ramstrup. 137 In my view Mr McQuillan was not in breach of the agency agreement in sending the letters of 19th December 2007 and 18th January 2008 to Mr Ramstrup. As already noted Mr McCormick was in serious breach of contract in failing to pay commission after August 2007; in my view the sending of the letters was not an illegitimate way of trying to encourage Mr McCormick to remedy the breach. The letter of 18 th January 2008 followed the Court hearing on 14th January 2008 and appeared to suggest that relations between Mr McQuillan and Mr McCormick were improving. At that stage there had been a statement by Mr McCormick that all commissions would be paid by the end of January 2008 and a statement by Mr McQuillan that he would like to put the events of the last 5 months behind them. 138 In my view the communications with Mr Ramstrup did not justify the summary termination of the agency. Letters to the Bank 139 As noted above the letter to Mr McCormick’s bank was a straightforward enquiry as to the identity of the payer of the commissions. It arose at a time when Hathaways had specifically raised the question of whether the principal was Mr McCormick or Wizzeweb Ltd. 140 It contained no criticism of Mr McCormick or his business. In those circumstances I have great difficulty in seeing how it is even arguable that the sending of the letter was a breach of the agency agreement by Mr McQuillan. It plainly did not justify the summary termination of the agency. Instructions 141 I have set out above the various issues relating to the instructions given by Mr McCormick. Whilst Mr McQuillan may not have agreed with the instructions relating to retailer exclusivity, discounts, initial loans and price increases there is no evidence that Mr McQuillan disobeyed Mr McCormick’s instructions. On occasions Mr McQuillan expressed his view in an attempt to persuade or advise Mr McCormick. He cannot, in my view, be criticised for expressing a view. However once Mr McCormick had made a decision Mr McQuillan complied with it. 142 I accept the evidence of Mr McQuillan that he agreed with Mr McCormick that retailers would be visited on an 8 weekly basis rather than the 6 weekly basis that Mr McCormick would have preferred. Customer complaints 143 I have set out the evidence in relation to these allegations in detail and I shall not repeat it. The complaint from Pigotts cannot relate to Mr and Mrs McQuillan as Pigotts was removed from their territory. The complaint from Topset relates to lack of exclusivity. Mr McCormick had made it clear that retailers were not to be granted exclusivity. The complaint from Halo can be divided into two parts. The main complaint related to one conversation where, as Mr McQuillan accepted, he spoke too abruptly. A number of points can be made. First the conversation was as a result of misinformation given to Mr McQuillan by Julie Davies. Second Mr McQuillan rang up and apologised. Third, and importantly, Halo accepted the apology and continued to trade with Pandora UK. 144 The second complaint related to Mrs Shannon’s concern that Mr McQuillan had disclosed to Mr McCormick what Mrs Shannon regarded as confidential information. To my mind Mr McQuillan was entitled to pass on financial information known about a potential retailer to his principal when the principal is considering doing business with that retailer. It is difficult to see how the passing on of that information could possibly be a breach of the agency contract. 145 In my view none of the customer complaints came within a measurable distance of justifying summary termination of the agency. Complaints by members of staff 146 The complaints by Pandora UK’s staff amounted to no more than they found Mr McQuillan abrupt and, to a lesser extent, that they found him arrogant or perhaps patronising. 147 It is not necessary for me to any findings with regard to these allegations as it is, to my mind plain that they do not amount to breach of the agency contract. Conclusion on Liability 148 To my mind none of the allegations of breach have been established by Mr McCormick. It follows that that there were no grounds which would have justified immediate termination of the agency agreement within the meaning of regulation 18(a) of the 1993 Regulations. 6. Heads of Claim 149 There are 4 heads of claim – (1) Commissions due up the date of termination; (2) Commissions due after the date of termination pursuant to regulation 8 of the 1993 Regulations, (3) Compensation resulting from the termination pursuant to regulation 17 of the 1993 Regulations and (4) Damages for breach of contract as a result of the failure to give the minimum 2 months notice required by regulation 15 of the 1993 Regulations. 6.1. Commissons due up to the date of termination 150 This is governed by regulation 7 of the 1993 Regulations: 7.