Commercial agents clarification – can an agent act for competing Principals?

The UK’s Commercial Agents Regulations 1993 do not expressly address whether a “commercial agent” who represents a principal is permitted to act for other, competing principals.   A recent High Court case has considered and clarified the position. This will help both overseas producers/principals and their UK agents to understand what agents can and cannot do, and what each of them can do to protect their interests.

Facts

Solutions Marketing Ltd (SM) acted as UK agent for Diamond Sofa Co Ltd (DSC), an upholstery supplier based in Thailand. During a four-year period SM also acted as agent for other suppliers of competing products.  In 2008, SM’s business and the agency agreement were transferred by agreement to Rossetti Marketing Ltd (RM). Shortly afterwards DSC terminated the agency agreement.  RM claimed compensation under the Commercial Agents Regulations.

Issues

DSC contended that an agent who represented multiple competing principals (a) could not be a “commercial agent” as defined by the Regulations; alternatively (b) would inevitably be in breach of its duty under the Regulations to act “dutifully and in good faith” towards the principal, and therefore lose any entitlement to compensation. These questions were ordered to be determined as preliminary issues.

Decision

The Judge rejected DSC’s first argument.  He held that the Regulations do apply to a commercial agent who has represented multiple, competing principals.  As for the alternative argument, he found on the evidence that DSC had consented to RM acting for certain other principals who might compete with DSC. However, that consent was limited in its extent, and did not entirely relieve RM of its obligations to act dutifully and in good faith.  Whether what RM (or its predecessor SM) had actually done on behalf of the other, competing principals amounted to breaches of those obligations would have to be investigated and determined at a full trial.

Comment

It is no surprise that the Judge rejected the argument that to be a “commercial agent” the agent had to represent only one principal for the type of goods in question.  There is little support for that in the Regulations themselves, or in the previous case law.  Some reports have suggested, however, that the case establishes that a commercial agent definitely can act for multiple, competing agents.  It doesn’t.   What the judge held was that acting for competing principals will not inevitably put the agent in breach of duty and deprive him of his entitlements under the Regulations.  Each case will depend on its own facts and circumstances.  A commercial agent for one principal (P1) who represents another, directly competing principal (P2) without P1’s informed consent may well lay himself open to a claim that he is in serious breach of duty, which could (a) justify immediate termination of the agency agreement by P1, and (b) disentitle the agent to any compensation he might otherwise have expected under the Regulations.

Moral

If you’re an agent – unless the agency agreement gives you complete carte blanche in this respect, you may need to obtain P1’s informed consent to what you propose to do on behalf of P2, if P2 is a direct competitor of P1.

If you’re a principal – consider whether the agency agreement should make it clear that your agent cannot represent any other directly competing principal without your informed consent.  Consider extending this to prevent the agent from assisting a directly competing principal in other ways, eg by acting as a distributor, or by getting involved in a brand joint venture.

Case report

Rossetti Marketing Ltd v Diamond Sofa Co Ltd (High Court, Cranston J, 3 October 2011)