Where there's a [lack of good] will, there's a way?

Community Trade Mark E4804522

Despite its age, the Commercial Agents Directive 86/653/EEC (as amended) continues to present problems.  There has been a steady stream of decisions from the Court of Justice of the European Union on the meaning of its provisions dealing with the agents’ rights in connection with the termination of agency.

The most recent decision is Case C‑203/09 Volvo Car Germany GmbH v Autohof Weidensdorf GmbH, handed down by the Court of First Instance on 28 October 2010. In this case a motor dealer’s agency agreement was properly terminated by Volvo giving two years’ notice. However, during the notice period the dealer breached the terms of the dealership agreement. Volvo only became aware of the breach after the termination of the dealership. As the breach would have entitled Volvo to terminate the dealership immediately, had it known, Volvo refused to pay the dealer’s claim for a goodwill indemnity, being the form of compensation under the applicable law that the dealer was entitled to upon termination or expiry of the agreement under Article 17 of the Commercial Agents Directive (the UK is unique in allowing either form of compensation under Article 17 to be used in commercial agents agreements). Volvo claimed that as it had grounds to terminate the dealership agreement, it could rely on the exemption from the right to pay the Article 17 indemnity or compensation at Article 18(a) of the Commercial Agents Directive.

Article 18 of the Directive states:

The indemnity or compensation referred to in Article 17 shall not be payable:

(a)  where the principal has terminated the agency contract because of default attributable to the commercial agent which would justify immediate termination of the agency contract under national law;

(b)  where the commercial agent has terminated the agency contract, unless such termination is justified by circumstances attributable to the principal or on grounds of age, infirmity or illness of the commercial agent in consequence of which he cannot reasonably be required to continue his activities; and

(c)  where, with the agreement of the principal, the commercial agent assigns his rights and duties under the agency contract to another person.

Although the case reached the Court of Justice in Luxembourg, the decision turned upon the words “because of”.  The Court of First Instance determined that the wording “because of” meant that there had to be a direct causal link between the breach by the agent and the principal’s decision to terminate the agency in order to extinguish the agent’s right to an indemnity or compensation.  Any provision in the Directive restricting an agent’s right to termination had to be interpreted narrowly against the principal.

So, did the German dealer get away with its breach?  It would appear so, as clearly the termination of the agency was not linked to the breach.  However, the Court did hint that in calculating the indemnity to which the agent was entitled, the German Bundesgerichtshof that made the reference to the Court of Justice could perhaps rely on the qualification to the right set out in Article 17.  Article 17(2)(b) of the Directive states:

[the commercial agent shall be entitled to an indemnity if and to the extent that] the payment of this indemnity is equitable having regard to all the circumstances

UK Trade Mark 2353422

Perhaps a more straightforward case is Gledhill v Bentley Designs (UK) Limited [2010] EWHC B8 (Mercantile), where the agent, Stephen Gledhill, let fly at the managing director of the principal, Bentley Designs (UK) Limited.  In a voicemail message to the MD’s personal mobile phone, the agent made it clear where he stood, saying of the MD:

I think you are an absolute shit, I really do. You are a despicable, horrible little excuse for a human being.

The agent did attempt an apology by letter, but this was clearly an exercise in self-justification rather than an expression of true remorse.  If you are going to make an apology, it does not help to include statements like:

I do feel however that there was a fair degree of justification in my actions when looking at the circumstances from my perspective.

It may not be too much of a surprise to learn that the Mercantile Court had no trouble in finding that the implied reciprocal term in an agency, similar to an employment contract, that neither would “without reasonable and proper cause, conduct itself in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between employer and employee” (Mahmud v BCC [1997 ICR 621), had been breached by the agent.  The breach was deemed serious enough, or in the words of Judge Simon Brown QC, “was a course of conduct calculated, or at least very likely, to destroy or seriously damage the relationship of confidence and trust”, to warrant immediate termination of the agency by the principal.  This meant, of course, that the agent lost any right to an indemnity or compensation.  This might otherwise have been relatively substantial, given that the agency was profitable, earning the agent around £85,000 pa in commission.

Data Protection Lawyers: you can count on us

I was joking the other day with another lawyer on Twitter (@fauxcornishgirl) about how anal lawyers can be, given that attention to detail is drummed into us from the first moment we open a law text book or law report.  Now this is where I have to make a confession.  As a trainee solicitor at what was then Taylor Joynson Garrett (now Taylor Wessing), I took part in a training day where we were all subjected to a series of psychometric tests.  Some were pretty standard, such as Myers-Briggs (for those interested, I’ve done the full test 3 times at different stages during my working life – each time coming out ENFP).  One test purported to evaluate our aptitude for characteristics thought essential for lawyers.  I scored zero for attention to detail, not surprisingly the lowest score the tester had ever seen.

