Repeated Minor Breaches of Contract can Constitute Repudiatory Breach

by Alain Cohen, Partner, Ashby Cohen Solicitors, London

Since the Commercial Agents Regulations were instituted in 1994, the courts have shown a marked tendency to favour the agent in any dispute, as agents are generally seen as the more vulnerable party

However, a High Court case in April last year has found in the principal’s favour on a key issue which could have wider repercussion in future disputes.

In this particular case, the claimant sought to prove that they fell under the protection of the Commercial Agent Regulations so that they could claim compensation from their principal after their contract had been terminated.

Although the claimant had to develop customers’ interest in the principal’s product, obtain a quote from the principal and encourage customers to buy, they did not have the authority to make a sale on behalf of the principal themselves.

According to the regulations, a Commercial Agent is a person who has “continuing authority to negotiate … or negotiate and conclude” the sale of goods on behalf of the principal.

The court decided that, although the agent could not “conclude” the sale, their involvement in the process could certainly be described as attempting to “negotiate” the sale, so the claimant qualified as a Commercial Agent and was eligible for compensation from the principal.

However, the principal contended that the agent had committed numerous breaches of contract. Under the terms of the agreement, the agent had to produce various sales reports for the principal, and was restricted from working for any competitors of the principal in order to prevent any conflicts of interest.

Not only had the agent failed to provide regular sales reports to his principal, he had also been spending roughly a third of his time working for another company – a fact which he had hidden from the principal.

While the judge determined that neither issue was in itself of sufficient seriousness to warrant a repudiatory breach of contract, when taken together these persistent minor breaches did constitute a repudiatory breach, and so the agent could not claim compensation for the termination of his contract.

This case therefore set an important legal precedent which effectively gives principals the power to remove agents who persistently commit minor breaches of their contract with impunity.

As long as the principal can substantiate their claims with a detailed paper trail and can show that they gave suitable warnings to their agent, they can terminate a commercial agency contract without having to pay compensation or indemnity.

Ashby Cohen Solicitors Ltd 18 Hanover Street London W1S 1YN Tel: 0207 408 1338 Fax: 0207 491 0414 Email: info@ashbycohen.co.uk www.ashbycohen.co.uk

Disclaimer: This column does not contain legal advice and is for general guidance only. Agentbase, Ashby Cohen and the writer accept no liability in connection with the general guidance given in this column.

AGENT Q & A’s

Q. My principal has continuously failed to pay me and on a number of occasions has broken the terms of our written agreement. I could not longer stand it, so I resigned. Am I still protected by the regulations and can I claim compensation?

A. Yes. It is possible for an agent to claim repudiatory breach by the principal but the agent should well document their complaints of such breaches and give the principal an opportunity to correct them. If the principal fails to do this or ignores the agent completely then the agent would be entitled to terminate the contract and claim repudiatory breach and then bring a claim for compensation.

Q. Last year, I sold my agency to another party and received a payment. I understand that the agency is now being terminated by my former principal. Can I still claim compensation? Would it be different if I had received no payment?

A. I would like more information to enable me to answer this question. However, if you received a payment for your agency and effectively sold it to a third party then your rights to compensation would be extinguished as you were no longer acting as an agent. The Court would not entitle you to receive a double benefit i.e. payment for the agency as well as compensation. This would also apply if you had not received any payment because the sale of your agency to a third party is not a right which would automatically entitle you to compensation under the Regulations in any event. Your purchaser of the agency may be able to bring a claim. The other question is whether your principal agreed to your selling the agency to a third party. Many contracts have a prohibition against assignment of an agency by an agent to a third party without the principal’s consent. If you sold your agency without the principal’s consent then it would be arguable you or your successor would not be entitled to any compensation.

Q. I have been an agent for some 10 years and my principal says that as he is losing money, he cannot trade anymore. He proposes to cease at the end of this month. Do I still have a claim against him under the regulations?

A. Yes. Several cases have shown that an agent is entitled to compensation where the principal decides to stop operating in a certain type of business. In both cases, the principal remains solvent and so it was worth the agent suing them. Your difficulty in this situation could be that if the principal ceases trading and puts the company into liquidation then notwithstanding you may have a valid claim, it could be worthless if there are no monies for unsecured creditors. If the principal trades as a sole trader or is a partnership then unless he goes into bankruptcy he could still be liable for compensation notwithstanding his business has ceased trading.

Questions are invited from members. Please email to: enquiries@agentbase.co.uk. All will be treated in confidence. We cannot guarantee all questions will be answered.

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