Monarch Energy Limited V. Powergen Retail Limited
| Jurisdiction | Scotland |
| Judge | Lord Drummond Young |
| Judgment Date | 2006 |
| Neutral Citation | [2006] CSOH 102 |
| Court | Court of Session |
| Date | 06 July 2006 |
| Year | 2006 |
| Published date | 06 July 2006 |
| OUTER HOUSE, COURT OF SESSION [2006] CSOH 102 | |
| OPINION OF LORD DRUMMOND YOUNG in the cause MONARCH ENERGY LIMITED Pursuer; against POWERGEN RETAIL LIMITED Defender: ________________ |
Act: O'Neill, QC, Barne; Shepherd & Wedderburn, WS
Alt: Mackenzie, Solicitor; Pinsent Masons
6 July 2006
[1] The defender is a supplier of electricity, gas and telecommunications equipment and services. The pursuer formerly acted as the defender's agent for the sale of their products in the energy markets in Scotland and the north east of England. On 3 April 2003 the defender wrote to the pursuer to terminate the relationship. The pursuer subsequently raised the present proceedings against the defender. In those proceedings the pursuer claims statutory compensation for termination of the commercial agency relationship in terms of regulation 17(6) of the Commercial Agents (Council Directive) Regulations 1993. It further claims payment in lieu of notice under regulation 15 of the same Regulations. In the alternative, in the event that the Regulations do not apply, the pursuer claims payment in lieu of notice at common law. Finally, the pursuer claims unpaid commission that is said to be due by the defender. The total sum sued for is in excess of £6 million. Of that sum, £5,349,529 is claimed as compensation for termination of the commercial agency relationship.
[2] The pursuer avers that, following the privatization of the electricity supply industry, the defender's predecessor, East Midlands Electricity PLC, became the monopoly supplier of electricity in the East Midlands of England. In 1998 the industry was deregulated, with the result that the regional electricity companies were able to supply electricity outwith their original monopoly areas. One of the methods chosen by the defender to attract customers outwith its original area was the appointment of sales agents. The function of such agents was to persuade existing gas or electricity customers supplied by other former monopoly suppliers to transfer their custom to the defender. The pursuer avers that it was appointed as an agent for East Midlands Electricity PLC with effect from 1 June 1999 with a view to assisting that company to expand in the energy markets in the north east of England. The pursuer's agency was in due course transferred from East Midlands Electricity PLC to the defender. The territory assigned to the pursuer was expanded into parts of Yorkshire, and subsequently into areas in Scotland, notably Edinburgh, Glasgow and Dundee. The pursuer was not permitted to act for any other utility company in those areas. It appears to be accepted by both parties that the pursuer's sales activities consisted essentially of doorstep selling.
[3] The pursuer further avers that on 25 February 2003 the defender stated that it was terminating the relationship with the pursuer on the basis of the pursuer's alleged failure to manage its field sales team effectively. It was alleged that contracts had been submitted by several field representatives in respect of empty boarded up properties. The defender further intimated that the pursuer was conducting business in such a way as to seriously damage the defender's reputation, in breech of a duty to act in good faith. Three months' notice of termination was given in order to facilitate the withdrawal from the relationship by both parties. Following that letter, it is averred, the pursuer carried out an investigation into the circumstances of the allegedly fraudulent contracts and concluded that certain contracts had been falsely completed in respect of boarded up houses. The pursuer avers that it concluded that these were the work of one rogue individual who had previously had a good working record and who had received training from the defender. The pursuer avers that it had no reason to suspect that that individual would act as he did, and that he was subsequently dismissed.