Today I think I may have rehabilitated myself.  On finding me chuckling stupidly at my computer screen, my trainee asked me what was so funny.  I showed her a consolidated version of the Data Protection Act 1998, section 7.  It’s the section that describes subject access requests.  It’s been amended over the years, including by two statutory instruments made in 2000.  You might hope that as a data protection lawyer I’d know the section by now (as an aside, I never rely on my memory of a statute – it’s always safer to spend the extra few seconds to get the most up to date, consolidated text on screen.)  Today, however, was the first time I’d noticed that Parliament in its infinite wisdom has created not one but two sub-section (12). Maybe the parliamentary draughtsman was superstitious. Maybe lawyers cannot count. Or maybe this lawyer has finally got enough attention to detail to spot a mistake that’s only been on the statute book for 10½ years (since 1 March 2000).

The sad bit, of course, was that I found that funny.

What damages will I get? (Part II)

Benetti Shipyard, Livorno (by VP)

This must be the shipping/damages season.  After a case dealing with reliance damages (blogged here), we also have a case that has reviewed the status of liquidated damages clauses: Azimut-Benetti SpA v. Healey [2010] EWHC 2234 (Comm).

A liquidated damage is legal jargon for a loss or expense that can be costed.  If the value of the loss was not known or unascertained, it would be an unliquidated damage.  A liquidated damages clause sets out to define what damages will be paid to an innocent party if the other (defaulting) party breaches the contract.

The offending clause was contained in a Yacht Construction Contract dated 25 September 2008.  This was for the construction of no ordinary yacht, but was for a white 60 metre luxury yacht from the Benetti builders in Italy for a price of €38 million (the picture above, by VP, shows a comparable 62 metre yacht in the Benetti shipyard.  For pictures of the luxurious interior of similar yacht, the Bistango, go to http://www.bistango.net/).  The liquidated damages clause stated:

Upon lawful termination of this Contract by the Builder it will be entitled to retain out of the payments made by the Buyer and/or recover from the Buyer an amount equal to 20% of the Contract Price by way of liquidated damages as compensation for its estimated loss (including agreed loss of profit) and subject to that retention the Builder will promptly return the balance of sums received from the Buyer together with the Buyer’s Supplies if not yet installed in the Yacht.

The Buyer did not pay the first instalment, 10% of the Contract Price, on the due date of 17 October 2008.  The Builder then sought to enforce a guarantee given by Mr Healey under which he had guaranteed the Buyer’s obligations under the agreement.  If he were able to show that the liquidated damages clause was in some way unenforceable against the Buyer, then he would have no obligation of the Buyer to guarantee.  To do this Mr Healey needed to succeed in a claim that the clause was in fact a penalty.  Under English contract law penalty clauses are unenforceable.  As this is the law, there is often an argument between parties in a contract breach dispute about whether any given clause is an unenforceable penalty or an enforceable liquidated damages clause.  The classic test was first set out by Lord Dunedin in a House of Lords case, Dunlop Pneumatic Tyre Co Limited v. New Garage and Motor Co [1915] AC 79 (at 86-87):

The question whether a sum stipulated is a penalty or liquidated damages is….to be….judged of as at the time of the making of the contract, not as at the time of the breach… It will be held to be a penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach.

This led to the common formulation in liquidated damages clauses that the pre-determined amount payable by the defaulting party was a “genuine pre-estimate of the innocent party’s loss.”  So what about this case, where clause 16.3 appears to give the Builder 20% of the Contract Price as a result of its failure to pay the first instalment of only 10%?  Mr Healey’ counsel argued, as you would expect, that the parties cannot have assumed in these circumstances that the liquidated damages of 20% of the Contract Price was a genuine pre-estimate of loss.  Counsel for the shipbuilders noted that the clause said more than just “pay 20%”; it also required the builder to return the balance promptly and any ships’ fittings or other Supplies that had not installed.

After a little argument and an examination of a complex email trail, the judge Mr Justice Blair was satisfied that the agreement had been entered into properly and with the assistance of appropriate legal advice.  Neither party could therefore claim that it did not know what it was doing.  In such circumstances,  Blair J noted that English courts will normally uphold the commercial agreement of the parties.  The clause was commercially justifiable and had a compensatory purpose.  It was not a deterrent, which would have rendered it objectionable and a penalty.  The Court seems to have been particularly persuaded that the obligation for prompt repayment under the clause of any balance was an important feature.  Blair J re-emphasised that a court must exercise caution before striking down a commercially justified clause; what the parties have agreed should normally be upheld (applying Philips Hong Kong Ltd v Attorney General of Hong Kong [1993] 61 BLR 41).

Human Rights and Responsibilites

European Court of Human Rights, Strasbourg

In this post we are straying from our core area of commercial law to have a look at a topical example of how the European Convention of Human Rights (“ECHR”) is applied and enforced in the UK.  Our excuse is that Art 8 of the ECHR, commonly known as the right to privacy (the right to respect for private and family life), impacts directly on many aspects of data protection and information technology law, and because we have just passed the 60th anniversary of the making of the ECHR (4 November 1950).  However, our case involves Art 3 to Protocol 1 of the ECHR:

Article 3
Right to free elections
The High Contracting Parties undertake to hold free elections at reasonable intervals by secret ballot, under conditions which will ensure the free expression of the opinion of the people in the choice of the legislature.

