Case No: 2WR00372
IN THE WORCESTER COUNTY COURT

The Shirehall
Foregate Street
Worcester
Worcestershire
WR1 1EQ

Friday, 11th January 2013

Before:

HIS HONOUR JUDGE HOOPER QC

B E T W E E N:  

JAMES CRAIG DONALD/CRAIJAN LTD

and

WORCESTER MARINE WINDOWS LTD

Transcript from a recording by Ubiqus
Cliffords Inn, Fetter Lane, London EC4A 1LD
Tel: 020 7269 0370

JUDGMENT
(Approved)
HHJ HOOPER: 

1.	I give judgment at the conclusion of the trial on the multi-track of this action in which the Claimants claim compensation under the Commercial Agents Council Directive Regulations 1993, which I shall refer to as the Regulations, for the alleged unlawful termination of what the Claimants claim to be a commercial agency within the Regulations.  I shall explain in the course of this judgment the reason why there are two Claimants.  The second Claimant is a limited company.  The first Claimant is its proprietor.  The Defendant is a limited company.  
2.	The Defendant denies that the relationship between the Defendant and either or both of the Claimants amounted to a commercial agency.  The Defendant admits termination, but denies unlawful termination for the purposes of the Regulations or at all.  The Defendant asserts that the relationship was of simple self-employment in respect of the first Claimant or simple contract in respect of the second Claimant, in either case for the purpose of the sale of the Defendant’s product, and that whether or not the relationship amounted to a commercial agency the Defendant terminated the relationship for good reason, which the Defendant puts forward as a defence to the claim in commercial agency if proved.
3.	All issues of quantum are in issue.  The Claimants put their case on quantum as statutory compensation under the Regulations.  At this trial the Claimants are represented by counsel.  The Defendant is unrepresented, but its managing director, Mr Graham Munn, has attended the trial and, with my permission and with very properly no active opposition by counsel representing the Claimants, Mrs Crippin, whom I am told is the Defendant’s company secretary, has conducted its case.  I say at once that Mrs Crippin has done this with skill and courtesy.  
4.	The Defendant has taken no active part in the proceedings after acknowledgement of service and filing its self-drafted defence, apart from by Mr Munn and Mrs Crippin attending the trial.  The Defendant has not filed any witness statement or given disclosure other than of two documents appended to the defence.  As a result of case management orders, including orders which I made at the beginning of the trial, I have permitted Mr Munn to give evidence on the basis of the defence with some liberty to address some other issues.  
5.	I have had to airbrush out of consideration substantial quantities of inadmissible hearsay in the first Claimant’s witness statement, the evidence at court of the first Claimant and the evidence at court of Mr Munn.  Such is the balance of procedure and pragmatism that I judge consistent with the overriding objective of dealing justly with this particular case in its circumstances.
6.	The issues for determination are (1) which Claimant was the contracting party; (2) the nature of the relationship between the contracting parties; (3) the circumstances of the termination of the relationship and, if there was a commercial agency, whether these circumstances amounted to lawful termination for the purposes of the Regulations; (4) quantum.  
7.	The relationship was created and evidenced by a letter dated the 13th March 2008 from the Defendant to the first Claimant.  This was one of the documents which the Defendant appended to its defence.  The Claimants also gave disclosure of it.  It is addressed, ‘Dear Craig.’  The first Claimant’s name is of course Craig Donald.  It does not mention the second Claimant.  It became common ground in evidence that the first Claimant mentioned the second Claimant for the first time when first payment became due about a month after Mr Donald, the first Claimant, started work.  The first Claimant then asked Mr Munn and Mr Munn agreed to pay sums to the second Claimant.  Such arrangements are not uncommon.
8.	The nature of the engagement was the marketing of the Defendant’s products.  The business of the Defendant has at all relevant times been the design and manufacture of windows for narrow boats.  The Defendant enjoys a prestigious standing in this market nationally as one of the country’s leading narrow boat window makers.  Mr Munn owns the patent GB2391920 for the assembly of a particular kind of window product.  The patent describes the S-type window system which the Defendant launched in 2003.  