[4] The pursuer further avers that by letter dated 3 April 2003 the defender purported to terminate the relationship between the parties with immediate effect; that occurred five weeks into the notice period that had previously been set. In doing so the defender relied on alleged further incidents of signing up contracts in relation to boarded up properties in the Cramlington and Durham areas. The pursuer avers that it subsequently investigated the four properties that were specifically identified in the letter of 3 April 2003 and found that none of the properties was boarded up at the time. On that basis it is contended that the defender was not justified in terminating the agency relationship. As mentioned above, the pursuer concludes for compensation under regulation 17 of the 1993 Regulations in consequence of the termination of the agency. The sum claimed, £5,349,529, is calculated on the basis of two years' gross commission calculated by reference to the three years immediately preceding the termination of the parties' contract. That method of calculation is based on the decision of the Inner House in King v T Tunnock Ltd., 2000 SC 424, where the approach adopted by the French courts to compensation for termination of a commercial agency relationship was adopted into Scots law.
[5] The defender advances three main lines of defence to the action. In first place, it contends that the 1993 Regulations do not apply to the relationship between the parties because the activities of the pursuer were "secondary" within the meaning of the Regulations; in particular, neither electricity nor gas constitutes "goods", and consequently the pursuer's agency did not involve the supply of goods. The Regulations only apply to agents who have authority to negotiate the sale and purchase of goods. In the second place, the defender argues that the French approach to the quantification of compensation should not apply in Scotland. On that basis it is said that King v T Tunnock Ltd was wrongly decided; I was informed that the case has not been followed in the English courts. That case is obviously binding in the Court of Session. Nevertheless, the defender avers that the contractual relationship between the parties was governed by English law, which may have the result of excluding the rule adopted in King. In any event, the decision in that case could obviously be challenged in the House of Lords or the European Court of Justice. If King is not followed, the defender asserts that the compensation due to the pursuer, for proved loss of goodwill, is relatively modest. In the third place, the defender contends that the agency relationship was terminated because of the pursuer's breach of contract. It is averred that the conduct of the pursuer was of critical importance to the defender, and that mis-selling was a serious issue for the industry. In this respect, the defender relies on what are alleged to be high levels of complaints and cancellations among the customers introduced by the pursuer. In addition it is averred that the pursuer made misleading statements to customers regarding the service provided, and gave misleading information about the defender's competitors to customers. In addition it is averred that the pursuer's representatives were "pushy" and aggressive, falsified contractual documents and signatures and took advantage of elderly and disadvantaged customers.
[6] In connection with the third line of defence, the defender makes allegations of fraud. It is averred that the defender discovered that the pursuer had fraudulently submitted contracts to the defender, those contracts being for properties that were boarded up and empty. Those properties were located in both Glasgow and Newcastle. That prompted the initial notice of termination given by the defender to the pursuer on 25 February 2003; the letter intimating termination referred to 24 properties in Glasgow. The defender further avers that the issue was discussed at a meeting on 7 March 2003, and that following that meeting further instances of fraudulent contracts were discovered in the Cramlington and Durham areas. It is then averred that the discovery of fraudulent activity by the pursuer ended any remaining trust and confidence, which was necessary for the contract to continue. It is said that the fraudulent behaviour was a deliberate breach of contract which went to the heart of the relationship, and that such behaviour justified the immediate termination of the contract.
[7] The action was raised during the summer of 2005. Defences were lodged and some adjustment of pleadings took place. A procedural hearing was then fixed for 6 December 2005. At that hearing I allowed a proof before answer confined to two issues, which corresponded broadly to the first two of the lines of defence taken by the defender. These were, first, the applicability of the 1993 Regulations and, secondly, the proper approach to the quantification of the pursuer's claim under the Regulations. Those two issues were singled out for consideration before the factual merits of the case because they raised, ultimately, issues of law that could be decided before the details of the parties' relationship were considered. I formed the view that detailed examination of the parties' dealings was likely to be very time-consuming, and that consequently it would be preferable to decide the two legal issues first. Nevertheless it was clear that expert evidence, and possibly some factual evidence, would be required on both of the preliminary issues, and for that reason a proof was essential. The proof was fixed for five weeks between October and December 2006.
[8] Meanwhile, in October 2005 the defender enrolled a motion to have the pursuer find caution in terms of section 726 of the Companies Act 1985. The motion was continued on a number of occasions. Discussions took place between the parties' advisers, and the result was that, in March 2006, the pursuer offered the defender by way of security an after the event...
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