Nigel Fryer Joinery Services Ltd & Anor v Ian Firth Hardware Ltd

From 1990 until 1997 Mr Nigel Fryer (“Mr Fryer”) was employed by the Defendant company Ian Firth Hardware Limited (“IFH”) as a sales representative. IFH manufacture and supply doors and hardware to the UK house building industry. Under the terms of his contract (dated 22 January 1990) Mr Fryer’s duties included the promotion of all the company’s products with particular emphasis on patio doors, windows and garage doors. His salary was £11,000 per annum (subject to review) with a commission in respect of all new accounts introduced by him of 1½% of the net value of sales. The commission was payable at the end of each month together with his salary. He was to cover Lancashire and surrounding areas although (as recorded in his contract) his services might be used in other areas. He was provided with a car and was reimbursed for all reasonable out of pocket expenses.

In 1997 (by agreement with IFH) Mr Fryer resigned his employment and continued with the company as a self-employed sales agent. There is a suggestion in the evidence that the change to a self-employed basis was to assist Mr Fryer in relation to the financial arrangements following his divorce but the reasons do not matter. The terms of the agency are contained in a letter dated 27 June 1997 addressed to Mr Fryer but signed by him on behalf of a company called Buildnet UK Limited. This was a company owned and controlled by Mr Fryer which was dissolved in 1998. Thereafter, Mr Fryer appears to have invoiced IFH using first the name Nigel Fryer Joinery Services and later in 2003 the name Nigel Fryer Joinery Limited. There was no limited company of this name in existence and it seems to be common ground that by a process of novation the benefit and burden of the 1997 agreement has been transferred to Mr Fryer himself who has been added to these proceedings as a second Claimant. The first Claimant is a company owned and controlled by Mr Fryer but not one which was ever introduced into the arrangements so as to become a contracting party. I propose therefore to proceed on the basis that at all material times since 1998 Mr Fryer has contracted on his own account under the agency agreement and is the only Claimant entitled to enforce it.

The agreement states that Mr Fryer’s services are to be provided in return for a commission payable monthly in arrear as before. The letter (signed by Mr Robin Firth, the Sales Manager of IFH) was clearly not drafted by lawyers and three particular provisions have featured in these proceedings. They read as follows:

“……..

You will work exclusively for Ian Firth Hardware Ltd, undertaking all work as previous and will be paid commission on sales achieved by yourself. You will be responsible for maintaining sales on your accounts, along with any support work that may be required in preparing sample boards, site visits, site repairs that may occur and out of pocket expenses are your own responsibility. If Buildnet UK Ltd do commence work with any other companies details are given to Ian Firth Hardware to ensure that these do not clash with this arrangement.

……

I will require weekly report sheets completing as have been used previously. Should you require any drill bits or sealants etc for carrying out repair work, these will be supplied by us.

If you wish to terminate this agreement or we feel that you are not giving Ian Firth Hardware Ltd the commitment required under this agreement both partners would have to give one month’s notice of termination.

….”

On 20 April 2006 IFH gave to Mr Fryer’s solicitors one month’s notice of termination in accordance with the agreement. He contends that under the agreement he operated as a commercial agent of IFH and that the agreement falls within the provisions of the Commercial Agents Regulations 1993 (“the Regulations”). Under reg.15(2)(c) of the Regulations the minimum period of notice for an agency contract which has subsisted for at least three years is three months. On this basis he seeks £3725.20 which he says is the difference between the amount of commission payable to him during the one month’s notice he was given (£3725.20) and what he would have earned by way of commission during a three month period of notice (£7450.40).

He also seeks compensation under reg. 17(1) and (2) for the damage which he says he has suffered as a result of the termination of the agency. Regulation 17(6) and (7) provides as follows:

“(6)

Subject to paragraph (9) and 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.

(7)

For the purpose of these Regulations such damage shall be deemed to occur particularly when the termination takes place in either or both of the following circumstances, namely circumstances which—

(a) deprive the commercial agent of the commission which proper performance of the agency contract would have procured for him whilst providing his principal with substantial benefits linked to the activities of the commercial agent; or

(b)

have not enabled the commercial agent to amortize the costs and expenses that he had incurred in the performance of the agency contract on the advice of his principal.”

In relation to a claim under reg.17 the House of Lords has held in Lonsdale v Howard & Hallam Ltd [2007] 1 WLR 2055 (“Lonsdale”) that compensation falls to be calculated by reference to the value of the agency at the date of its termination on the assumption that it had continued. Mr Fryer relies on the expert evidence of Mr John Green, FCA who in his report calculates the value of the agency (based on the capitalised value of its earnings) to be between £80,000 and £100,000.