9.	I accept the first Claimant’s evidence and the Defendant does not dispute that the first Claimant has some 40 years experience as an agent in customer sales and service.  In particular he has experience in new business development.  Between 1989 and 1992 he worked for Wilhelm Limited marketing their furniture in Britain.  He succeeded in building up the business to a successful company.  Then until 2000 he worked as a new business developer in Germany, Austria and Switzerland for Gloster Furniture.  Their sales in those markets rose significantly in that time.  From 2000 to 2005 he worked as the Sales Manager for Villa Tectona GMBH.  
10.	In early 2008 the first Claimant and the Defendant entered into discussions concerning the possibility that the Defendant might engage the first Claimant to represent them.  The Defendant was concerned to recover and develop its market after recent setbacks, irrelevant to describe or decide for the purposes of this judgment, and in particular to boost sales of the higher priced and more profitable S-type windows by winning new customers, converting traditional window users and gaining lost customers.  The broad outline of the first Claimant’s previous experience and success was known to and understandably attractive to the Defendant.  As to these features of the history, it is noticeable that on account of the Defendant’s disinclination to engage in the proceedings there is no evidence contradicting what I have introduced as the evidence of the first Claimant about these matters.
11.	By the letter dated the 13th March 2008, to which I have already referred, to the first Claimant, the Defendant set out terms of engagement.  The Claimant’s case as to the Defendant’s opposite contracting party is curiously enigmatic.  On the one hand, the Claimants appear to be arguing that the Claimants put the case in the alternative to each other, not concerned which the court might prefer and asking the court to decide that matter.  On the other hand, the Claimants appear to be asserting that the second Claimant was the contracting party.  I find that the first Claimant was the contracting party.  There can be no serious dispute about this on the facts of the case, and had the Defendant been professionally represented this issue might well have been agreed.  It was the first Claimant’s, not the second Claimant’s, expertise which the Defendant wanted to and did engage.  The letter says so in effect.
12.	The second Claimant was the first Claimant’s nominated payee only.  Neither the second Claimant nor any limited company was necessary to the formation or maintenance of any relationship in which the Defendant was the opposite contracting party.  Nothing I decide in this judgment is relevant to any decision which anyone may wish or be called upon to make about the tax consequences of these arrangements.  Suffice it to say that no one suggests that any tax consequence of these arrangements prevents the decision I now make as to the contracting parties.
13.	The letter of the 13th March 2008 set out that a declining retainer would be paid during the first year and a product commission structure would operate throughout.  The purpose of these arrangements was to allow the first Claimant to spend time familiarising himself with the business and researching opportunities for its development.  I calculate the retainer to aggregate to £7,650, although the Defendant pleads in the defence ‘£7,950 (wages)’.  Nothing turns on arithmetical difference.  The payment was not wages and even the Defendant asserts self-employment, not employment.
14.	The letter of the 13th March 2008 distinguished between, on the one hand, ‘works customers’ (‘these will be customers that have ordered at least one set of windows in the last 12 months or have directly ordered from,’ I interpose, the Defendant, and continue, ‘without a visit from yourself’) and, on the other hand, ‘as every customer that orders following a visit from yourself will be classified as a CD customer, this classification will last for a minimum period of 12 months from initial order and will be reviewed after this period.’  The reference to the initials CD is a reference to the first Claimant.  The letter makes clear that the distinction between works customers and CD customers would be discussed at the outset so that there is no misunderstanding ‘as to whose customers they were so to speak.’  
15.	The letter of engagement also provided that the first Claimant would be obliged to attend trade shows.  He might also on occasion be requested to carry out some tasks in relation to works customers.  The letter expressed itself as follows:     
‘If your visit schedule fits then you would on occasions be expected to deliver windows and collect monies.  Again you could on occasions be expected to deliver windows to non-CD customers if it fitted geographically.  A flat fee of £15 would be paid for this service.  You may also be requested to do a sales or demonstration visit to a works customer.  A flat fee of £25 would be paid for this.’

