Can an agent act for competing principals?

By Thom Vaughan – Solicitor
EAD Solicitors LLP

thom.vaughan@eadsolicitors.co.uk

Disclaimer: This column does not contain legal advice and is for
general guidance only. Agentbase, E.A.D. Solicitors, Prime Forensic
Accountants and the writes accept no liability in connection with
the general guidance given in this column.

Regular readers will recall that Issue 196,
published in April 2012, dealt with this very
question; however, the “Rossetti case” was
subsequently appealed and the Court of
Appeal have now provided further clarity on
this important question.
This article therefore looks closely at the recent appeal
court decision referred to as Rossetti Marketing Ltd &
Anor v Diamond Sofa Company Ltd [2012] EWCA Civ
1021 (17 July 2012).
Preliminary
Bearing in mind that the Commercial Agents (Council
Directive) Regulations 1993 have been in force just shy
of 20 years it is perhaps surprising that this is the first
time that exhaustive judicial consideration has been
given to this very important practical question.
We all know that commercial agents often prosper by
attending a call with a raft of products to be considered
by the same shop owner. They may pull a number of
products out of their “bag”. For instance, an agent might
sell shower heads, shower units and shower cubicles, all
produced by distinct manufacturers, possibly all from
different countries. In this case, the agent is able to
faithfully sell for all of his principals whilst attending on
one call. There is no conflict whatsoever in his mind and
the shop owner will likely appreciate the opportunity of
considering a range of distinct products that he may
choose to stock.
This situation can be contrasted with an agent calling
on the same shop owner, albeit this time presenting
three different types of shower head from a Swedish,
German and British manufacturer respectively. In this
case, the agent will often face a dilemma as to which
brand to prioritise. One agent may deny that any
conflict exists because, of course, the brands all occupy
different price points and we all know that the Swedish
and German designs differ markedly from what the Brits
produce. However, these really are fine arguments that
may run the risk of appearing self serving, particularly
when put before a robust judge seeking to apply
common sense principles.

The “Rossetti case” on appeal
In the Rossetti case we learn that the agent was
appointed on an exclusive basis in connection with the sale of leather upholstery in the UK and Irish markets.
The principal, Diamond, was based in Thailand, where it
manufactured leather upholstery. The idea was to
utilise the agents’ strong connections and experience in
order to sell through huge quantities of furniture
produced at a competitive price. While the
arrangement was being negotiated, the agent informed
the principal that it was already acting for two other
manufacturers of upholstery known as Linkwise and
ArtPeak but that the furniture range of each of those
two companies did not ‘clash’ with Diamond’s range.
The agency arrangement was initially on a one year trial
basis, but the parties thereafter continued it, partly
because the agents were ‘remarkably successful on
Diamond’s behalf’. UK turnover increased from just over
$1m in 2004 to well over £15m in 2007. Its worth
pausing for a moment and admiring such a contribution
from the agents; this type of performance is precisely
why good agents will always flourish.
After such success, there was perhaps a certain
inevitability that the agents’ agreement would soon be
terminated, and so it came to pass. The genesis of the
breakdown appears to lie in adverse currency
fluctuations, together with the agents’ attempts to try
and advise the principal how to run its business. After
termination the agents pursued a claim to
compensation and other damages. The principal
contended that, although it was unaware of its right (or
the relevant facts giving rise to the right) at the time it
terminated the agency arrangement, it had in fact had
the right to put an end to the arrangement on the
ground of the agents’ breach of duty. The alleged
breach was that the agents had acted for two direct
competitors of the principal, namely a company known
as Cassaredo and a company known as Creative.
The court’s clear guidance
After recounting the facts of the case, the Judge then
provided very clear guidance on an agent’s duty of
fidelity. I set out the words themselves as they convey
the rules in a pleasingly concise fashion:
“An agent can act for two principals with conflicting
interests in two types of case. The first is, as already
indicated, where both principals agree. In such a case,
it is for the agent to show that the principal not merely
consented, but that the consent was given on a fully
informed basis – i.e. that the agent had made full
disclosure to the principal…

The second type of case where an agent can act for
competing principals is where… the principal must
have appreciated that the nature of the agent’s
business (in that case a residential estate agent) is ‘to
act for numerous principals’. As Lord Browne-
Wilkinson explained, ‘despite the conflict of interest’,
residential estate agents ‘must be free to act for several
competing principals; otherwise they will be unable to
perform their function’ …”
Therefore, what we learn from this case is that even
when a principal discovers a serious contractual breach
after having terminated he may still seek to rely on it as a
causative factor. Further, an agent’s obligations are stark
– he must obtain his principal’s fully informed consent.
Clearly, as ever, there will be cases where an agent might
argue that the principal had full knowledge of a
competing range because, for instance, he expressly
referred to the agent acting for another principal, or saw
him manning the competitor’s stand at an exhibition.
However, even these cases may fall short of the
requirement outlined above. It seems that the Judge
anticipates an agent making full disclosure to his
principal of the fact that he intends carrying a
competing brand and seeking the principal’s consent
prior to taking on a new range. This may be by exchange
of email, or perhaps more informally by discussion.
This judgment has provided clarity on an important
issue and has removed shades of grey. In terms of
whether the agents in this case will succeed, it is noted
that the hearing was of a preliminary issue; its not clear
whether a determination was actually made whether
Cassaredo and Creative did compete with the main
agency.
We may see the case appealed again to the House of
Lords or alternatively the parties may now put down
their weapons and fashion a compromise. In any event,
agents should now be clear as to their obligations in
terms of seeking fully informed consent in respect of
competing agencies.

Head Office: Prospect House,
Columbus Quay, Liverpool L3 4DB
Tel: 0151 735 1000
www.eadsolicitors.co.uk

Thom Vaughan

 

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