IFH accept that as a result of the 1997 agreement Mr Fryer became a self-employed sales agent. But they deny that he was under the terms of that agreement a “commercial agent” within the meaning set out in reg. 2(1) so as to bring into play the provisions of regs.15 and 17. The point turns on whether he had “continuing authority to negotiate …or to negotiate and conclude” the sale of goods on behalf of IFH.

If contrary to the first argument the agency contract is within the Regulations then they rely on regs.16 and 18. Regulation 16 excludes the minimum notice provisions in reg.15 to the extent of preserving the right of the principal to terminate the agreement with immediate effect for a repudiatory breach by the agent. Regulation 18 excludes the right to compensation under reg. 17 for a breach of the contract by the agent which would justify immediate termination.

IFH contend that Mr Fryer was devoting significant amounts of time working for other companies at least one of which is a competitor. Over and above this, he was in persistent breach of a requirement to provide weekly and site report sheets. Each of these amounted, they say, to a repudiatory breach of the agency contract.

On the question of compensation they submit that the claim for lost commission is exaggerated and fails to take into account the expenses which would have been incurred to earn these sums. In relation to the claim for compensation under reg.17 they challenge the expert’s calculation of value which they say is based on a hypothetical rather than a real market. In short, they contend that the agency had either no value or only a minimal value at the relevant time.

This is defined in reg.2(1) as:

“…a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person (the “principal”), or to negotiate and conclude the sale or purchase of goods on behalf of and in the name of that principal;”

As mentioned earlier, the issue is whether Mr Fryer had under the 1997 agreement “continuing authority to negotiate …or to negotiate and conclude” the sale of goods on behalf of IFH.

His evidence (and this is not in dispute) was that his task was to find potential customers for IFH’s products. He did this by a mixture of cold calling and contacting previous customers. Many of the clients he dealt with as a self-employed agent had of course been customers of IFH when he was employed as a sales agent before but he said that he was allocated builders in the area to approach and given sales material such as brochures illustrating the products available.

His initial task was obviously to interest the customer in the products generally and to identify particular products which they might be interested in purchasing. But this would lead inevitably to a discussion of price. Mr Fryer had price lists for the various products. The prices given for each product are within a range and could vary according to the size of the order and the likelihood of repeat orders in the future. During the sales discussions with Mr Fryer the customer would indicate what his requirements were and Mr Fryer would say what the price was likely to be. Clearly the negotiations could founder at that stage if the price quoted was too high and so Mr Fryer’s skill lay in knowing what alternatives were available to the customer in the market and anticipating what price within the permitted range would be both attractive to the customer and yet acceptable to IFH.

If Mr Fryer was able to interest the customer in placing an order at the indicative price then the established procedure was for him to fill out what is described as a standard quote form. This contains details of the potential customer, the building site, the products to be ordered and the indicative price given to the customer. On some of the forms in evidence Mr Fryer has written in the price column “best price available”. The form would then be faxed to IFH’s head office which would process it and send out confirmation to the customer of the prices at which it would supply the goods.

In a number of cases IFH’s head office was able to confirm its willingness to sell at the prices suggested by Mr Fryer to the customer. In others, the head office came back with a higher price for individual items than those which Mr Fryer had quoted. But it is clear from this evidence that Mr Fryer had no authority to conclude a sale from IFH without reference to head office. His role was to get the customer interested in the product; quote an indicative price and request a price from head office; and in some cases following receipt of the quotation from head office to relay any queries the customer might have about the price and to encourage the customer to place an order with IFH. Some witnesses like Mr Michael Newton of Norman Jackson Contractors Ltd said that if they did not like the prices quoted by head office they might have a further discussion with Mr Fryer and ask IFH to re-quote. But until the quotation came from the head office there could be no sale. Any orders from the customer would then be placed in writing with IFH.

On the basis that Mr Fryer had no authority to conclude sales on behalf of IFH the remaining issue is whether he had authority to negotiate a sale. The word “negotiate” is not defined in the Regulations but Bowstead on Agency (at para 11-018) suggests that “one who canvasses on what one would call a retained basis” could be a commercial agent unless actually forbidden to solicit contractual offers.