16.	The distinction between works or house customers, on the one hand, and CD customers is of course relevant to the commission structure agreed and in fact paid.  The first Claimant spend his first months, as the retainer payment anticipated, learning the business in the Defendant’s factory, including by way of hands-on experience and also in identifying and researching current and potential customers by, among other means, the Internet.  In addition to direct approach, the Defendant’s products were marketed in four particular ways: brochure, website, promotional video and trade shows.  The first Claimant used the promotional video and attended trade shows.  The essence of his work was to be on the road for the purposes which the letter of the 13th March 2008 described, subject of course to the direction of the researches which his researches comprised.
17.	In the first 12 months after the agreement was formed I find that the Defendant paid the second Claimant £15,270 plus the retainer.  In the second 12 months that rose to £18,895.  I find, and although absence of representation in preparation for the trial has understandably impeded this finding, there came in the course of Mr Munn’s evidence to be no serious dispute about this, that when the Defendant terminated the agreement on the 22nd March 2010 70% of the first Claimant’s commission for customers were either new customers which he had won or old customers that had been lost and won back as a result of his efforts.  Further, some 79.8% of the commission the first Claimant received during the last year of the agreement was in respect of new or won back customers.  
18.	For the purpose of Regulation 17, which I shall have to consider later, the first Claimant submits, and I accept on in effect un-contradicted evidence, that the entirety of the first Claimant’s client base was the relevant client base for the purposes of Regulation 17 because he visited them regularly, successfully encouraged them to move to the S-type windows insofar as he did and built up the goodwill of the Defendant’s business accordingly.  I accept the first Claimant’s evidence, and again this has not been seriously contradicted at trial, although the first Claimant has been put to proof, that around 25% of the Defendant’s total sales were of S-type windows at the start of his engagement and at about 70% by March 2010.  Further, in the year to March 2010 the first Claimant’s customers averaged some 83% of S-type sales per month, peaking to some 90.5% in March 2010.  
19.	It was unclear at the beginning of the trial whether or not the Defendant challenged this position as the Defendant had not of course filed any witness evidence, as I have already observed, but I understood Mr Munn in evidence broadly to accept these figures without derogation from the Defendant’s continuing denial of commercial agency.  The exact prescription or specification of these figures is not necessary for the purposes of this judgment.  The figures I have attempted to identify represent at least the broad spectrum of the relevant figures.
20.	The Defendant pleads in its defence that its turnover figures, which Mr Munn explained in evidence are on a November to November accounting year basis, were insufficiently different at times before, during and after the first Claimant’s engagement, i.e. 2007 to 2011, is the period of the figures which the defence pleads, so that the first Claimant’s asserted contribution to the business is unfounded.  I reject that contention.  First, Mr Munn broadly accepts the figures to which I have referred as representing the first Claimant’s contribution in at least the broad terms that I am able to find on the evidence available to me.  Second, the first Claimant’s evidence that the turnover figure needs to be read in association with the loss of a particular lucrative contract concerning portacabins, irrelevant to the first Claimant’s work and to which the first Claimant’s work was itself irrelevant during the relationship, the comparatively even accounting line was not inconsistent with the first Claimant’s asserted contribution and probably attributable to it.
21.	On the 22nd March 2010 Mr Munn terminated the agreement orally on behalf of the Defendant.  The Defendant paid commission until the end of April 2010, some five weeks.  It is common ground that Mr Munn told the first Claimant that he was dissatisfied with the first Claimant’s performance and attitude by reason of complaints by staff and customers.  Mr Munn had not previously asserted any criticism of the first Claimant, notwithstanding regular business meetings between them.