-(1) A commercial agent shall be entitled to commission on commercial transactions concluded during the period covered by the agency contract- (a) where the transaction has been concluded as a result of his action; or (b) where the transaction is concluded with a third party whom he has previously acquired as a customer for transactions of the same kind. (2) A commercial agent shall also be entitled to commission on transactions concluded during the period covered by the agency contract where he has an exclusive right to a specific geographical area or to a specific group of customers and where the transaction has been entered into with a customer belonging to that area or group. 151 For the reasons set out above Mr and Mrs McQuillan did have a right to an exclusive territory so that they are entitled to commission in accordance with regulation 7(2). 152 In his closing written submissions Mr McGee submitted that the outstanding commission calculated to the end of February 2008 according to the revised spreadsheet is £91,876.43 (inc VAT) if paid before the end of May 2010 assuming interest at 12% p.a. I have to confess I do not understand how he arrives at his figure. According to the figures set out in the Appendix the amount due for commission to the end of January 2008 (the date of termination) would have been £98,711.99. Further payments were made in February 2008 and August 2009 totalling £57,233.18 leaving a balance due of £41,478.81 Commission to the end of Jan Payments 98,711.99 20,000.00 37,233.18 57,233.18 41,478.81 6.2. Commission under regulation 8 Regulation 8 provides 8. Subject to regulation 9 below, a commercial agent shall be entitled to commission on commercial transactions concluded after the agency contract has terminated if- (a) the transaction is mainly attributable to his efforts during the period covered by the agency contract and if the transaction was entered into within a reasonable period after that contract terminated; or (b) in accordance with the conditions mentioned in regulation 7 above, the order of the third party reached the principal or the commercial agent before the agency contract terminated. 153 As the date of termination was in fact 2nd February 2008 this claim should in fact be assessed from that date. However there is in addition a claim for breach of contract under which Mr and Mrs McQuillan are entitled to claim the net commission they would have earned in the period to the end of April 2008. 154 They can also claim the difference between a regulation 8 claim for a termination date as at 30th April 2008 and one with a termination date of 2 nd February 2008. Thus the convenient course is simply to assess the regulation 8 claim as at 30th April 2008. This is done below. 6.3. Compensation under regulation 17. The Law 155 Regulation 17(6) provides: (6) Subject … to regulation 18 below, the commercial agent shall be entitled to compensation for the damage he suffers as a result of the termination of his relations with his principal. 156 In the light of my findings regulation 18 has no application. Authoritative guidance on the assessment of compensation is to be found in the speech of Lord Hoffmann in Lonsdale v Howard & Hallam [2007] UKHL 32. 157 In paragraphs 11 and 12 Lord Hoffmann said: 11. The value of the agency relationship lies in the prospect of earning commission, the agent's expectation that 'proper performance of the agency contract' will provide him with a future income stream. It is this which must be valued. 12. Like any other exercise in valuation, this requires one to say what could reasonably have been obtained, at the date of termination, for the rights which the agent had been enjoying. For this purpose it is obviously necessary to assume that the agency would have continued and the hypothetical purchaser would have been able properly to perform the agency contract.… 158 Lord Hoffmann gave significant other guidance in the remainder of his speech as to matters relevant to the valuation exercise. These may be summarised: 1. Future earnings must be discounted by an appropriate rate of interest. 2. 3. 4. 5. If the agency was unassignable it must be assumed that the agency that is to be acquired would also be unassignable. Furthermore the hypothetical purchase of the agency does not assume that the agent gives a covenant against assignment. If the market is declining or rising this will affect what the hypothetical purchaser would pay and thus the amount of compensation. If the agent had to incur expenses to earn the commission it cannot be assumed that the hypothetical purchaser would have earned it gross. If the principal closes the business then no compensation is payable. In the light of the closure the agency is worth nothing. No one would give anything for the right to earn future commission because there would be none to earn. The expert evidence 159 As noted in the Introduction Mr Donaldson of RSM Tenon was originally instructed as the single joint expert to provide valuation evidence. Subsequently Mr Davidson of Bartfields was instructed by Pandora UK to assist. Both experts produced full and helpful reports. Whilst there was some agreement between them it was plain from their joint reports that there were differences. Fortunately when the experts arrived at Court and had a further meeting after discussions with Counsel they were able to agree both the methodology and the assessment of the value of the agency on a number of bases. 