Commercial agent’s ‘Shearman v Hunter Boot clause’ severed by Mercantile Court

04 Nov 2015

Brand Studio Limited v St John’s Knits [2015] EWHC 3143 (QB), Teare J

This case concerned a commercial agency between a UK agent and a Californian principal. The agency contract contained a clause that elected Regulation 17 indemnity upon termination, with a proviso that the agent would get Regulation 17 compensation if that proved to be cheaper for the principal. It was common ground that the effect of that proviso was unlawful per the finding in relation to an essentially identical clause in Shearman v Hunter Boot Ltd [2014] EWHC 47 (QB). The principal in Brand submitted that the proviso could however be severed, leaving the lawful choice of an indemnity in the first part of the clause; a point left open in Shearman.

The Court (Teare J) held that the Regulation 17(2) question, whether the contract “otherwise provides”, fell to be considered after, not before, severance, particularly in this case where the agreement itself expressly contemplated severance in the event that any provision of the agreement was held to be invalid. Further, that following Beckett Investment Management Group v Hall [2007] 1 ICR 1539 (CA) the threefold test for severance formulated in Sadler v Imperial Life Assurance [1988] IRLR 388 should be adopted. The issue was whether the removal of the unenforceable provision so changed the character of the contract that it became “not the sort of contract that the parties entered into at all”. The judge found that, after severance, it was an agency contract in which the agent has agreed to accept an indemnity whether or not compensation would be a lesser sum, so that it remained “the sort of contract that the parties had entered into”. Consequently the agency contract “otherwise provides” for indemnity under Regulation 17.

Philip Moser QC and Azeem Suterwalla (instructed by Harbottle & Lewis LLP) acting for the Defendant principal.

To read the full judgment please click here Brand Studio Limited v. St John Knits