22.	On the 14th May 2010 solicitors acting on behalf of the Claimants informed the Defendant of their intention to pursue a claim under the Regulations.  On the 24th February 2012 the Claimants issued their claim form and filed particulars of claim.  The Defendant filed its defence on the 20th March 2012, attaching a copy of the letter of the 13th March 2008 and an email dated as comparatively recently as the 9th June 2011 and therefore certainly after the claim had been intimated and after the exchange on the 22nd March 2010 in which Mr Munn had terminated the agreement on the basis of dissatisfaction on account of complaints by staff and customers.
23.	The email was from a Mr Tom Smith of Evesham Marina, to which I shall refer later.  Standard disclosure was ordered in the ordinary course of the proceedings and the parties were ordered to exchange witness statements by the 20th September 2012.  The Claimants provided standard disclosure on the 2nd August 2012.  The Defendant failed to engage with the disclosure process at all.  The first Claimant filed its witness statement on the 2nd October 2012, late, but I have extended time retrospectively as part of my stocktaking case management directions at the commencement of this trial.  
24.	Although Mr Munn is dissatisfied with the Claimant’s solicitors handling of the litigation, as he told me in his evidence, it is not unfair to say that the Claimant’s solicitors have made some attempts to engage the Defendant in the litigation and, as Mrs Crippin entirely appropriately and again not unfairly put it at the beginning of the trial, Mr Munn has simply buried his head in the sand.  Following the Defendant’s failure to file witness evidence the Claimants sought and obtained an order that unless the Defendant filed witness evidence by the 1st January 2013 the Defendant would not be entitled to rely on any evidence not set out in the defence.  I have already referred to my case management directions in respect of this matter at the beginning of the trial.
25.	I now address the issues for decision as follows: I take the text of Regulation 2 of and of the Schedule to the Regulations as read into this extempore judgment, without the need to read them in now.  The burden lies on the first Claimant to satisfy the court that the relationship was one of commercial agency within the Regulations.  The first Claimant submits that he was a commercial agent for the purposes of Regulation 2, paragraph (1).  He was self-employed.  As is common for agents, certainly for agents who are natural persons, as the Regulations plainly permit they may be, he was paid during the initial period a retainer and then was paid only on commission.
26.	Regretting as I do that Mr Munn has forsaken the benefits of legal professional advice and representation, subject to the tribute I pay to Mrs Crippin, I am bound to observe that he may have misled himself by reliance on his understanding of two matters: first, self‑employment.  The Regulations plainly assert self-employment as a criterion of, not as contradictory to, commercial agency, whether the agent be a natural person or a corporate entity.  
27.	Second, Mr Munn’s own experience of what he understands to be commercial agency is, I regret to conclude in respect of such a prestigious figure of high standing in his chosen industry, misplaced because he explained in evidence that this understanding is that a commercial agency occurs where in effect the agent is not an agent at all, but a principal buying from a supplier and selling on to a third party, as he told me in his evidence is his experience of the arrangement in respect of some experience he has in relation to dealing with a ‘higher’ party, by which I mean a principal, in the United States of America.
28.	Also, within and for the purposes of the Regulations the first Claimant had authority to negotiate the sale of windows on behalf of the Defendant and to negotiate and conclude the sale of windows on its behalf in its name, and I cross-refer both of these terms ‘negotiate’ and ‘negotiate and conclude’ to their place within the inclusive definition of commercial agency within the Regulations, indicative as that may be.
29.	The Claimant’s counsel referred me to authority applicable to the present case.  For the purposes of this extempore judgment I shall merely refer to this authority as the judgment of the Court of Appeal delivered by Lord Justice Morritt in the case of Parks v Esso Petroleum Limited [2000] ECC 45 and the judgment of Mr Justice Fulford in the case of PJ Pipe and Valve Co Ltd v Audco India Ltd [2005] EWHC 1904, which latter judgment contains this passage, important in my judgment for the purposes of the present case and the decisions I have to make:  
‘The purpose of the Directive, in my view, was to provide protection to agents by giving them a stake in the goodwill which they have generated for the principal, and as a result the courts should avoid a limited or restricted interpretation of the word “negotiate” that would exclude agents who have been engaged to develop the principal’s business in this way, and who successfully generated goodwill to the manufacturer, to the latter’s benefit after the agency terminated.’