This statement is based in part on the decision of Fulford J in PJ Pipe Valve Co. Ltd. v Audio India Limited [2005] EWHC 1904 HQ03X03644. He treated “negotiate” as meaning “to deal with, manage or conduct”. This is derived from the judgment of Morritt LJ in Parks v Esso Petroleum Company Limited (1999)18 Tv.L. Rep 232 and is obviously a much wider meaning of the word than to negotiate a sale in the sense of engaging in the bargaining process or haggling over terms or price. At paragraphs 154–5 Fulford J sets out his reasons for concluding that the agents in that case (who did not have authority to negotiate in the narrower sense) were nonetheless commercial agents within the meaning of the Regulations:

“[154] I find Mr Godwin's submissions place too narrow an interpretation on the word “negotiate”, although I accept that one of a number of factors that may demonstrate the existence of a commercial agency is whether the individual concerned had the authority to negotiate the sale of relevant products. In Tigana Ltd v Decoro Ltd [2003] EWHC 23 (QB), it was accepted without argument that the agent in that case (who had been appointed as the defendant's sales representative in the leather upholstery market) was a commercial agent within the meaning of the Regulations, and Mr Nash submits the description of his role as set out by Davis J is similar to the function fulfilled by PJV in the present case:

“[The agent's] usual role was to seek to introduce the importer, and its goods, to prospective UK customers (who ordinarily would be retailers of considerable size or, sometimes, wholesalers) with a view to securing the placing of orders. Thereafter [the agent] would act as a point of contact between the importer and the retailer, seeking to secure repeat or further orders, organising the necessary administration, ensuring that deliveries were made on time and helping to deal with any service and specification problems that might arise (para. 4).”

“It seems to me that (the agent's) role was intended to be primarily introductory – that was the main purpose for which he had been retained as agent. To a considerable extent the agency was, if I may put it this way, “front loaded”: this, dependent on his activities at the outset (although, of course, it was intended that he bring in yet more customers thereafter). Of course an important part of his role was thereafter also to maintain regular liaison with customers (and, not least, secure repeat orders) and assist in after sales service: but that too was an aspect of cementing the relationship created by the initial introduction (para.58).”

[155] PJV's role was to deal with and conduct (and, in part, manage) the relevant discussions and transactions at the time when the manufacturers were being selected by the contractor; in particular, they effected the crucial introductions and they played a significant role in persuading the contractor to be interested in AIL's products, not least because of their own real standing in this industry. Thereafter, they assisted in ensuring that their client was placed on the approved list of vendors and received the invitations to tender, in part by putting in an appropriate bid; they assisted with quotations and queries; and they provided feedback and advised on how the quotation could be improved. In both the short and the long term they were retained, inter alia, to develop goodwill on the part of AIL. 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 for the manufacturer, to the latter's benefit after the agency terminated. In the result, I conclude PJV acted as a commercial agent for the purposes of the Regulations, notwithstanding their lack of authority to progress agreement on commercial terms or prices.

….”

Mr Kramer submitted that Fulford J was wrong to adopt the wider meaning of the word negotiate and that in the context of reg. 2(1) the word was obviously intended to denote an agent who does all things to bring about the sale up to, but not including the conclusion of the sale. This, he says, was not satisfied in the present case because Mr Fryer’s authority was limited to introducing goods to clients and suggesting the prices which might be charged. The prices offered and eventually agreed were a matter for the company’s head office.

I prefer the approach of Fulford J. It seems to me that the inclusion in reg. 2(1) of two definitions of commercial agent (negotiate the sale or negotiate and conclude the sale) indicates that the first of these alternatives can include the wider meaning which he gave to the word “negotiate” in the first of the two definitions. This can, I think, include an agent whose role (like that of Mr Fryer) is to get the client interested in the product; suggest possible prices subject to confirmation by the principal; and to encourage the customer to place an order at those prices. This seems to me to come well within the ordinary meaning of “negotiate”.

Mr Fryer was therefore in my judgment a commercial agent within the meaning of reg. 2(1) and it follows that he is entitled to compensation for short notice and for the termination of his agency unless the 1997 agreement was terminated on account of a repudiatory breach of contract by him.

In order to bring itself within reg.18 (and so avoid liability for compensation) IFH must show that it terminated the agency agreement on grounds of default by Mr Fryer which constituted a repudiation by him of the contract. It is, I think, common ground that the existence of repudiatory conduct on the part of Mr Fryer would not assist the Defendant if that was not the reason actually relied upon for its termination of the contract. This is because of the wording of reg.18 (a) which refers to the principal terminating the agency contract “because of default attributable to the commercial agent which would justify immediate termination of the agency contract”. The position is therefore more restricted under reg.18 than it would be at common law where it is clearly established that in an action for wrongful dismissal of a servant or agent the defendant employer is entitled to rely upon breaches of the contract by the agent which would have justified immediate dismissal but which were not known to the employer at the time: see Cyril Leonard v Simo Securities Trust Limited [1971]3AER 1313. This therefore necessitates an inquiry as to whether any or all of the alleged breaches of contract by Mr Fryer were repudiatory and which (if any) of those breaches was the actual reason for the termination of the agreement. In relation, however, to the claim arising under reg.15 the effect of the common law rule seems to be preserved by reg.16 which does not limit the principle powers of termination to grounds actually known and relied upon at the time.

