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Agency – important questions yet to be fully answered

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In the case of Rossetti Marketing Limited & Another v Diamond Sofa Company Limited [2012] EWCA Civ 1021, the Court of Appeal discussed some important questions affecting commercial agents and their principals, as well as other agents.

When is it too late for a principal to rely on the commercial agent’s breach?

Under The Commercial Agents (Counsel Directive) Regulations 1993, commercial agents have certain rights, including a right to compensation on termination. However, agents are not entitled to compensation in certain circumstances, including where the principal was entitled to terminate the agreement because of the agent’s fault.

Diamond alleged that RML was in breach by operating other agencies in competition with its agency for Diamond (see below). The question was could the principal could rely on the common law rule (known as The Boston Deep Sea Fishing rule) retrospectively to justify termination of a contract by reference to a ground upon which it did not rely at the time of termination. If yes, this could prevent the commercial agent claiming compensation on termination by the principal.

The Court of Appeal hearing was an appeal from the decision of the High Court on various preliminary issues. The Court of Appeal was somewhat critical of how the preliminary issues were addressed. In short, the Court of Appeal was not willing to decide the question and it was left for another day. The law is still in a state of uncertainty.

Can an agent act for principals in competition?

Another question the Court of Appeal considered was whether RML was entitled to act for Diamond’s competitors. In general, agents cannot sell goods for various principals who are in competition with each other for the same goods. As a general proposition, an agent occupies a fiduciary condition with respect to his principal. The Court endorsed previous authority which says that the agent owes “the single minded duty of loyalty” to his principal and he “must not place himself in the position where his duty and his interest conflict”. The agent “may not act for … the benefit of a third party without the informed consent of his principal” and specifically “it is normally said that it is a breach of an agent’s duty to act for competing principals”.

Again, because of the way the preliminary issues had been addressed, the Court of Appeal did not decide the point in this case. However, the Court of Appeal was very sceptical that outside an estate agency context, where it is known and accepted that the estate agent will act for various principals (sellers who are in competition), an agent could act for competing principals.

Practical Conclusions

Whilst in many circumstances it may be difficult or impossible to discover an undisclosed breach during the course of the agency agreement, principals seeking to terminate an agency agreement should consider very carefully the grounds for termination before giving notice as it may be difficult to rely on breaches of the agreement not relied on at the time.

Principals should consider seeking and confirming in writing as part of the formal process of entering into any agency agreement disclosure of any potential conflicts of interest of the agent. Agents should ensure that full and frank disclosure is given of possible conflicts (even if not sought) and express consent obtained, in order to limit the scope for future allegations of breach.


John Mackle is a senior associate in Clarion’s commercial dispute resolution team.
 

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