The Court of Appeal has ruled that an agent for a furniture manufacturer was precluded from acting for other competing manufacturers, rejecting furniture retailing as an example of when the nature of an agent’s business allowed them to hold multiple agencies. Whilst several issues remain unresolved, this confirmation of what many see as the normal rule will reassure retailers seeking exclusive arrangements. However, the case reiterates once again the importance of clearly drafted contractual terms in agency agreements.
The Appellant (“Diamond”) appointed the Second Respondent (“Solutions”) as its agent in connection with the sale of leather upholstery. The First Respondent (“Rossetti”) then took over the clients of Solutions, including the agency agreement with Diamond. However, the agency relationship deteriorated and Diamond terminated the agreement. Rossetti sought compensation under the Commercial Agents (Council Directive) Regulations 1993 (“the Regulations”). Diamond denied that Rossetti was an agent under the Regulations, on the basis that Rossetti had also acted as agent for other furniture makers, including competitors of Diamond.
Preliminary Issues Hearing
At a preliminary issues hearing last year, the Judge found that there was an implied term at the outset of the agreement that Solutions would act for other principals and this fact had been communicated to Diamond at the time. It was also held that the transfer of the agency amounted to an assignment, resulting in Rossetti being subject to the same terms and duties as Solutions. The Judge found that the earlier implied term was varied by a course of dealings between the parties and as such both Solutions and Rossetti were entitled to act as agent for multiple principals, including Diamond’s competitors.
Diamond appealed against, amongst other issues, the finding that Solutions and Rosetti were entitled to act for its competitors. Lord Neuberger, Master of the Rolls, found that they could not so act, at least in so far as their product ranges clashed with that of Diamond.
The Court referred to the fiduciary duty owed by an agent to his principal. Such a duty must conform to the terms of any commercial contractual arrangement and as such the normal rule is that an agent cannot act for two competing principals without their fully informed consent. An exception, where the principal must have appreciated that the nature of the agent’s business is to act for numerous principals (such as an estate agent) did not apply in this case.
The Judge concluded, on the facts, that at no time were Solutions/Rossetti entitled to act for any other manufacturer of leather furniture except those of which Diamond was specifically aware, but not in relation to their furniture which clashed with that made by Diamond. He added that arguably Solutions/Rossetti were also unable to act for a manufacturer whose furniture did not clash with that of Diamond.
This decision of the Court of Appeal restricts the protection available to agents if acting for competing principals and provides a reminder of the duties owed by agents to their principals. As this issue followed from a preliminary issues hearing, certain matters remained unresolved and the Court discussed the dangers inherent in such hearings. There was some uncertainty relating to the extent to which agents are prevented from acting for competing principals only in respect of defined product ranges.
The clear message arising from this case is the pressing need to clearly define in all agency agreements the exact extent to which the agent is permitted to act for other principals. Agreeing and recording in writing such crucial matters at the outset of an agreement can potentially avoid the risk of uncertainty and disputes at a later stage.
The case also highlights the difficulties inherent in the agency relationship. Indeed, whilst an agency structure can appeal to retailers looking to expand quickly into new markets with minimal outlay, the high level of protection afforded to agents under the Regulations can mean that a full review of potential contractual structures is worthwhile in each individual case.