Can an agent act for competing principals?

by Andrew Leach of Cobbetts L.L.P.

In the case of Rossetti Marketing
Ltd v Diamond Sofa Company
Ltd and another [2011] EWHC
2482, the High Court implied a
term into an agency contract
allowing the agent to act for
multiple competing principals.
Before this decision, there had been no legal authority
on the question of whether the duty placed upon an
agent to act dutifully and in good faith (imposed by the
Commercial Agents (Council Directive) Regulations
1993 (the “Regulations”)) would be breached if the
agent acted for competing principals.
The key lesson for principals arising from this case is that
if they do not want an agent to act for competitors, an
express agreement to this effect should be included in
the agency contract. If there is no written agency
contract, principals should consider codifying the
relationship in writing or at the very least, should write
to their agents explaining that they are forbidden from
working for competing principals.
In addition, this case contains a useful analysis as to the
scope and extent of the obligation of the agent to act
dutifully and in good faith and suggests that the duty is
to be assessed by reference to the contractual
relationship between the parties.
Rossetti Marketing Ltd (“Rossetti”) acted as agent for
the Diamond Sofa Company Ltd (“Diamond”), a Thai
furniture manufacturer. The parties did not have a
written agreement. Rossetti was also agent for other
Asian furniture manufacturers. Diamond was aware of
this fact and did not raise concerns about it during the
currency of the agency.
In June 2008, Diamond terminated the agency. One of
the reasons it gave was that Rossetti represented too
many manufacturers.
Following termination of the agency, Rossetti brought a
claim for compensation under the Regulations, which
Diamond resisted.

At a trial of preliminary issues, the High Court
considered a number of matters, including whether:
1. in acting for competing principals, the agent was in
breach of the duty imposed by the Regulations to act
dutifully and in good faith; and
2. as a result of the fact that Rossetti acted for
competing principals, its activities for Diamond were
secondary and therefore, it should be excluded from
the right to claim under the Regulations.
Mr Justice Cranston held that the Regulations could
apply to an agent acting for multiple competing
principals. In so doing, he referred to the intention
underpinning the Regulations, which is to protect
commercial agents. In addition, Cranston J observed
that the Regulations set out the types of agent to whom
the Regulations do not apply and noted that agents
acting for multiple principals are not listed. Cranston J
held that it could not be the intention of the
Regulations to limit the agents to whom they applied to
those with one principal per class of goods, regardless
of the commercial context.
Cranston J observed that there were clear dangers to a
principal where an agent acted for its competitors,
including the potential conflict of interests faced by an
agent who was negotiating with the same third party on
behalf of several competing principals. In these
circumstances, the interests of the third party may be
preferred over the principals’ interests, as, for example,
the price payable to any principal may be driven down
by the existence of competition.
However, it does not follow that in acting for multiple
competing principals, an agent is in breach of its
obligation to act dutifully and in good faith. Cranston J
held that an agent’s obligation to act dutifully and in
good faith under the Regulations can be defined by the
contractual context in which the parties operate. In
reaching this conclusion, he referred to the case of Kelly
v Cooper [1993] AC 205 (a case concerning estate
agents), where it was held that a term allowing an agent
to act for numerous principals, where the principal
knows that the agent acts for and intends to act for
other principals selling property or goods of the same
description, can be implied into the contract between
the parties.

In Rossetti, there was no express contractual term, or
any other express term, from which any inference could
be drawn about acting for competing principals.
Consequently, where a principal is aware that the agent
acts for competing principals and does not object, an
implied term may arise allowing the agent to do so. In
this case, the Court implied a term authorising Rossetti
to act for competing principals. By way of observation,
the Court appeared to suggest that despite being able
to act for competing principals without breaching its
duties (where the contractual context allows), it is
possible that an agent may still breach its duties if,
unbeknown to the principal, it sold one principal’s
products at the expense of the products of another
principal. The Court did not investigate whether this
had actually occurred in the relationship between
Rossetti and Diamond.
Cranston J gave short shrift to Diamond’s argument that
as a result of the fact that Rossetti acted for competing
principals, its activities for Diamond were secondary
and therefore, it should be excluded from the right to
claim under the Regulations. The Judge held that the
Regulations do not contain anything to indicate that an
agent acting for multiple principals is conducting
secondary activities and that in this case, it was clear
that Rossetti was not undertaking secondary activities.
Can an agent act for
competing principals?
by Andrew Leach of Cobbetts L.L.P.
Cobbetts LLP has specialist teams advising on the impact of the
Regulations. We take a pro-active and commercial approach to
dispute avoidance and there are a number of options that can
be considered in advance of any dispute to limit liability and the
prospect of claims. In the event of a dispute, our specialist
Commercial Agents Dispute Resolution team is on hand to
protect your position.

Article written by Andrew Leach of
Cobbetts LLP, a leading law firm with
offices in Birmingham, Leeds, London
and Manchester.

Head Office:
One Colmore Square
Birmingham B4 6AJ
Tel: 0845 404 2564

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

Download PDF