30.	It is plain that the regulations exclude self-service and telephone sales, among other exclusions necessary to achieve the purpose which Mr Justice Fulford identified.  The circumstances of the present case are very different indeed from these exclusions.  The first payment fell within the proper broad interpretation of the word ‘negotiate’.  He dealt with the customers, conducted the relationship with them and exercised his skill and experience in doing so.  His role was to build up the goodwill of the business.  He acquired a large number of new customers and encouraged existing customers to switch from regular windows to the more profitable S-type windows.
31.	As to the particular factors in the schedule to the Regulations I accept that the factors in paragraphs (2), (3) and (4) are indicative and that the importance to be attached to each one should be weighed by the judge.  First, therefore I must notice that the relationship was not described as commercial agency and of course no reference was made to the Regulations.  In the overall circumstances of the relationship I regard that deficit as entirely irrelevant.  The law looks at substance, not label, but in saying that I intend no disrespect to the presence of the indicative criterion as to the use of the term ‘commercial agency’ in the Regulations of course.
32.	The first Claimant satisfies the test in the schedule.  The Defendant’s business is the sale of windows that are normally individually negotiated.  Sales are cumulative.  Each one is likely to lead to further transactions.  That is the nature of a comparatively small market population and the position within it which the Defendant prestigiously occupied and it was the first Claimant’s purpose to develop.  Mrs Crippin made a serious and well argued point about distinctions between the first Claimant’s work and function and the terms of the Regulations.  She made this point in various ways.
33.	As to paragraph (3)(d) she disputed that the goods are not normally available in the market in question other than by means of the agent.  There are indeed the other separate manners of marketing to which I have referred.  However, the first Claimant was intimately involved to the extent of what he did do, including making use of the promotional video and attending trade shows and, importantly, it was the essence of his function to go on the road, so to speak, having researched potential customers and familiarised himself with existing customers.
34.	I am bound to conclude that paragraph (3)(d) read alone and in the context of the other indicative and non-indicative criteria is overwhelmingly in favour of commercial agency, not contradictory of it, particularly in the overall balance of the factors generally being either indicative or not indicative as the Regulations particularly prescribed and that the importance to be attached to each one should be weighed by the judge.  I recognise the significance of brochure and website contact, but in my judgment that does not displace the overall impact of the first Claimant’s involvement.
35.	Similarly, none of the matters on which the Defendant particularly relies in its defence represent, severally or together in the overall balance, any reason why the overwhelming hallmark of commercial agency should not be applied in accordance with the Regulations in this case.  In my judgment and on the evidence I have the Defendant’s investment in the first Claimant’s familiarisation with the business by way of the payment of the retainer was entirely consistent with commercial agency, indeed arguably indicative of it.  The fact that the first Claimant presented himself as a representative of the Defendant is entirely consistent with commercial agency.  Similarly, provision by the Defendant to the first Claimant of a PDA and contribution to fuel bills.  
36.	Also, the restriction of the first Claimant to the Defendant’s specified prices is consistent with agency, albeit not of course consistent with what I fear may be Mr Munn’s misplaced application of the double principal arrangements to which I have already referred.  Absence of evidence as to enduring personal customer loyalty to the first Defendant is not in the overall run of the case in my judgment contradictory of commercial agency.  I find unhesitatingly on the evidence which is available to me that this was a relationship of commercial agency within the Regulations.  I return, in conclusion, to Regulation 2 itself.  It is clear to me that by reference to Regulation 2, the governing provision, that this was a case of commercial agency in the sense of a self-employed intermediary who had continuing authority to negotiate the sale of goods on the Defendant’s behalf. 