The Defendant’s pleaded case on repudiation is that Mr Fryer was given formal warnings about his failure to complete site reports and/or weekly reports on 11 November 2003, 14 November, 2005 and 2 February 2006. The last of these occasions was a meeting at which he was also told of IFH’s concerns about declining sales. It is said that at this meeting Mr Fryer disclosed for the first time that he was also working for a competitor (Nationwide North West Ltd) and following this meeting a letter was written to him asking for full disclosure of all personal and third party business activities.

The response came in a letter of 21 March 2006 from Mr Fryer’s solicitors confirming that in addition to the agency with IFH he was also working for Nationwide, Moben Kitchens, and as a director of a building company called BuildNet North West Limited. The Defendant’s case is that no prior notification or approval for these activities had been sought or obtained from IFH. IFH contends that notwithstanding the earlier warnings Mr Fryer failed to complete site and weekly reports after 17 March 2006 and that this coupled with his additional activities entitled them to terminate the agreement without compensation.

One needs I think to begin with the terms of the contract. Two are in point: clause (g) which deals with other possible activities or employments by Mr Fryer and the term requiring him to provide weekly report sheets. In addition, IFH rely on an implied term that Mr Fryer would comply with any reasonable or lawful instruction to support an obligation on his part to complete site reports.

Clause (g) quoted earlier begins with a requirement that Mr Fryer should work exclusively for IFH. But this is qualified by the last sentence of the clause which requires notice to be given if the agent does commence working for “any other companies” so as to avoid what is described as a clash with the arrangements. Sensibly construed this must mean that Mr Fryer had to notify IFH of any contracts entered into with other companies regardless of whether they were competitors and by necessary implication for IFH’s consent to be given.

The requirement to produce weekly report sheets is more straightforward. A failure to produce these within a reasonable time would be a breach of contract. The same would apply to the site reports.

The full scope of Mr Fryer’s involvement with other businesses was set out in the letter of 21 March 2006 from his solicitors sent in response to IFH’s letter (from Mr Michael Rogowski, the Finance Director) of 2 February 2006. In that letter Mr Rogowski refers to Mr Fryer having disclosed (for the first time) that he was working on a self-employed basis for Nationwide and that his working time was split 70/30% between IFH and Nationwide. Mr Rogowski also refers to Mr Fryer’s involvement with BuildNet North West Limited. In requesting full disclosure of all Mr Fryer’s personal and third party business activities Mr Rogowski explained that:

“…

This is required in order for us to satisfy ourselves that you are not selling competing goods or services which would obviously put you in breach of our Agreement. Similarly, we need to be assured that you are actively pursuing the best interests of IFH and justifying your monthly commission payments.

…”

In their letter of reply of 21 March 2006 Roscoes said this:

“…

1.

Mr Fryer operates in sales/marketing capacity for Nationwide North West Ltd. That company makes PVCU windows and supply and fit them to National House Building companies. We are instructed that you have been aware of this for some three to four years and therefore we fail to see how you can claim that our client is now in breach of the Agency Agreement that you have with him.

2.

Mr Fryer further works on a self-employed basis for Moben kitchens. We are instructed that Mr Fryer carries out design work for them.

3.

The only other business interest that our client has is that of Buildnet North West Ltd of which he is the Managing Director. As you may be aware this company provides building services to domestic customers with the emphasis being on carpentry. That company, as you will be aware, mainly purchases their materials from Ian Firth Hardware Ltd.

We are instructed that our client does not work in direct competition with Ian Firth Doors & Hardware and is in no way in breach of the Agency Agreement which he has entered into.

… ”

Mr Robin Firth, the Sales Director of IFH, accepts in his witness statement that there was no bar on Mr Fryer taking on other activities provided IFH were notified and were satisfied that there was no conflict of interest. Mr Fryer has produced a typed letter dated 5 July 2004 which he says that he sent to Mr Firth. In it he refers to BuildNet North West Limited. The letter concludes by saying that 95% of his time is taken up doing work for IFH with a further 3% for Nationwide and 2% for BuildNet. Mr Fryer relies on this as evidence that he notified IFH of his involvement with both companies and that no objection was raised.

