Rossetti Marketing v Diamond Sofa, Court of Appeal
SML was agent for various Asian furniture manufacturers in the UK. It became agent for Diamond when it was already representing Linkwise and Artpeak, and it subsequently became agents for two others (Cassaredo and Creative). Due to concerns about liability for Linkwise’s products, SML wanted to transfer its entire agency business to Rossetti, and Diamond agreed to this. Six months later, Diamond terminated Rossetti’s agency because, Diamond claimed, Rossetti was not fully committed to Diamond and represented too many other manufacturers. Diamond refused to pay the compensation that agents are generally entitled to under the Commercial Agents Regulations. The High Court had considered various preliminary issues, including whether an agent could act for multiple principals and whether a principal could use information that it retrospectively found out to avoid paying compensation.
On appeal, the Court of Appeal has now given its ruling on the various issues. To summarise:
- The agent could not act for Diamond’s competitors. However, this was decided on the facts, because SML had told Diamond that the other two manufacturers, ArtPeak and Linkwise, had ranges that did not compete with Diamond’s.
- It was questionable whether the English legal rule that had been decided in an estate agent case – where the estate agent had acted for several competing principals and a term had been implied into the contract with the principal enabling that multiple representation for competitors to happen where the principal knew about the position – should be extended to other scenarios. There would need to be clear evidence of the parties’ intention to support that extension.
- It was irrelevant to consider whether the transfer from SML to Rossetti was an assignment or novation under English law. It was common ground between the parties that the terms of the agency agreement had been replicated, however that had occurred. Rossetti had taken over from SML and could therefore claim under the Regulations for three months’ notice of termination, rather than the one month’s notice if the agreement had only been deemed to have started six months earlier.
- As Rossetti had acquired the rights of SML, it would also be right that any set-off rights in favour of Diamond that would have applied against SML would also apply as against Rossetti.
- The Court of Appeal declined to answer whether the Regulations would allow the application of a longstanding English legal rule that enables a contract termination to be justified based on facts that become known after the termination notice has been given. That question would need to be answered on another occasion, as the Court refused to rule on whether the payment for the three months’ notice or the compensation award could be avoided by later discovered facts (in this case, that the agent had acted for other competing principals).
Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP, comments: “The Court of Appeal has delivered more questions than answers, and it demonstrates the complexity and confusion generated by the Commercial Agents Regulations. The issue of whether a terminating principal can justify its decision based on facts later gathered and avoid compensation or minimum notice termination payments has not been answered here. However, in the Volvo v Autohof case three years ago, the European Court of Justice said that an indemnity payment could not be withheld based on information about a breach that subsequently came to light after the notice of termination had been given. The ECJ’s decision had suggested that not paying an indemnity or compensation would need to be linked to the principal decision actually to terminate because of the information known to them.
“The Court also gave a wide interpretation to “assignment” in the Regulations (to include novation), reflecting European Union law methods of contract interpretation. This meant that the new agent (Rossetti) had wide rights under the compensation/indemnity because it was deemed to have taken them all from SML (but SML was entitled to nothing).”