37.	The issue next arises as to whether the Defendant was entitled to terminate the relationship, which I find to be that of commercial agency.  I unhesitatingly conclude that the Defendant was not so entitled.  The burden of proof of entitlement rests on the Defendant.  The Defendant fails entirely to discharge this burden on the evidence which he has made available.  As to Regulation 3, there is simply no evidence at all that the first Claimant failed to carry out even part of his obligations under the contract.  Similarly, there was no repudiation of the Defendant’s interests, nor breach of good faith, as would entitle termination under Regulation 3.  It was noticeable that to his very great credit Mr Munn did not dispute these matters in the evidence which he chose to give.
38.	The reason which Mr Munn gave orally on the 22nd March 2010 for terminating the relationship related to some customer and staff complaints, which he has expanded in the defence and in his evidence.  He relies on complaints about the first Claimant’s attitude and behaviour at Evesham Marina and Orchard Marine.  He says that the Orchard Marine issue was the last straw.  There is no admissible or credible evidence of what these complaints were.  
39.	By failing to engage in the court proceedings the Defendant has deprived itself of the opportunity to produce evidence of these complaints and of their potential seriousness, but even taking what amounts to no more than hearsay complaints at their highest, these fall a long way short of the seriousness required as a matter of law to entitle the Defendant to terminate this commercial agency, nor does any complaint, separately or together with any other of the complaints, including by staff, come within a measurable distance of such entitlement.  In what I have just said I borrow in each case words used by judges of the High Court in other cases.
40.	I now address the remaining issue, the quantification of the claim.  I assess the first Claimant’s claim in the sum of £59,576.47, which the first Claimant claims.  This claim is reasoned in paragraph 88 of his counsel’s skeleton argument.  I accept this reasoning and its conclusion for all the reasons which the Claimant’s counsel advanced in his closing speech and sets out in detail between paragraphs 69 and 87 of that document.  This is in my judgment a meticulous and proper reasoning of each of the claims for which Regulations 17, 15 and 8 respectively provide in principle, and I identify those provisions in that sequence for obvious reasons of logical priority.
41.	In particular, but without in this extempore judgment going into any more detail than is necessary to reason my decision, the Defendant’s statement in the defence to the effect of the continuing turnover, which on the November to November accounting year basis is to November 2011, some 20 months after the termination of the agency, suggests that snapshotting value at March 2010 there was no reason to predict the adverse financial circumstances which the Defendant now asserts, albeit without any evidence, so that the first Claimant’s submission as to a multiplier of 3 is perfectly reasonable in my judgment.  The multiplicand is also in my judgment unarguably correct.
42.	The first Claimant has properly deducted the level of net income less VAT, together with some 25% for the risk of termination in any event, and lawful termination at that, and has made proper concessions as to attributability of some of his expenses to other uses, including his work for someone called Keith Hunt, albeit that that does not appear to have been any more than a minimal commitment of his time and for social use.  In any event, as the Claimant’s counsel properly pointed out in his closing speech, the deductions issue works in the Defendant’s favour in reducing the claim and the first Claimant has in my judgment properly and rationally accounted throughout in each relevant way as to this credit.  It is neither too much nor too little.  I should add that against the claim as a whole the first Claimant has properly given credit for what was paid on termination. 
43.	Lastly, as to the Regulation 15 and Regulation 8 claims, I find that the sum of £3,121.78 claimed as Regulation 15 statutory notice is properly claimed for the reasons given and the Regulation 8 claim to the commission on transactions concluded after the agency was terminated is reasonably claimed in the sum of £5,000 as a fair estimate based on the evidence which is available, which of course does not include evidence which the Defendant has failed to disclose, so the first Claimant must do his best on what is known, as must I.  
44.	As to interest, I prefer the Claimant’s counsel’s alternative lesser calculation based on 3% over base rate, i.e. 3.5% total, as being the rate at which a small business might borrow capital during the relevant period.  I would apply such an approach in any quasi-commercial case of this kind, and the alternative higher claim based on statutory interest is in my judgment inappropriate.  Therefore interest in my judgment totals £5,838.49.  I therefore give judgment for the first Claimant against the Defendant in the sum of £59,576.47, together with interest which I assess at £5,838.49.
End of Judgment.