Crocs Europe BV v Craig Lee anderson and Another trading as Spectrum Agencies (A Partnership)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Mummery,Mr Justice Bean,Lord Justice Hughes |
| Judgment Date | 30 October 2012 |
| Neutral Citation | [2012] EWCA Civ 1400 |
| Docket Number | Case No: A2/2012/0107 |
| Court | Court of Appeal (Civil Division) |
| Date | 30 October 2012 |
[2012] EWCA Civ 1400
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
SIR RAYMOND JACK sitting as a Judge of the High Court
Case No: HQ10X04075
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Mummery
Lord Justice Hughes
and
Mr Justice Bean
Case No: A2/2012/0107
MR FERGUS RANDOLPH QC and MR MAX SCHAEFER (instructed by Field Fisher Waterhouse LLP) for the Appellant
MR OLIVER SEGAL QC (instructed by Morgan Cole LLP) for the Respondent
Hearing date: 4 th July 2012
Introductory
This case is about the termination of a commercial agent's contract by the principal. Was termination justified by the agent's breach?
The damages claim brought by the agent against the principal, Crocs Europe BV (the defendant), is for summarily terminating a commercial agency contract on 3 July 2008. The agent was Spectrum Agencies (the claimant), a firm, which was the appointed agent in the UK for the sale of the defendant's successful footwear brand "Crocs."
The appeal by the defendant is against the judge's ruling, after a five day trial on liability, in favour of the claimant. He held that the claimant's breach was not sufficiently serious to be repudiatory. General points arise on the appeal as to (a) an agent's duties under the Commercial Agents (Council Directive) Regulations 1993 (the Regulations) and under the general law; and (b) the circumstances in which the principal is entitled to treat the agent's breach of duty under the Regulations and under the general law as repudiatory.
The defendant appeals on the ground that the judge was wrong to hold that it was not entitled to treat the contract as terminated. The judge should have held that the claimant had repudiated the contract by acting in breach of (a) a condition implied into the contract by the operation of the Regulations; (b) the statutory duty of good faith embodied in the Regulations; and (c) the fiduciary duty of loyalty owed by the claimant to the defendant under the general law. Alternatively, the judge should have held that, in all the circumstances of the case, the claimant's breach of contract was sufficiently serious to amount to a repudiatory breach.
The dispute arose when one of the claimant's employees posted comments about the defendant on an internet website. The posting is described in the proceedings as "the Crawl". The claimant says that the Crawl was light hearted, a "joke" based on a typical working day of the defendant's customer services team and the claimant's battle to get service from the defendant. The defendant says that the Crawl was "highly derogatory" and was repudiatory conduct on the claimant's part. The claimant's response is that that was an over reaction to a "joke item" of short duration, limited dissemination and certainly not serious enough to be a repudiation. The claimant's theory is that the defendant was on the look out for a way of ridding itself of the contract without having to pay to the claimant substantial compensation on termination.
This appeal is from the order dated 16 December 2011 by which judgment was entered for the claimant on liability, with damages to be assessed. The judge refused permission to appeal. Permission was granted by the Rt Hon Sir Scott Baker on 23 February 2012.
The judge decided three main points. Only one point is appealed: that the defendant was not entitled to terminate the contract on the grounds of a repudiatory breach.
More background facts
In 2005 the defendant appointed the claimant as UK agent for its distinctive footwear. The judge held that the claimant fell within the Regulations as a self-employed commercial agent with continuing authority to negotiate.
On 19 June 2008 an employee of the claimant, helped by others, composed and posted the Crawl on a website. It consisted of written film credits rolling up on the screen. The sequence written by him and colleagues was headed "That's a Croc!! Of Shite!! SPECTRUMS WAR OF LIGHT VS DARK." The judge found that the Crawl was a joke about the claimant's battle to get service from the defendant. The claimant was concerned about the defendant's poor responses to orders. The joke was put into "a Star Wars context." The judge found that the Crawl's content about the defendant's failures to respond to orders was common knowledge. In his view that was important when estimating what damage the Crawl might do to the defendant.