Mr Firth denies ever receiving this letter and it was put to Mr Fryer that it has been created subsequently to support his case on disclosure. The letter refers to Nigel Fryer Joinery Services going limited in the near future when, as Mr Kramer pointed out, the name Nigel Fryer Joinery Services Limited had been used for some time prior to that. There was also no obvious reason for the letter at the time it was written. In June 2005 Mr Ian Firth, the Managing Director, had written to Mr Fryer complaining about the lack of site reports and his failure to provide the feedback on deliveries and levels of service which those reports were intended to contain. But that letter does not raise any issues about the arrangements made by Mr Fryer for the billing of his commission.

Despite these points, I am not able to conclude that the letter was manufactured and never sent. But I am satisfied that if sent it was never received. Nor is there any real evidence that IFH became aware of Mr Fryer’s involvement with Nationwide in other ways. Mr Fryer says that Ian Firth knew about it. He has not given evidence but Mr Robin Firth says that Mr Fryer was frequently asked for details of his other activities and said only that he did some domestic work for a small window company. The full scale of his activities and the identity of that company were not revealed until the meeting held on 31 January 2006.

I accept this evidence. I believe (and find) that the true position was that IFH were aware for some time prior to 2006 that Mr Fryer had other business interests and did work for other companies. But they had no detailed knowledge of the scope of these activities and the time they involved. Nor were they aware that they included Nationwide and Moben kitchens. Moben is not in any sense a competitor with IFH. Nationwide is a competitor in a limited way. Although most of its business consists of the manufacture and sale of windows it does also sell some composite doors. However, it has an account with IFH and has on occasions placed orders for IFH products. The scope for any conflict is therefore limited on the evidence and Mr Fryer’s involvement with Nationwide was clearly not considered to be a termination issue in its own right when it was disclosed in January 2006. Mr Robin Firth said that Mr Fryer promised at the meeting to renew his efforts for IFH and on that basis no further steps were taken until after the full picture was disclosed in the solicitor’s letter of 21 March. On my findings, however, there was a breach of the agreement by Mr Fryer in not notifying and obtaining the consent of IFH to his working for Nationwide and Moben. I shall return shortly to the question whether the breach was sufficiently serious to amount to a repudiation of the agreement by Mr Fryer.

The purpose of weekly reports was to provide a record of the customers visited by the agent and details of the purpose and outcome of the visits. Each report sheet is an A4 size piece of paper divided into two columns and then cross-divided into five sections with one for each workday. The agent has to enter the name and address of the customer in the left hand column and a sentence or two describing the purpose of the visit. The examples in evidence show that some of the visits were routine follow-ups but in a number of cases the purpose of the visit was to discuss some specific issue relating to an order or prospective order. Some of these site visits were prompted by complaints or queries raised by the customer with head office and in such cases the agent was also required to complete a site report giving details of what was discussed or the nature of the problem. From a combination of these reports IFH was able to see how the agent’s time was spent and also to pick up and hopefully resolve any issues which the customer had with the product or the sales service.

It is clear that Mr Fryer found the completion of this paperwork tiresome. He complained in his evidence about the amount of duplication between the weekly and site reports in relation to site visits designed to deal with a particular problem. But the degree of detail required to complete the forms was on any view modest and I was left with the clear impression that Mr Fryer’s failure to produce reports on time was largely due to his belief that they were relatively unimportant in relation to his other duties. In his witness statement he describes them as a waste of time and says that his time could be better spent pushing sales.

Mr Robin Firth said that the problem about the reports began as long ago as 2001. He said that Mr Fryer was chased about the reports and on each occasion promised to catch up. In July 2003 Mr Fryer wrote to Mr Firth complaining that the demands upon him to produce reports had increased but that the financial rewards had not. He wanted to agree what he describes as a proper and appropriate level of reporting. Mr Firth responded on 16 July simply enclosing copies of the 1997 agreement and a subsequent letter about the level of commission. Any increase in earnings would, he said, have to come from increased sales.

On 3 November 2003 a meeting was held between Mr Firth and Mr Fryer to discuss the latter’s failure to complete site reports for a number of months. Mr Fryer was given a formal warning to complete both weekly sales and site reports as required. There were no further written warnings until November 2005. By then IFH had received no weekly reports from Mr Fryer for a period of six months. In his letter of 14 November Mr Firth refers to the previous warnings about Mr Fryer’s failure to complete weekly reports and to the numerous reminders given to him at sales meetings and the like. He was told in the letter that he could not be treated differently from the other sales agents and had to complete weekly and site reports on a weekly basis.

