Legal Updates

Commercial Law – Agency – Termination – Conditions – Repudiation – Commercial Agents 

 
In the recent case of Crocs Europe BV v. Anderson (t/a Spectrum Agencies (A Partnership)) [2012] EWCA Civ 1400, it was held that the regulation 3 of the Commercial Agents (Council Directive) Regulations 1993 did not create a condition that in the event of a breach of an agency contract, the contract would be automatically terminated. 
 
Background
 
  • The respondent (“S”) had been the appellant’s (“C”) UK agent for the sale of C’s footwear products;
  • Some of S’s employees posted comments about C on a website, which S claimed to be a joke about C’s failure to respond to orders;
  • A URL to the website was sent to C and some of C’s customers and distributors;
  • C claimed that the comments disparaged the very products that C had appointed S to sell and that this constituted a repudiation of the contract;
  • The judge held that there had been a breach, but this was not sufficiently serious to be repudiatory.
Regulation 3 of the Commercial Agents (Council Directive) Regulations 1993
 
3.— Duties of a commercial agent to his principal
(1) In performing his activities a commercial agent must look after the interests of his principal and act dutifully and in good faith.
(2) In particular, a commercial agent must—
(a) make proper efforts to negotiate and, where appropriate, conclude the transactions he is instructed to take care of;
(b) communicate to his principal all the necessary information available to him;
(c) comply with reasonable instructions given by his principal.
 
Appeal
 
C appealed, arguing that:
 
  • Regulation 3 of the Commercial Agents (Council Directive), should be read as a condition and thus a breach of which entitled the principal to terminate the agency agreement. C deemed the judge to be wrong in holding that a breach of duty under regulation 3 of the Directive only entitled the principal to terminate the agency contract, if it was “sufficiently serious”;
  • C was entitled to terminate the contract due to S’s breach of fiduciary duty;
  • S’s conduct had been sufficiently serious to be repudiatory;
 
Outcome
 
The Court of Appeal held that:
 
  • Regulation 3 did not create a condition of the contract which would automatically terminate the agency agreement if breached;
    • Regulation 3 merely sets out the obligations of the agent;
    • Regulation 5(2) expressly provides for the consequence of a breach, thus no implication could be made.
  • C’s submissions pertaining to fiduciary duty were not substantiated by the general principles of fiduciary law;
    • Not all fiduciary duties, if breached, automatically repudiated the contract;
    • Breaches of fiduciary duty are capable of other remedies, depending on the parties’ intentions and the circumstances surrounding the breach.
  • The judge was correct to address the question of seriousness of C’s conduct, in all circumstances. The judge’s assessment of the evidence led him to view the breach as not sufficiently serious to justify summary termination, in particular:
    • The website did not disparage C’s goods, but instead referred to its inability to meet its delivery obligations, which was well known;
    • The website was as a joke, which was obvious;
    • There was no evidence of harm suffered by C.
  • Although there had been a breach of contract, it did not go to the root of the agency relationship and was considered a one-off incident, without the element of bad faith;
  • C’s appeal was dismissed.
 
 
© RT COOPERS, 2012. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances.
 

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