Summary of the First Instance Decision

The Claimant (“Bell”) in this case was a company which did almost all of its business through its Managing Director, Mr Bell. The Defendant (“Aweco”) was a large German manufacturing company which produced components for dishwashers, washing machines, refrigerators and similar products. Since 1988 Bell had been acting continuously as Aweco’s agent in the UK, principally selling components to most of the main UK manufacturers of large domestic appliances. The relationship between the parties was subject to a number of arrangements that were varied over time. However, on 10 August 1999 a new agreement was entered into (“the Agreement”) which was said to supersede all previous agreements.

In December 1999 Aweco stopped making commission payments to Bell as they fell due, and in July 2000 Aweco gave Bell notice of its intention to make commission payments on a fundamentally different basis and at a much lower rate than provided for in the Agreement. Bell objected to this proposed change and at a meeting on 29 September 2000 a compromise was offered. Bell asked for time to consider this compromise.

On 20 October 2000 Bell issued proceedings in the High Court. Bell had also decided to reject the offer and terminate the relationship with Aweco but chose deliberately not to inform Aweco of the rejection of the offer or the issue of proceedings until the proceedings had been served on Aweco in Germany. Proceedings were served on Aweco in Germany on 17 November 2000 and Bell became aware of this 5 days later. Bell continued to honour its obligations under the Agreement between 20 October and 22 November.

Bell submitted that Aweco’s conduct amounted to both a breach of contract at common law or, alternatively, gave Bell the right to recover compensation under the Commercial Agents (Council Directive) Regulations 1993 (“the Regulations”).

There were 3 issues to be determined in the case. The first was whether Aweco had committed a repudiatory breach of the Agreement (which would have allowed Bell to cancel the Agreement). The second was whether Bell had accepted that repudiation (allows it to cancel) or whether Bell had affirmed the Agreement by its conduct between 20 October and 22 November (which would prevent it from cancelling). The final issue was whether Bell was entitled to damages at common law and compensation under the Regulations.

It was held that Aweco was clearly in repudiatory breach of the contract. Bell had not accepted that repudiation and Bell‘s conduct between 20 October and 22 November did not give rise to an affirmation of the agreement. This was because, following the meeting on 29 September, until Bell had communicated its decision whether or not to accept the compromise, no action by it was seen as constituting an affirmation of the Agreement. It was further held that Bell’s success on its common law claim for breach of contract disposed of the right to compensation under the Regulations.

Mr Justice Elias stated that he agreed with the argument put forward by Aweco on the question of compensation due under the Regulations. This was that, if the agent is not justified in terminating the contract at common law, because he has affirmed the contract, then he cannot rely on Regulation 18(b)(i). Regulation 18(b)(i) states:

“The indemnity or compensation … shall not be payable to the commercial agent where … the commercial agent has terminated the agency contract, unless such termination is justified by circumstances attributable to the principal…”

Mr Justice Elias concluded that either the Claimant would succeed at common law, in which case he may also recover under the Regulations, or he fails under both. In this particular situation, however, the claim under the Regulations did give Bell anything additional to the common law action.

This briefing note is for general information. For advice in applying this general information to your specific circumstances, please contact Stephen Sidkin or any members of the Fox Williams’ agentlaw team. (www.agentlaw.co.uk).

Written by Sarah Pooley

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