The key issue to be decided was whether the Defendant had, by its conduct, repudiated the agency agreement, allowing the Defendant to accept such repudiation, treat the agreement as terminated and make the claim.
The Defendant was part of a very successful multi-national group of companies and its business included the wholesale of globally sourced furniture. The Claimant was appointed as a sales agent for the Defendant on 10 September 2001. There was no written agreement between the parties in respect of the agency beyond a letter from the Defendant, confirming the Claimant’s appointment as the Defendant’s sales agent in respect of “case goods” in the North West (including North Wales, Lancashire, Cheshire and Cumbria).
Over the course of the Claimant’s agency the Defendant had problems with the quality of the range of goods that the Claimant represented, as well as delivery problems. Consequently the Defendant gradually decreased these ranges until, by early 2003, there was only one range left for the Claimant to sell. On 28 March 2003 the Defendant wrote to the Claimant stating that, due to the fact that the Steinhoff board in South Africa had decided to close down the relevant manufacturing facility, this range was also to be discontinued with immediate effect and could only be sold on a “whilst stocks last” basis.
On 4 June 2003 the Claimant wrote to the Defendant, stating that, as he would be left with no product to sell, this terminated his agency with the Defendant and indicated that he would be seeking compensation under the Regulations accordingly.
The Defendant denied that the Claimant’s agency had been terminated and in a letter of 24 June stated that it was exploring the possibility of finding other sources of case goods that the Claimant would be able to sell. In response the Claimant stated that it had not been informed of these plans and that this did not alter the fact that his agency had been terminated, which the Defendant continued to deny. Correspondence along these lines continued between the parties.
The judge found that the Defendant’s conduct during the period between the end of March and the beginning of June 2003 was repudiatory of its agreement with the Claimant. As such the Claimant was entitled to treat the agency as terminated and claim under the Regulations.
It was observed that the letter of 28 March 2003 informed the Claimant that the last of the case goods range was to be discontinued and it was unlikely that any goods from that range would be available beyond July. In this letter the Defendant did not suggest that there were any plans to replace the case goods ranges and in the two months following this letter, the Defendant did not offer the Claimant any further information about any proposed new range of case goods.
The judge also pointed out that whilst there may have been clearance stock available to the Claimant, he was satisfied that neither party had entered into the agency agreement on the basis that the Claimant would only be provided with clearance goods.
As such, it was found that the Defendant was in breach of its implied obligations under the agency agreement. As a matter of business efficacy, the judge stated, where it is contemplated that an agent for the sale of goods, who is to be paid on commission, will devote time or money to the development of the agency, the principal impliedly warrants that it will provide goods of the requisite kind (and an adequate volume of such goods) for the agent to market and that (subject to the termination of the agency by proper notice) it will do so on a continuing basis.
It was found that the Defendant’s conduct therefore went to the root of the agency agreement. The letter of 28 March and ensuing silence amounted to a renunciation of the contract. Further, the Defendant failed to provide the Claimant with the requisite goods for sale or keep it properly informed as to plans to develop new ranges of case goods. This frustrated the commercial purpose of the agency agreement and constituted a repudiatory breach by the Defendant that the Claimant was entitled to accept.
In this case, in deciding the type of conduct that constitutes a repudiatory breach, the court adopted a common sense approach. The key factor was whether, as a result of such conduct, the commercial purpose of the agency agreement was effectively frustrated.
Written by Jane Elliot