Mr Fryer replied to Mr Firth’s letter on 21 November. In his letter he said this:

“With reference to the weekly reports, I can’t under stand your constant request for weekly reports when it is just a duplication of all the other reports we have to send in. Over the last three years you have constantly criticized me for not sending them in on time, you have never praised me once for the increase of sales over the last three years up to 1.3 million.

…

During the last five years I have seen a decrease in salary, I don’t get annual salary increases but do get a cost of living increase. I have spent some time discussing this with my accountant and we have come up with a business plan to increase profit. One customer, this plan seems to be working having increased sales over the last three years and given you a forecast of 1.4 million for next year.

I am totally committed to Ian Firth Hardware and have no intention of representing any company other than Ian Firth in the future. You, however, are constantly threatening me with termination of our working agreement. I rely on Ian Firth for 90% of total income and these threats are not welcome or encouraging, when the only criticism you have of me is not producing weekly reports.

…”

Mr Fryer accepted in cross-examination that over the years he was persistently late in producing reports and that the delay was on occasions measured in months rather than weeks but he contended that IFH had the information from other reports. He accepted that he did periodically agree to file reports on time but as explained earlier, it was not for him a priority. His letter of 21 November led directly to the meeting held on 31 January 2006. The points agreed at that meeting were set out in the letter to him from Mr Rogowski dated 2 February 2006 which also records his disclosure that 30% of his time was being spent dealing with Nationwide matters. In relation to the filing of reports the letter states that:

“…

vi.

The Meeting concluded with your agreeing to complete both the site reports and weekly reports in future in a timely manner and re-invigorate your efforts on behalf of the Company.

…”

Mr Fryer said that as a result of the meeting he felt threatened and it was for this reason that he got Roscoes to reply dealing with his other business interests. But that letter does not contest his agreement at the meeting to provide reports in a timely manner. Notwithstanding this, no further weekly reports were produced after 17 March 2006 and site reports were not provided in response to requests for site visits and reports made on 3 April, 6 April and 7 April.

The Defendant accepts that the failure to provide weekly and site reports after March 2006 would not amount to a repudiatory breach of contract if they had not been proceeded by earlier breaches. But there had, Mr Kramer submits, been a sustained and persistent failure to produce reports even after warnings and the resumption of this failure was so to speak the last straw: see e.g London Borough of Waltham Forest v Omilaju [2005] IRLR 35 at para. 20.

I agree with that. Following the exchange of correspondence in late 2005 and the meeting in January 2006 Mr Fryer could have been in no doubt that the completion of the reports was regarded by IFH as an important term of the agency agreement. The agreed position at the end of the meeting was that it would not recur. His subsequent failure to comply with that can in the circumstances only amount to a decision by him not to be bound by the terms of the agreement and IFH was entitled in my view to treat it as a repudiation by Mr Fryer of the agency agreement.

The position about the other activities is more difficult. As stated earlier it is clear that even if one ignores the letter of 5 July 2004 IFH were aware that Mr Fryer did have other business interests and this was confirmed by his letter of 21 November 2005 with its reference to his relying on IFH for 90% of his income. What came out of the January meeting was confirmation that he was working for Nationwide which Mr Robin Firth clearly does regard as a competitor and that this work accounted for 30% of his time. His involvement with BuildNet North West and Moben was obviously much more limited and neither of these companies competes with IFH. My assessment of the evidence is that Mr Fryer’s activities with these two companies (even if fully disclosed at the start) would not have been seen as giving rise to any conflict with the agency agreement and would have been consented to. They can therefore be discounted. The only real issue is whether his work for Nationwide amounted to a repudiation.

The contractual requirement was for Mr Fryer to work exclusively for IFH and for any exceptions to this to be agreed in advance with the Defendant. Mr Fryer contends that his work for Nationwide did not conflict with his agency with IFH and even may have been beneficial in producing orders. Although there is an element of competition between the two companies it is on the evidence limited and it is clear from Mr Nigel Firth’s evidence that his suspicions that Mr Fryer was doing other work was not considered sufficiently important in itself for IFH to have insisted on earlier disclosure and approval of these activities. This is in contrast to the position on reports which did lead to numerous discussions and reprimands over many years and ultimately led to the January 2006 meeting.

Mr Firth said in cross-examination that the meeting was called because Mr Fryer was still not completing reports. They were not happy with his performance as a sales agent and wanted (as he put it) to re-invigorate him. Although his sales figures were adequate he had not met his own forecasts for 2004/5 and there was in Mr Firth’s view room for improvement. But Mr Fryer’s refusal to file reports was regarded as a problem not least because it meant that IFH had no record of how he was spending his time and whether his sales performance was suffering from inadequate attention to customers.

