The House of Lords held that the damage for which the agent must be compensated is the value of the right to be an agent; that is, the right to future commissions that the agency would have brought in.

The Lords rejected the argument that they should follow the French courts’ approach in valuing agencies at two years’ gross commission. Although the Commercial Agents Directive (86/653/EEC) prescribed a mandatory framework of entitlements for commercial agents, it was left to the courts of each EU member state to decide the method of calculation.

The Lords emphasised that, like any other exercise in valuation, the question is what a buyer could reasonably have been expected to pay, as at the date of termination, for the rights the agent had been enjoying. It is not enough to ask what the agent would have expected to receive, if no-one would actually have given it to him.

For the purposes of the valuation, it must be assumed (contrary to reality) that the agency would have continued, and also that the notional buyer would have been able to perform the contract. However, the Lords stressed that other “real-world” factors affecting the value of the agency must be taken into account, namely:

There are indications in the judgment that where the income stream generated by an agency is low, the court may well find that the agency is worth nothing and therefore no compensation is payable. This approach is likely to be welcomed by businesses that engage a large number of agents whose individual earnings are relatively low.

The decision confirms that, if a case goes to court, an agent is likely to have to advance expert evidence of the valuation of the agency in order to establish his claim. Although the claimant’s Counsel urged the Lords not to adopt a principle which required valuation evidence due to the potential expense involved, Lord Hoffman said that he did not see how a judge could decide a case without information about the standard methodology for the valuation of comparable businesses.

The need for expert evidence may perhaps be seen as a downside of the Lords’ approach. However, it is difficult to disagree with Lord Hoffman’s view that “once it is firmly understood that the compensation is for the loss of the value of the agency, relatively few cases will go to court”.

Now that a sensible and commercial basis for assessing compensation has been established at the highest level, both principals and agents can come to the negotiating table with a common understanding of the principles to be applied. While there will no doubt still be room for disagreement on the application of those principles, it seems likely that such disagreements can, in all but the most intractable cases, be resolved through commercial negotiation.