Typhoo Tea Controversy
Further helpful guidance on the level of compensation payable on the termination of a Commercial Agency has been given in the case of Alan Ramsay Sales and Marketing Limited v Typhoo Tea Limited  EWHC 486 (Comm).
Alan Ramsay Sales and Marketing Limited acted as a commercial agent selling tea Typhoo Tea for its principal. When Typhoo terminated the agency, a claim was made for compensation pursuant to The Commercial Agents (Council Directive) Regulations 1993.
In considering the appropriate level of compensation to award, the court applied the principles set out in the leading case of Lonsdale but also provided some additional guidance on the method to be used in valuing the agency. Specifically the court concluded that:
- A multiple should be applied to profits based on the average price/earnings ratio of the FTSE for the Consumer Goods and Consumer Services sector, discounted by 40% for lack of marketability and by a further 30% for the small size of the agency;
- The multiple should be further discounted by 20% from 5 to 4 to reflect that fact that the hypothetical purchaser of the agency was deemed likely to be an individual or small business with conservative and cautious outlook and modest means.
- It was not relevant that the agency was terminable on twelve months’ notice and that this did not put an upper limit on the multiple. The reason for this was that the Lonsdale judgment made it clear that, when valuation the agency, it was to be assumed that it would continue without the principal invoking the termination provision.
- It was necessary to estimate what wage costs incurred by the agent related to the Typhoo agency and which were in relation to other activities. These were assessed by comparing the wage costs for the last year of the Typhoo agency with the wage costs for the following year, being the year after the agency had ended, taking account of staff who had left. The difference between the two was deemed to be the saving to the claimant from not running the Typhoo agency and thus representing in broad terms the wage costs of running it.
- It was appropriate to make a deduction for the notional remuneration for the shareholder/director of the agent based the salary for a sales manager derived from the Annual Survey of Hours and Earnings multiplied by the proportion of his time that he was deemed to have devoted to the agency.
- The court should not assume that the notional purchaser was a start-up operation as opposed to an established business and that, if it was the latter, then the overheads of the business would be incurred by it anyway, irrespective of whether this additional agency was taken on. Instead an element of the fixed costs should be deducted from the gross contribution of the agency to derive a net earnings figure to which the appropriate multiple should be applied.
Finally it is worth mentioning the possibility that the protection currently afforded to commercial agents may be withdrawn as a consequence of Brexit. There is little doubt that the commercial agency regulations are somewhat of an anathema to English jurisprudence that typically affords protection only to employees and consumers and not to commercial entities entering into business to business contractual arrangements.
 Lonsdale v Howard & Hallam Limited  UKHL 32;  ICR 1338. At -