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Ally Tow
Ally Tow,
SENIOR ASSOCIATE - CHARTERED LEGAL EXECUTIVE
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Should a breach of trust end a commercial agency agreement?
29 November 2012

Under Regulation 3 of the Commercial Agents Council Directive Regulations 1993 (“the Regulations”) commercial agents owe fiduciary duties to their principals, including a duty to act dutifully and in good faith.

The duties impose an obligation on the agents’ part to act in the interests of their principals and gives rise to a special relationship of trust and confidence. Until recently it had been thought that any breach of these duties by the agents was likely to allow principals to terminate the relationship immediately with the result that the agents would not be entitled to receive any compensation payment for termination. However, the recent case of Crocs Europe BV v Anderson & another (t/a Spectrum Agencies) has now clarified the position, although maybe only temporarily.

The facts

Anderson & Albrecht, trading as Spectrum Agencies (“Spectrum”), were UK agents for the fashionable shoemakers, Crocs Europe BV (“Crocs”). An employee of Spectrum created an internet post about Crocs which read “That’s a Croc!! Of Shite!! SPECTRUMS WAR OF LIGHT VS DARK” (referred to within the proceedings as “the crawl”). Spectrum sent the crawl to third parties including UK customers and distributors of Crocs. Crocs considered the crawl to be disparaging in nature and accordingly, wrote to Spectrum terminating the agreement. Crocs contended that the crawl was a fundamental breach of Spectrum’s duties of good faith amounting to a repudiatory breach permitting Crocs to treat the agreement as terminated without payment of any compensation to Spectrum.

Spectrum did not accept it had repudiated the agreement and issued proceedings in the High Court seeking damages for compensation for termination, estimated between £12.8 million and £16 million pursuant to Regulation 17.

The High Court proceedings

At trial, the High Court judge found that whilst the publication of the crawl did constitute a breach of duty it was not sufficiently serious enough as to amount to a repudiatory breach and accordingly, found Crocs had not been entitled to terminate the agreement. The court therefore awarded judgment in Spectrum’s favour with damages to be assessed. Crocs appealed.

The appeal

In the Court of Appeal Crocs argued:

  1. The agent’s obligation to act dutifully and in good faith is implied into the agreement as a condition.

  2. In the alternative, if there is no implied condition, a breach of the statutory duty to act dutifully and in good faith gives the principal an automatic right to terminate the agreement.

  3. In the alternative, regardless of the provisions of the Regulations, any breach by an agent of its duty of good faith and loyalty to its principal will always amount to a repudiatory breach.

In the circumstances, Crocs contended that Spectrum had breached its fiduciary duty and that such breach was a repudiatory breach thereby permitting Crocs to terminate the agreement without payment of any compensation to Spectrum.

The Court of Appeal disagreed. It held that whilst it agreed with the High Court that the crawl was a breach of contract, it was not a repudiatory breach because it was not sufficiently serious. The crawl did not disparage Crocs’ products but rather made reference to its inability to meet delivery obligations, something which was well known. Furthermore, the crawl’s circulation had been limited and temporary and was obviously intended to be jokey (although Crocs might not see the joke) and there was no evidence of any harm suffered by Crocs as a result.

In reaching its conclusions the Court considered that the agent’s obligations were not implied conditions of the agreement and any breach of his statutory duty did not automatically amount to a repudiatory breach, the general principals of English law on termination, including repudiatory breach, applying in each case.

Conclusion

It is not yet clear whether this case is going to be appealed further by Crocs to the Supreme Court. For the time being, it is clear that in order to successfully avoid having to pay any compensation to agents upon termination of the agreement, principals will have to show on the facts of each case that the agents’ breach was sufficiently serious as to amount to a repudiatory breach of the agreement. As the battle between Crocs and Spectrum shows, this can be a long and expensive process so principals should think carefully before terminating agreements in reliance on the agents’ breach of contract.

For more information about the issues in this article to find out more about how the Dispute Resolution team can help you please contact Ally Tow on 0118 952 7206 or email [email protected].

Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.

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