160 In those circumstances it is not necessary for me to set out the reports in any detail. Both experts were aware that they were attempting to value what someone would pay for the agency or to value the income stream in accordance with the speech of Lord Hoffmann. In summary they agreed: 1. 2. 3. that the annual income of the agency (net of VAT) was £154,755 at the end of January 2008 and £211,398 at the end of April 2008. [This includes the multiple of 1.5 referred to below.] that the costs attributable to the Pandora business were £9,000 in respect of overheads and £50,000 in respect of salaries/Director’s remuneration. the annualised commission income should be subject to a multiple of 1.5 to allow for the growth of the business 4. a multiplier on profits of 2.5 for non-exclusive rights and 3.0 with exclusive rights should be applied after taking into account 1) competition rights 2) a reduction for existence of personal goodwill the final value should be reduced by 25% to allow for: 1) 2) the value of the agency as at 2 February 2008 and 30th April 2008 with and without exclusive rights is as follows the lack of a written agreement the risk of termination 5. 6. Without exclusivity With exclusivity 2/2/2008 179,541 215,449 30/4/2008 285,746 342,895 Discussion 161 Mr McGee invites me to adopt the view of the experts. He submits that I should hold (as I have) that this was an exclusive agency and that the appropriate valuation date is 30 th April 2008. He accordingly submits that I should value the compensation at £324,895. 162 Mr Fletcher invites me not to follow the experts. He submits that no-one would be prepared to pay £342,895 for this agency in either February or April 2008 and that the views of the experts are quite simply unrealistic. He points out that it is for me to value the loss and that I am not bound by the views of the experts. 163 The termination date in this case was 2nd February 2008. That is the date when the agency ended. However as will appear below Mr and Mrs McQuillan are entitled to damages for early termination and that would put them in the same position as if the agency had been terminated with 2 months notice. In those circumstances I agree that it is appropriate to value the compensation as at 30th April 2008. 164 I see the force in many of the points made by the experts in the case. An exclusive agency is plainly worth more than a non-exclusive agency. The business was growing very fast. The experts were plainly right to factor in the effect of competition rights by the agent. 165 However where I part company from the experts is the level of discount that they have applied to account for the factors set out in subparagraph 5 above. The lack of a written agreement is, to my mind of relative unimportance. However the risk of termination is to my mind critical. Mr McCormick’s Licence with Pandora A/S contains in clause 9 rights of termination by the License Owner. Under clause 9.3 the License Owner had the right to terminate on one year’s notice if the orders did not amount to €300,000 in a calendar year. Under clause 9.4 there was a right to renegotiate every year. If no agreement could be reached the Agreement continued for a further 12 months and then terminates. It is thus realistically arguable that the agreement is in fact terminable on a year’s notice. 166 It will be seen from the second table in the appendix that the revised annualised income (with a multiplier of 1.5 incorporated to allow for the rising market) is £207,928.96 as at April 2008. It was agreed by the experts that the relevant reduction for the costs was £59,000. It follows that the income stream to be valued is approximately £149,000 per annum 167 If the contract between Mr McCormick and Pandora A/S comes to an end then there will be no income stream. In that event it is clear from Lord Hoffmann’s speech that it is of no value. Thus the question to be asked is what is the value of an income stream of £149,000 which is increasing but which could be terminated within 2 years. When the question is asked in that way it becomes plain to my mind that the discount applied by the expert of 25% is far too small. For my part I doubt if anyone would pay more than 1 years purchase and I propose to value the compensation at £150,000. It is to be remembered that this sum already includes a multiplier of 1.5 over the actual income. 6.4. Damages for breach of regulation 15 168 In the light of my findings there was no repudiatory breach of contract by Mr and Mrs McQuillan. In those circumstances it is plain from regulations 15(2) and (4) of the regulations they were entitled to a minimum of 2 months notice of termination of the agency agreement ending at the end of a calendar month. The termination letter is dated 1 st February 2008. On that basis the earliest date when the agency could have been lawfully terminated would have been 30th April 2008. 