The High Court has provided some useful guidance in relation to the Commercial Agency Regulations 1993 (the Regulations) in the recent case of Green Deal Marketing Southern Ltd v Economy Energy Trading Ltd. The Regulations broadly allow rights to commercial agents that are involved in the sale of goods.
The case concerned a claim for breach of contract and compensation under the Regulations by Green Deal, who had been engaged by Economy Energy as its agent for the sale of gas and electricity energy packages to customers.
In its judgment, the High Court considered a variety of issues and provided some useful guidance in relation to its application of the existing case law, particularly in relation to the following areas:
- Whether electricity is “goods” for the purposes of the Regulations.
- The award of common law damages for breach of contract where an agent is awarded compensation under the Regulations.
- The approach taken in relation expert evidence in the calculation of compensation under the Regulations.
Is electricity “goods” for the purposes of the Regulations?
Following decisions in previous case law, the High Court rejected Economy Energy’s argument that electricity did not constitute “goods” for the purposes of the Regulations and indicated obiter that, even if this were not the case, it did not agree with Economy Energy’s argument that the activities of Green Deal were “secondary”, and therefore not covered by the Regulations, due to the fact that electricity was the greater portion of Green Deal’s sales role.
Interrelationship between claims for compensation under the Regulations and common law damages for breach of contract
Green Deal had sought both compensation from Economy Energy under the Regulations as well as damages for breach of contract for loss of profits, which resulted from Economy Energy’s purported termination of the agency agreement, which Green Deal argued amounted to a repudiatory breach.
The High Court agreed that Economy Energy’s purported termination of the agency agreement amounted to a repudiatory breach. However, the High Court ruled that whilst compensation and damages were different remedies, if there has been a breach of contract, and the loss resulting from that breach had already been recovered through compensation (in Green Deal’s case the loss of profit), additional damages should not be awarded if this were to result in a double recovery.
Expert evidence in the calculation of compensation
The High Court’s judgment contains detailed and lengthy analysis of the expert evidence adduced by each party in relation to the valuation of the agency for the purposes of calculation of compensation under the Regulations.
Both of the expert valuations referred to the various positive and negative factors which influenced the valuation of the business. In summary, the High Court preferred Economy Energy’s expert valuation which broadly involved calculating Green Deal’s EBITDA and multiplying this by a discounted multiplier.
The High Court commented on the various factors on which the multiplier was discounted as follows:
- The High Court accepted that a 50% discount was reasonable to take account of the fact that Economy Energy was Green Deal’s only source of business.
- The High Court also accepted that a 20% discount was reasonable to take account of the various regulatory pressures facing Green Deal’s business.
- The High Court did not accept that a 10% discount should be applied to take account of the non-assignability of the agency agreement and, in line with previous case law, held that the agency should be valued on the assumption that it could have been sold at the date of termination.
The implications
Whilst this decision does not contain any substantial new case law, it does provide parties with a useful reminder of the application of existing case law to agency relationships under the Regulations as well as providing useful guidance on the approach to valuation of a business for the purposes of calculating compensation under the Regulations.
Beverley Flynn