It seems to me that the real concern was not so much the identity of the companies for whom Mr Fryer was doing other work but the fact that he was spending up to 30% of his time not working for IFH. This figure came out of the January meeting. Mr Firth said that he thought that Mr Fryer had too many commitments outside IFH and that this was linked to his failure to produce reports. Therefore, although the question of competition and conflict was an issue it was by no means the only issue and in the letter from Mr Rogowski of 2 February 2006 disclosure of all Mr Fryer’s outside interests was requested to deal both with the competition issue and also with the wider issue of whether he was actually pursuing IFH’s best interests.

The solicitor’s letter of 21 March did not add to the information provided at the January meeting beyond identifying design work for Moben Kitchens as one of Mr Fryer’s other activities. This was included in the 30%. But it did confirm that in what everyone accepts to be an increasingly competitive market Mr Fryer was devoting a third of his working time to other business activities for which he had not asked or received any prior approval. Although it could be argued that if this were the only complaint against him the proper course would be for IFH to request him to reduce his other activities rather than to terminate the agreement, the disclosure of the scale of his other interests has, I think, to be looked at in the wider context of his refusal to account for his time by putting in regular weekly reports. When one takes both aspects together, the unauthorised pursuit of these outside activities and Mr Fryer’s failure to disclose them did in my judgment amount to repudiatory conduct on his behalf. Both were relevant to the assessment of Mr Fryer’s willingness to account for his time and to devote sufficient resources to IFH.

As explained earlier, the existence of repudiatory conduct on the part of Mr Fryer does not disentitle him to seek compensation under reg.18 unless it was the ground relied upon for terminating the contract. The position under reg.15 is different. Mr Firth suggested in his evidence that some kind of provisional decision to dismiss was taken as early as March but Mr Rogowski who had charge of these matters said that once they had received the letter from Roscoe’s legal advice was taken which then resulted in the letter of termination of 20 April. It was this letter which brought the contract to an end and I have to consider the reasons relied on for doing so.

Mr Rogowski left me in no real doubt that IFH were upset at receiving Mr Fryer’s response in the form of the solicitor’s letter and that had he handled things differently the outcome would not necessarily have been the same. But having found that the breaches of contract by Mr Fryer did amount cumulatively to a repudiation by him of the contract the only real issue is whether they were relied upon as the basis for terminating the agreement. Mr Rogowski said that by 20 April the reports had stopped again and the view was taken that Mr Fryer had too many outside commitments. In his opinion nothing had changed since the January meeting to indicate that Mr Fryer did intend to abide by the agreement and give priority to the interests of IFH.

The letter of termination states the reasons for giving notice as follows:

“…The Board of Ian Firth Hardware has taken this action reluctantly, but the contents of your letter of 21 March 2006 detailing all Mr Fryer’s other business interests puts Mr Fryer clearly in breach of the Agreement. In addition, those interests explain the lack of performance that was detailed in our letter to Mr Fryer of 2 February 2006. We would also point out that there has been no improvement in Mr Fryer’s performance since our letter of 2 February 2006.

…”

Mr Harper submitted that the letter bases itself on Mr Fryer’s other business activities as set out in the letter of 21 March and not on his recent failure to produce reports. But that I think construes the letter too narrowly. The lack of performance detailed in the letter of 2 February 2006 is not limited to declining sales but includes the failure to complete reports. Notice was in my judgment also based on this. It follows that the Defendant can rely on reg.18(a) to exclude Mr Fryer’s right to compensation under reg.17 and that the notice given was sufficient in any event to terminate the contract under reg.16.

In these circumstances the issue of compensation does not arise and I can deal with the point quite shortly.

If Mr Fryer had been entitled to a minimum of three months’ notice of termination under reg.15 he calculates the additional commission payable as £3,725.20. But this sum would have to be discounted by the amount of overheads referable to the period in question which the Defendant calculates would have left him with £2,279.33 net for the two month period.

However, the more significant claim in financial terms is that for compensation under reg.17. In Lonsdale the House of Lords confirmed that compensation for the loss of a commercial agency falls to be calculated by reference to the market value of the agency on the assumption that it had continued and was assignable. In terms of value the most important component is obviously the right to commissions and it is this income stream which has to be given a capitalized value. Lord Hoffmann explained the valuation assumptions as follows:

“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. He must be assumed to have been able to take over the agency and (if I may be allowed the metaphor) stand in the shoes of the agent, even if, as a matter of contract, the agency was not assignable or there were in practice no dealings in such agencies: compare Inland Revenue Commissioners v Crossman [1937] AC 26. What has to be valued is the income stream which the agency would have generated.