169 Mr and Mrs McQuillan are accordingly entitled (as damages for breach of contract) to be put in the same position as they would have been if the appropriate notice had been given 170 There are 3 heads that need to be considered: Loss of Commission between 2nd February 2008 and 30th April 2008. 171 This is a straightforward common law claim. Mr and Mrs McQuillan would have to give credit for any expenses they have saved over this period. In addition they would have to give credit for any regulation 8 claim for this period as there would be clear duplication. 172 As can be seen from the Appendix there would have been commission on sales during this period. The annual costs of running the agency are agreed to be £59,000. Thus this loss is £35,892.88 Commission Feb 08 Commission Mar 08 Commission Apr 08 Costs - 25% of £59,000 Net Loss 18,063.0 12,648.4 19,931.4 50,642.8 14,750.0 35,892.8 Regulation 8 Claim. 173 As noted above the convenient course is thus simply to assess the regulation 8 claim as from 30th April 2008. 174 This is a difficult exercise but I propose to value it on the basis of 2 months commission from 30th April 2008 May- Jun-08 Total 11,879.7 17,304.4 29184.1 Regulation 17 Claim 175 This was a rising market. Mr and Mrs McQuillan have lost the difference between the compensation assessed as at 2nd February 2008 and as at 30th April 2008. The convenient course is to assess the compensation as at 30th April 2008. 176 This has been done above 7. Interest. 177 Interest has been claimed under the Late Payment of Commercial Debts Act. This is not a pleaded claim and there has been no application to amend. There are a number of difficulties with the claim. Much of the claim is not a debt within the meaning of the Act. Furthermore Mr McCormick is prejudiced by the lack of the pleaded claim in that he has not been able to consider the possibility of remission under section 5. In those circumstances I would decline to award interest under the Act. 178 I would however award interest under section 35A Senior Courts Act 1981. In the light of the discussion in paragraph 7.017 of the 2010 White Book I would award simple interest at 2% over base rate from the date when the moneys became due. I will leave the parties to agree the arithmetic. 8. Conclusion 179 In my view therefore the total sum due to Mr and Mrs McQuillan before interest is £256,555.86 calculated as follows: Unpaid Commission Compensation Damages 41,478.81 150,000.0 35,892.88 29,184.17 256,555.8 Judgment Approved by the court for handing down (subject to editorial corrections) McQuillan v McCormick Appendix Extract from Spreadsheet Invoiced sales (inc VAT) Commissio n due @ 10% (incl VAT) Paymen ts received (inc VAT) Balance due Total due Month Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 1,749.20 4,896.20 5,755.98 9,835.73 7,327.08 10,582.36 19,168.43 35,747.88 23,706.33 27,780.73 24,471.52 21,467.67 27,659.18 45,392.44 48,513.01 67,181.02 84,906.25 138,048.82 174,849.74 152,904.06 220,280.63 190,658.26 180,630.51 174.92 489.62 575.60 983.57 732.71 1,058.24 1,916.84 3,574.79 2,370.63 2,778.07 2,447.15 2,146.77 2,765.92 4,539.24 4,851.30 6,718.10 8,490.63 13,804.88 17,484.97 15,290.41 22,028.06 19,065.83 18,063.05 558.34 146.22 1,062.76 425.28 1,188.65 2,605.00 2,719.48 2,465.82 2,178.55 2,166.71 1,375.98 2,914.00 2,914.67 6,657.88 6,196.92 - 20,000.0 Mar-08 126,484.21 12,648.42 Apr-08 199,314.09 19,931.41 May-08 118,797.20 11,879.72 Jun-08 173,044.50 17,304.45 Jul-08 279,558.34 27,955.83 Aug-08 142,068.18 14,206.82 Page 27 174.92 489.62 17.26 837.35 (330.05) 632.96 728.19 969.79 (348.85) 312.25 268.60 (19.94) 1,389.94 1,625.24 1,936.63 60.22 174.92 664.54 681.80 1,519.15 1,189.10 1,822.06 2,550.25 3,520.04 3,171.19 3,483.44 3,752.04 3,732.10 5,122.04 6,747.28 8,683.91 8,744.13 2,293.71 11,037.84 13,804.88 24,842.72 17,484.97 42,327.69 15,290.41 57,618.10 22,028.06 79,646.16 19,065.83 98,711.99 (1,936.95) 96,775.04 12,648.42 109,423.4 19,931.41 129,354.8 11,879.72 141,234.5 17,304.45 158,539.0 27,955.83 186,494.8 14,206.82 200,701.6 Judgment Approved by the court for handing down (subject to editorial corrections) McQuillan v McCormick Sep-08 174,706.46 17,470.65 Aug-09 - TOTAL S 2,737,486. 273,748.60 17,470.65 218,172.3 180,939.1 (37,233.1 8) 180,939.1 37,233.1 92,809.4 Page 28 Judgment Approved by the court for handing down (subject to editorial corrections) McQuillan v McCormick Revised Annualised Income Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 2,447.15 May- Jun-07 2,146.77 2,765.92 Jul-07 4,539.24 Aug-07 4,851.30 Sep-07 6,718.10 Oct-07 8,490.63 Nov-07 13,804.88 Dec-07 Jan-08 17,484.97 Feb-08 15,290.41 22,028.06 Mar-08 19,065.83 Apr-08 TOTAL 119,633.26 VAT Total less VAT 17,817.72 101,815.54 4,539.24 4,851.30 6,718.10 8,490.63 13,804.88 17,484.97 15,290.41 22,028.06 19,065.83 18,063.05 12,648.42 19,931.41 162,916.30 24,264.13 138,652.17 1.5 multiple 152,723.31 207,978.26 Page 29