When will an agent’s breach of contract mean loss of post-termination compensation?

As you will be aware, when a
Commercial Agency
agreement is terminated
there is generally an
entitlement to a payment
under regulation 17 of the
Commercial Agents (Council
Directive) Regulations 1993
(“the Regulations”). This can
often be a very substantial
sum of money.

A commercial agent may not
be entitled to posttermination
payments if the
principal has terminated the
agency agreement as a result
of the agent’s breach. But how
serious does that breach need
to be to enable the principal
to avoid making a payout? As
explained below, in order to
give effect to the Regulations
– which is to protect
commercial agents – the
Courts have made what
appear, on the face of it, to be
some interesting decisions.

CRITICISING THE PRINCIPAL IN PUBLIC
NOT ENOUGH TO JUSTIFY TERMINATION

In Crocs Europe BV v Craig Lee & Anor trading as
Spectrum Agencies (a partnership) [2012] EWCA Civ
1400, one of the agent’s employees posted derogatory
comments about its principal, Crocs, on the internet,
which were headed “That’s a Croc!! Of Sh**e!!”. Perhaps
unsurprisingly, Crocs terminated the agency agreement
on the basis that the comments amounted to a breach
of contract, and argued that it was entitled to terminate
the agency without paying compensation as a result of
the agent’s breach.
Whilst the Court held that the agent’s conduct did
constitute a breach of its obligations to look after the
interests of the principal and to act dutifully and in good
faith, it concluded that the agent had not lost its
entitlement to post-termination compensation as the
breach was not sufficiently serious to justify
termination.
The Court emphasised that there was no evidence of
harm suffered by Crocs as a result of the comments, but
it was also noted that the breach was “quite close to the
borderline”.

REFUSING TO SELL A PRINCIPAL’S NEW
RANGE DID NOT DISENTITLE AN AGENT
TO COMPENSATION

In Cooper and others v Pure Fishing (UK) Limited [2004]
EWCA Civ 375, the agent refused to market a new range
of products introduced by the principal, Pure Fishing.
The agent believed that the new products competed
with the products sold by another of its principals.
Subsequently, Pure Fishing informed the agent that it
would not be renewing the agency agreement when it
expired as a result of the agent’s refusal to market the
new products, which it asserted amounted to a breach
of contract. Pure Fishing also argued that, as a result of
the breach, the agent would not be entitled to
compensation at the expiry of the fixed term, which is
contrary to established law which provides that
compensation is payable at the expiry of a fixed term.
The High Court found that the agent was entitled to
compensation because the principal had not
terminated the agreement because of the alleged
breaches (rather, it had simply let the agency expire),
and also, that the alleged breaches did not justify
termination. On Appeal, the Court of Appeal agreed
with the High Court that the agent was entitled to
compensation because the agency had expired
(instead of Pure Fishing terminating the agency based
on the agent’s breach). Having established this, the
Court of Appeal did not need to consider whether the
alleged breaches justified termination, as the principal
could not rely on them in circumstances where there
was no termination. This decision shows the Court
giving effect to the overarching purpose of the
Regulations, which is to protect the agent.

AGENT’S CONDUCT CAN JUSTIFY NONPAYMENT
OF COMPENSATION

In Nigel Fryer Joinery Services Limited v Ian Firth
Hardware Limited [2008] EWHC 767 Ch, the agent was
required, under the agency agreement, to notify its
principal if it took on work for third parties and submit
regular reports detailing its activities. The agent
repeatedly failed to do so, despite receiving written
warnings from the principal, and as a consequence, the
principal terminated the agreement for cause. When
the agent claimed compensation, the principal fought
the claim on the basis that no compensation was
payable as a result of the agent’s breaches of contract.
The Court agreed with the principal and explained that
termination would not have been justified if the agent’s
failure to submit reports had not been preceded by
earlier breaches. The Court held that an individual
instance of failing to provide reports would not have
been sufficient, but repeated breaches were. The Court
also held that if there has been a breach which justifies
termination, this will only exclude the agent’s
entitlement to compensation if this breach is the
ground relied upon for termination, as it was in this case.

CONCLUSION

The above cases serve as an illustration of the Court
striving to give agents the benefit of the Regulations,
even where the agent’s conduct could be called into
question. However, it is clear that the Court will not give
agents a free reign and that in certain circumstances,
principals will be able to avoid paying compensation or
an indemnity as a result of the agent’s breach of
contract.
DWF LLP has specialist teams advising on the impact of the
Commercial Agents Regulations, including cross-jurisdictional
issues. Our experts can advise on all aspects of the principalagent
relationship, from drafting contracts, helping to manage
the ongoing relationship and protecting your position in the
event of a dispute.

Andrew Leach is a Partner with DWF LLP and has extensive
experience in most areas of commercial litigation including
ICT disputes, the Commercial Agents Regulations, CMR,
contract law, partnership and shareholder disputes.

Tel: 08000 356 888 www.dwf.co.uk

Disclaimer: This column does not contain legal advice and is for general guidance
only. Agentbase, DWF LLP and the writer accept no liability in connection with the
general guidance given in this column.
Please ensure that you obtain legal advice before acting in reliance upon anything
in this article. For example, please be clear that the answers given in this column
may not cover all possible angles, aspects, relevant considerations and/or points
of law and so that all or any information which is given above needs in every
instance to be referred for legal advice for clarification and amplification, before
being relied upon

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