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Exporters to the UK saved from excessive agent compensation claims
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The Winemakers’ Federation of Australia’s intervention in a landmark legal case has resulted in additional protection for all companies exporting to the United Kingdom via commercial agents.
In early 2006, in the case of Lonsdale v Howard & Hallam Ltd, the English Court of Appeal ruled that a commercial agent should receive compensation based on the value of the agency business, including goodwill, in circumstances where a brand owner terminated an agency agreement.
This opened the door for agents to claim compensation for goodwill irrespective of whether: • the agent would retain any goodwill for himself by supplying customers with products from another source; or • the goodwill was pre-existing or generated by the companies themselves.
Whilst not restricted to winery businesses, the Winemakers’ Federation recognised that this decision would generate excessive and unfair claims by UK agents, running into the millions of dollars, and act as a major constraint for Australian wineries seeking to change agents.
Consequently, when the agent appealed to the UK House of Lords the Federation applied for, and was granted, permission to intervene and argue that the ruling should be qualified as above.
On 4 July 2007 the House of Lords rejected the agent’s appeal but took the opportunity to issue guidance on how compensation awards should be assessed and, crucially, accepted the Federation’s submission that any goodwill the agent retains by selling rival producers’ goods to the same customers should be excluded.
The Law Lords did not expressly rule on the Federation’s second argument, namely that the valuation should exclude goodwill the agent hasn't generated or helped to preserve, however the Federation’s English solicitor, Andrew Park of APP Law, said that ‘it can in our view be argued quite strongly that this was implicitly accepted or taken as read’.
Winemakers’ Federation Chief Executive Stephen Strachan welcomed the decision benefiting Australia’s wineries exporting to the UK.
"The original decision on acceptable compensation for UK agents on termination of agreements was unfair and excessive, with huge ramifications for Australia’s wineries in their largest export market," Strachan said.
"We were being faced with restrictions around agency selection and agreements as well as major financial burdens.
"The Winemakers’ Federation has always fought for fair trading conditions in our wine export markets and this was a constraint we felt it imperative to contest."
"We applaud the commonsense decision reached by the UK House of Lords and thank our legal representatives APP Law for their support in allowing the continuance of equitable trading for Australian wine companies in the UK market,’ Strachan said.