Scottish Power appointed Taskforce as its agent for the sale of gas and electricity to domestic customers by doorstep selling.  A few years later, Scottish Power appointed Taskforce as its agent for the sale of gas and electricity branded “Sainsbury’s Energy” to domestic customers by doorstep selling and by visiting Sainsbury’s stores to sell to potential customers there. 

There were written agreements for both arrangements.  Several variations to these agreements were made.  The whole terms of the agency agreement were eventually formalised in one written letter of appointment.  By that time, selling Sainsbury’s Energy amounted to 92 per cent. of Taskforce’s business.

Sainsbury’s then gave 5 months’ notice to Scottish Power that its agreement with Scottish Power would terminate.  So Scottish Power gave notice to Taskforce that its instructions to promote Sainsbury’s Energy gas and electricity would terminate on that date and that thereafter Taskforce should concentrate on doorstep selling of gas and electricity to potential customers.

Taskforce reacted by saying that it did not intend to perform the agency agreement at all after notice expired unless Scottish Power entered into a similar arrangement with an alternative supermarket chain.  You can see why Taskforce reacted like this.  Sainsbury’s Energy amounted to 92 per cent. of its business.  The loss of it would have been a huge financial blow.  Scottish Power did not secure a similar agreement with another supermarket chain.

The day before the notice of termination expired, Taskforce wrote to Scottish Power confirming that the whole agency agreement would be coming to an end the next day. 
Scottish Power responded by requiring Taskforce to recommence performance of the agreement.  Taskforce refused to recommence performance of the agreement.  Accordingly,
Scottish Power terminated the agreement on grounds that Taskforce was in breach of contract and claimed damages as a result.

Taskforce counterclaimed that Scottish Power was not entitled to terminate the agreement and claimed an indemnity under the Regulations as a result of the termination of the agency.

Judgment
The contract expressly provided that the agent’s appointment in respect of Sainsbury’s stores could be terminated if Scottish Power’s agreement with Sainsbury’s ended.  The contract also required Taskforce to observe Scottish Power’s instructions, such as the instruction to concentrate its efforts on doorstep selling of gas and electricity to potential customers instead of Sainsbury’s Energy.

However, Taskforce sought to argue that this partial termination in respect of Sainsbury’s Energy triggered a right to receive an indemnity under the Regulations.  Taskforce also tried to argue that the clause of the agreement entitling Scottish Power to terminate Taskforce’s appointment in respect of Sainsbury’s stores amounted to a separate and severable agency contract distinct from the overall agency agreement.

The court decided that, under the terms of the agency contract, Scottish Power could require the agent to cease the majority of its activities and in so doing not bring the agency contract as a whole to an end.  And the relevant clause could not be construed as a severable agency contract. 

The judge considered that because there was a clear contractual entitlement to take away Sainsbury’s Energy whilst rest of agreement continued, both parties had foreseen this as a possibility.  Therefore Taskforce could have thought about the consequences of losing Sainsbury’s Energy and protected its position when negotiating the terms of the agency contract by, say, requiring its Sainsbury’s Energy activities to be the subject of a separate agency contract.  If it had done this, Scottish Power would have had to have terminated the entire agency agreement for Sainsbury’s and so Taskforce would have been entitled to claim an indemnity payment.

In fact, the judge’s analysis could have enabled Scottish Power to postpone and significantly reduce Taskforce’s entitlement to an indemnity.  If the agency had continued, Taskforce would have earned substantially less commission than when it was able to sell Sainsbury’s Energy.  Over time, this would have reduced Taskforce’s indemnity entitlement upon the eventual termination of the entire agreement.

The court also noted that the Regulations do not contemplate the partial termination of an agency contract.  An entitlement to an indemnity only arises upon the full termination of an agency agreement. 

In view of this, the judge found that:

  1. Scottish Power was entitled to cancel the contract as a result of Taskforce’s refusal to perform its obligations; and
  2. Taskforce had no entitlement to an indemnity under the Regulations.

Written by Jane Elliot

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