First published in The Bin Ends of Viticultural Law, New Zealand WineGrower Magazine, August 2008.
A recent decision of the House of Lords (Lonsdale v Howard & Hallam Ltd) has considered the rights to compensation with the termination of a distribution agreement. In the UK this is provided for by statute in the Commercial Agents (Council directive) Regulations 1993 and entitles a commercial agent to compensation for damage "he suffers as a result of the termination of his relationship with his principal" (disregard the gender bias!). These regulations which implemented a European Council Directive do not provide for how compensation is to be assessed and this was the important point of the House of Lords consideration. In the various appeals leading up to the House of Lords consideration it was held that "damage" will normally be the loss of agency business, including any goodwill attached to it. The agent's compensation should therefore reflect the value of the agency business at the termination date.
In addition it had been considered that the state of the principal's business should be considered as it may well affect the value of the agency at that date. In this case the principal is the wine producer and the agent the distributor.
Argument was advanced for the French approach of awarding two years gross commission but this was rejected in favour of a "reasoned attempt to ascertain the true extent of the damage suffered by the agent".
An unusual aspect of this case was that the Winemakers Federation of Australia intervened putting arguments on behalf of its wine producer members. It supported the rejection of the French argument but also advanced an argument along the lines that it was wrong to hold that an agent should normally be awarded the value of the agency business at termination date, including any goodwill attached to it, without making two important qualifications:
firstly, that the value of any goodwill that the agent retains for himself by taking customers from the principal and sourcing products from them elsewhere should be excluded; and
This argument was accepted in that the Court held that any compensation should exclude or discount any goodwill that the agent retains for himself by taking customers from the principal and sourcing products for them from elsewhere.
A quote from the judgment is as follows:
"There is the question raised by the Winemakers Federation of Australia Incorporated who were given leave to intervene and made submissions. They are concerned about the case in which the agent is able to transfer the goodwill he has created with customers to another principal for example to persuade the supermarkets to whom he has been selling the produce of one winery to transfer to another. In such a case the former principal would not retain the goodwill in which the agent had created and it would be unfair to have to pay compensation on the basis that the agent had gone out of business.
In my opinion in circumstances such as these would be reflected in the process of valuation. The hypothetical purchase of the agency does not involve an assumption that the agent gives a covenant against competition. If the situation in real life is that the hypothetical purchaser would be in competition with the former agent and could not have any assurance that customers would continue to trade with them that would affect the amount he was prepared to pay. If it appeared that all customers were likely to defect to the former agent (or for that matter to someone else) he would be unlikely to be prepared to pay much for the agency.
What matters of course is what would have appeared likely at the time of termination and not what actually happened afterwards. But I do not think that the Court is required to shut it eyes to what eventually happened. It may require evidence of what the parties were likely to have expected to have."
The decision really reflects the necessity for distribution agreements to include express provision for the calculation of goodwill or not in the circumstances of the termination of the agreement.
When regard is had to the new EC Commission Regulation No. 555/2008 laying down rules on the common organisation of the market in wine as regards support programmes, trade with third countries, production potential and on controls in the wine sector a wide perspective of the extent of wine production in Europe and the circumstances of our export to that market is evident.
The consequence is upon the relationship that producers have with their distributor, and property rights that manifest goodwill. What is evident is that it needs to be expressly provided for in distribution agreements.
For further development of the relationship between trade marks and geographic indications, a recent decision by the Deputy Registrar of Trade Marks in Australia in respect to an objection to the determination of a geographic indication pursuant to the Australian Wine and Brandy Corporation Act 1980 is interesting.
The matter involved an objection by Rothbury Wines Pty Ltd to determination of a geographic indication filed in the names of Murray Tyrell, Tyrell's Vineyards Pty Ltd and Trevor Drayton for "Rothbury".
It was found that the administrative parish of Rothbury and its boundaries were unknown to many of its residents and the term appears to be used only in relation to identifying where a property in the transfer of land title and that accordingly the term has little force as a geographic word. The Deputy Registrar accepted that evidence showed that the word 'Rothbury' had developed a secondary meaning as a trade mark denoting wines of the objector distinct from whatever geographical origins it might have had.
It was further held that because the GI can be used in trade mark like manner to promote the term as denoting the source of origin of wine the use of Rothbury as a GI would be confusing with the registered trade mark of the Rothbury Estate. Further in this regard, that because a GI is territorially based, and its use is open to all that live within it, the objector's trade marks are not, the use of the word Rothbury as a GI would, because of the reputation of the trade marks, be confusing.
It was held that the objector had made out its grounds of objection and the Deputy Registrar considered that there no circumstances that were reasonable to enable the exercise of his discretion to recommend the determination of a GI.