In this decision the High Court considered three key issues:
- Whether heads of terms (“HoTs”) had contractual effect, notwithstanding that the HoTs clearly anticipated that the parties would subsequently enter into a formal contract;
- Whether the agent was entitled to compensation under the Commercial Agents (Council Directive) Regulations 1993/3053 (the “Regulations”), notwithstanding the fact that the principal had terminated the contract as a result of the agent’s breach of contract; and
- Quantification of compensation under the Regulations.
The claim was brought by Green Deal Marketing Southern Limited ("GDM"), an energy mediator which connected energy providers with consumers, against Economy Energy Trading Ltd ("EET"), an electricity and gas seller. GDM and EET had entered into a partnership agreement which, according to GDM was then superseded by a HoTs. EET sought to terminate the agreement on the grounds that GDM’s team had been mis-selling, which constituted a breach of the agreement.
GDM claimed that EET’s attempt to terminate the agreement amounted to a repudiatory breach and sought damages for breach of contract and compensation under the Regulations.
Keyser HJ’s key findings were as follows:
- Although the HoTs were intended to be superseded by a complete and formal contract, they themselves were found to be an effective agreement.
- With regard to the Regulations:
- The Regulations only apply to agents with authority to negotiate the sale or purchase of 'goods'. The Court held electricity fell within the definition of 'goods'.
- Intermediaries seeking to persuade customers to switch utility providers, even if they have no further part in any sale of that utility, can be considered as having authority to negotiate the sale of goods. Negotiate means 'to deal with, manage or conduct’. In establishing the value of the agency (in order to calculate compensation under the Regulations), the relevance of termination rights (i.e. the likely length of the continued agency) is a real, albeit limited, factor. The difference in the parties' expert valuations was significant (£8 million to £1 million). The Court conducted a detailed factual analysis and ultimately awarded compensation at around £1 million.
Stephenson Harwood comment
This judgment is a useful reminder that parties will not be able to “rely on supposed incompleteness to defeat…contractual effect”. It also serves to emphasise that the scope of activities being caught within the Regulations is increasing not decreasing. If there is a chance that a contract could fall within the scope of the Regulations, ensure that you understand the effect of termination and draft accordingly. The case also highlights the significant risks associated with cases dependent on expert valuation evidence. Here, in a relatively short space of time the Court had to make many findings of fact arising out of significant and complex data and ultimately, however imprecise, reach a valuation.