13 On the other hand, as at present advised, I see no reason to make any other assumptions contrary to what was the position in the real world at the date of termination. As one is placing a present value upon future income, one must discount future earnings by an appropriate rate of interest. If the agency was by its terms or in fact unassignable, it must be assumed, as I have said, that the hypothetical purchaser would have been entitled to take it over. But there is no basis for assuming that he would then have obtained an assignable asset: compare the Crossman case. Likewise, if the market for the products in which the agent dealt was rising or declining, this would have affected what a hypothetical purchaser would have been willing to give. He would have paid fewer years' purchase for a declining agency than for one in an expanding market. If the agent would have had to incur expense or do work in earning his commission, it cannot be assumed that the hypothetical purchaser would have earned it gross or without having to do anything.”

The House of Lords declined to follow the French practice of awarding compensation in a sum equal to twice the average annual gross commission over the previous three years. The evidence was that it is based on what commercial agencies in France are regularly sold for. But as Lord Hoffmann recognised in paragraph 18 of his speech there is no such market in England and what the English Courts must therefore do is to calculate

“….the amount which the agent could reasonably expect to receive for the right to stand in his shoes, continue to perform the duties of the agency and receive the commission which he would have received….”

One of the difficulties in this approach exposed in both this and the Lonsdale case is that because most agencies are not in fact assignable there is no actual market in them. Therefore, it comes as no surprise that any valuation evidence used to support a claim for compensation is likely to deal in hypothetical terms with what a willing purchaser might be prepared to pay on various assumptions including that the contract of agency is assignable but without being able to produce evidence of comparable transactions to suggest the estimate of value. In Lonsdale itself the judge referred to the fact that the income from the agency was in steady decline and that there was no real evidence that anyone would have paid anything to buy it. In the end he awarded compensation of £5,000. Lord Hoffmann said that the judge’s approach was right and that he could not have been faulted had he in fact dismissed the claim.

On the basis of these remarks Mr Kramer invited me to take a similarly robust approach to the expert evidence of Mr Green. Using the information contained in Mr Fryer’s accounts with certain adjustments, he has valued the income stream at between £80,000 and £100,000 in his report. This calculation assumes a future maintainable pre-tax profit of between £20,000 and £25,000 per annum tax and further maintainable earnings after tax of between £16,000 and £20,000. To this Mr Green applies a p/e ratio of 5 which he says is common in the valuation of small and medium sized businesses.

He has based his valuation on the accounts filed for Nigel Fryer Joinery Services Limited which as already explained, is not the contracting party but the calculations can be used in relation to Mr Fryer without material adjustment on that account. The challenge to his report was based very largely on two matters: his estimate of the expenditure and the likely further income stream and the absence of any hard evidence of comparable transactions.

As compensation under reg.18 is no longer an issue which I have to decide I do not propose to set out the detailed criticisms of the valuations advanced by Mr Kramer in cross-examination or Mr Green’s response to them. It is enough, I think, to record that at the end of that process the parties produced an agreed re-working of administrative expenses which shows an average of expenses for 2005 and 2006 of £16,439 and an average income before expenses of £34,064. After deducting expenses and tax this leaves a net income figure of £14,100. This takes no account of the time worked in order to earn the commission and if sold to a company rather than an individual, the income figure would have to be reduced to take account of salary. In the 2006 accounts for the first Claimant there is a figure of £5,000 in respect of director’s remuneration.

On the basis of these revised figures Mr Green reduced his valuation to between £35,000 and £50,000 but I regard even this as unrealistic. £14,100 per annum for an average 40 hour week is on any view a modest salary and is very much less than the 2005 New Earnings Survey figure for sales representatives which produced average earnings of £521.70 per week gross, £27,128 per annum. Almost anyone could obtain an income at that level in an unskilled job without paying a premium for it. No hypothetical purchaser would in my opinion be willing to pay a substantial sum for the opportunity of earning that amount through his own labour unless the prospects of increasing the return for approximately the same amount of effort were considerable. There is no evidence of this. I would therefore have rejected the claim for compensation under reg.18. In saying that I should make it clear that the absence of comparables is not in my view fatal to a claim if the economics of the agency would make it a saleable asset but for the fact that it is not assignable. It must follow from Lord Hoffmann’s recognition that assignability is to be assumed that one will in most cases be dealing with an entirely hypothetical transaction. If the existence of a real market is necessary, then in most cases no compensation would ever become payable. This formula would be unworkable. I think that Lord Hoffmann’s speech has therefore to be read subject to that caveat, but in the end my decision does not turn on that.

The claim fails and will be dismissed.