The defendant says that the comments disparaged the products which it had appointed the claimant to sell. A link to the Crawl was emailed to other employees of the claimant and to third parties, including some customers of the defendant in the UK and distributors in other markets. Four of them were long-standing retailers of the defendant. The judge found that the defendant initially saw the Crawl as something which might be used as a negotiating weapon rather than as a serious breach of the claimant's duty. The defendant took no steps to have the Crawl removed from the website. That reflected on whether it saw it as something likely to cause real damage to it. The whole website, which the claimant says could not be accessed by any internet user via a search engine, was removed on or before 22 June 2008 for reasons unconnected with the case.
On 24 June 2008 the defendant's solicitors wrote to the claimant saying that the Crawl amounted to a fundamental breach of the duties of good faith owed to the defendant. The letter referred to the harm that it would cause to the business in the UK. The judge observed in his judgment that no evidence was called about any harm caused to the defendant. The right to terminate was reserved. The defendant's solicitors contended that posting the Crawl on the internet and forwarding the link to third parties amounted to a repudiatory breach of the claimant's core duty as an agent. The defendant subsequently sought to rely, as support for its case on repudiatory breach, on the claimant's failure to comply with its request for an explanation, for details of the recipients of the Crawl and for an assurance that it would not make further disparaging comments.
On 3 July 2008 the defendant's solicitors wrote to the claimant terminating the agency contract. The claimant began proceedings claiming compensation against the defendant under regulation 17, which provides for compensation or indemnification for a commercial agent whose contract is terminated. The claim is estimated by the claimant to be in the region of £12.8m to £16m. The defendant strongly disputes the figures and asserts that the claimant is not entitled to any compensation under regulation 17 for termination of the commercial agency, because the defendant was entitled to treat the agency contract as at an end this not giving rise to a claim against it under regulation 17.
The law
The Regulations
Under the Regulations a commercial agent is entitled to compensation at the end of the agency contract. In order to determine whether the claimant is so entitled it is necessary to examine the detailed provisions in the Regulations.
Regulation 3 (1) ("Duties of a commercial agent to his principal") provides that, in performing his activities, a commercial agent must look after the interests of his principal and act dutifully and in good faith. The defendant challenges the correctness of the judge's comment that that is no different to the common law position.
Under regulation 3(2) a commercial agent must (a) make proper efforts to negotiate and, where appropriate, conclude the transactions he is instructed to take care of; (b) communicate to his principal all the necessary information available to him; and (c) comply with reasonable instructions given by his principal. Regulation 4 provides for the duties owed by a principal to his commercial agent. Regulation 5 provides that the parties may not derogate from regulations 3 and 4.
On the appeal the defendant contends that the good faith duty in regulation 3 implies a "condition" into the agency contract and that a breach of that condition is always repudiatory: it is not just a statutory duty giving rise to a right to terminate only if the breach is sufficiently serious.
The defendant's alternative case under regulation 3 is that, even if there is no implied condition, a breach of the statutory duty in the Regulations itself gives rise to an automatic right to terminate the contract.
At this point I note that the Regulations do not spell out any specific implied conditions. Nor do they specify the particular consequences that flow from a breach of the Regulations. Instead, regulation 5 (2) provides that the law applicable to the contract shall govern the consequences of breach of the rights and obligations under regulations 3 and 4. That means that the general principles of English contract law relating to termination by breach apply.
Regulation 18 ("Grounds for excluding payment of indemnity under regulation 17") provides that no indemnity or compensation shall be payable to the commercial agent under regulation 17 where the principal has terminated the agency contract because of default attributable to the commercial agent, which would justify immediate termination of the agency contract pursuant to regulation 16. That is clearly another reference to general contractual principles of termination by breach.
The same comment applies to regulation 16 itself ("Savings with...
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Software Incubator Ltd v Computer Associates UK Ltd
...a breach it is, is largely a factual question. See here paragraphs 23–25 of the judgment of the Court of Appeal in Crocs v Anderson [2012] EWCA Civ 1400. 130 In Cureton the defendant who had an obligation to work for the claimant full-time went to see potential customers of the claimant wh......
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BLG Monthly Update - December 2012
...and that it didn't amount a repudiation by Spectrum of its agency contract with Crocs. Crocs appealed: Crocs Europe BV v Anderson, [2012] EWCA Civ 1400. Mummery LJ largely agreed with the trial judge. Under the regulations applicable to commercial agents and the general law of either agency......