Protocol 1 was made on 20 March 1952.  The UK was a party to the Protocol, so the provision can hardly be considered new.

John Hirst was born in the same year the ECHR was made; 1950.  On 23 June 1978 he killed his landlady, 63 year old Bronia Burton, in an unprovoked attack with a heavy hand axe.  He was subsequently convicted and imprisoned for manslaughter on the grounds of diminished responsibility.  Medical evidence suggested that Hirst had a severe personality disorder so that he was considered amoral.   The original tariff, being the part of his sentence relating to retribution and deterrence, was set at 15 years, but as a result of other violent offences committed whilst in prison, Hirst was not released on licence before he had served 25 years in prison, in 2004.  We set out the background to John Hirst so that the political difficulty there appears to be in the UK to giving prisoners the right to vote can be understood.  In an environment where politicians wish to appear to be tough on crime (and convicted criminals), the fact that John Hirst was convicted for a serious, violent offence does not help the rights’ argument.  However, Hirst’s criminal record has no bearing on the ECHR case.  He could equally as well have been convicted and imprisoned for non-payment of a fine.

Hirst first brought a case to the High Court in 2001 challenging the ban on prisoners voting under section 3(1) of the Representation of the People Act 1983:

A convicted person during the time that he is detained in a penal institution in pursuance of this sentence… is legally incapable of voting at any parliamentary or local election.

This provision can be traced back to a similar section of the Forfeiture Act 1870, which in turn is an enactment of rules of law concerning the forfeiture of rights by a convicted person that date back to the reign of Edward III (1312 – 1377).

The case sought to have section 3 declared incompatible with the ECHR, which is all that a private citizen can do under the Human Rights Act 1998 to redress a breach of his or her rights, but his claim was dismissed by Lord Justice Kennedy (Hirst v Attorney General [2001] EWHC Admin 239).  Kennedy LJ noted that the terms of Article 3 of Protocol 1 did not on their face grant any individual a right to vote, but relied upon the reasoning of Mathieu-Mohin and Clerfayt v Belgium [1987] 10 EHRR 1 that accepted that there was such a right, albeit that the right is not absolute.  The European Court noted that nation states could include conditions on any right to vote and that they had a:

wide margin of appreciation in this sphere, but it is for the Court to determine in the last resort whether the requirements of Protocol No 1 have been complied with; it has to satisfy itself that the conditions do not curtail the rights in question to such an extent as to impair their very essence and deprive them of their effectiveness; that they are imposed in pursuit of a legitimate aim; and that the means employed are not disproportionate. (Paragraph 52)

However, Hirst, as with every other person claiming that their human rights under the ECHR have been infringed, had to exhaust his judicial rights of appeal in the UK before he could take his case to the European Court of Human Rights in Strasbourg (not to be confused with the Court of Justice of the European Union in Luxembourg).  His case had been joined with  R (on application of Pearson & Martinez) v Secretary of State for the Home Department and 2 Electoral Registration Officers.  Applications for permission to appeal to the Court of Appeal were made in that case on 2 May 2001, but they were refused on 15 May 2001 on the ground that the appeal had no real prospect of success.  Hirst applied for leave to appeal on 19 May 2001, but was similarly refused on 7 June 2001, as were renewed applications on 18 June 2001.

Hirst pursued the case to the European Court of Human Rights which ruled in 2005 that the ban breached the right to free elections under the European Convention on Human Rights.  In summary, the Court had a relatively simple job.  Having considered the case law, including Mathieu-Mohin and Clerfayt, the Court noted that imposing necessary and proportionate restrictions required for some justified reason was one thing; an outright ban another.  Nothing in Article 3 of Protocol 1 permits a contracting state to the ECHR to impose this type of outright restriction on universal suffrage. In legal terms, there is nothing difficult about the judgement: it states that Article 3 of Protocol 1 was breached.  Hirst and his legal team were awarded their costs.  Hirst was not granted any damages for suffering or distress caused by the violation (he had claimed £5,000).  The case was originally heard before 7 judges (the Fourth Section of the Court), who unanimously held that the UK was in breach on 30 March 2004.  The UK appealed to the full court (the Grand Chamber of 17 judges) on 23 June 2004, and a majority decision against the UK (12 to 5) was published on 6 October 2005.

The question then becomes one of enforcement.  Once the Court has given its judgement, the matter is then referred to the Council of Ministers.  There is no absolute sanction or power that can be applied to a ECHR contracting state that refuses to implement a judgement, but failure to implement a judgement rapidly becomes a political and diplomatic matter.  Failure to implement a Court judgement is itself a breach of the ECHR (Article 46).

There is plenty that can be said about the Court’s decision in Hirst.  Some have noted that the wording of Article 3 of Protocol 1 is expressed to be an undertaking, not an absolute right.  However, as the UK has signed up to the ECHR, then it is, for as long as it wishes to be so, bound by decisions of the Court.  It’s a simple question of the rule of law.

[For an interesting discussion on the law and politics of the Hirst case, we recommend the podcast of Carl Gardner and Mike Semple Piggott at CharonQC (see blogroll).]