In the recent case of Rossetti Marketing Limited v (1) Diamond Sofa Company, (2) Solutions Marketing Limited the Court considered whether an agent was capable of being a “commercial agent” within the definition of the Regulations if it acted for a number of different competing principals. If an agent is not a “commercial agent” then whatever the reasons behind its termination it will not be able to claim statutory compensation or an indemnity from its principal.
Diamond was an Asian manufacturer of leather upholstery. Rossetti began acting as Diamond’s agent in 2004 in the UK and Ireland. Having worked with each other for around four years Diamond terminated its agreement with Rossetti in 2008. Rossetti claimed compensation from Diamond for the loss of the agency. Diamond contended that due to its activities for other similar manufacturers in the industry, Rossetti should be excluded from the protection of the Regulations.
Servant of two masters
However, even without an express term in any agreement, all agents are under a fiduciary duty to act in the best interests of their principal. As the adage goes “no one can be the servant of two masters”. While the predominant concern of each principal will be whether the agent has a conflict of interest if it is acting for another principal, a conflict can also arise should the agent be acting for a number of principals. Even if they are not in the same industry sector, if the agent does not have sufficient time to devote to each of them then it may find itself in conflict. Under English law, the only way that an agent can legitimately act for two competing principals is with the informed consent of both principals.
However, if an agreement has been reached then has the commercial agent become an agent? Diamond’s argument was yes and Regulation 2(1) should be interpreted as referring to a sole principal. This was linked then to Regulations 3 and 5, which provide that a commercial agent must act dutifully and in good faith towards its principal and this duty cannot be derogated from. Therefore, Diamond said that by acting for multiple principals Rossetti had forfeited its status as a commercial agent.
Interpretation of the Regulations
While Diamond’s arguments were innovative the Court had little trouble in dispensing with them by holding that Regulation 2(1) saw two types of agency relationship:
- where the agent had continuing authority to negotiate the sale or purchase of goods: and
- where the agent could negotiate and conclude the sale and purchase of goods.
But the court was not prepared to add a further category and gloss to wording which he considered to be clear, particularly where the specific exclusions to the Regulations did not include agents who act for multiple or competing principals.
Lessons of Rossetti
The question of whether the Regulations applied was considered as a preliminary issue, therefore, the Court did not conclude whether as a matter of English law Rossetti was in breach of the agency agreement and Diamond was justified in terminating it. This will be decided on the facts in separate proceedings.
However, what can be taken from Rossetti is that it is important for a principal to keep a regular monitor on the other business activities of its agent. If you become aware that the agent is acting for other people, either competitors or a substantial number of others who you consider are diverting attention from your needs, then you need to say something. You will not be able to let it slide for the time being and then rely on it at a later date. A principal should carefully consider its position (but not for too long) and if it is uncomfortable with the activities of the agent an ultimatum needs to be given. But if you don’t like the answer you get, you need to follow through.
Rachel Cook is an associate in the Commerce and Technology department and a member of the agentlaw team. Rachel can be contacted at firstname.lastname@example.org