England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
MANCHESTER DISTRICT REGISTRY
(HIS HONOUR JUDGE KERSHAW QC
(sitting as a deputy High Court judge))

		Royal Courts of Justice Strand London, WC2
		18th March 2004

1. LORD JUSTICE PETER GIBSON: I will ask Lord Justice Tuckey to give the first judgment.
2. LORD JUSTICE TUCKEY: Regulation 17 of the Commercial Agents (Council Directive) Regulations 1993 entitles a commercial agent to compensation "after termination of the agency contract". In Light v Ty Europe Ltd [2003] EWCA Civ 1238; [2003] EuLR 858 this court concluded that the word "termination" in regulation 17 meant no more than "comes to an end" and so an agent whose agency contract came to an end by effluxion of time was entitled to compensation. Regulation 18 says that:

"The ... compensation referred to in regulation 17 above shall not be payable to the commercial agent where-

(a) 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 ..."

The main question on this appeal is whether the principal has "terminated" an "agency contract because of default attributable to the commercial agent" simply by not renewing a contract which expires by effluxion of time. This question arises on appeal from a judgment of His Honour Judge Kershaw QC given in the Manchester Mercantile Court who decided that the principal had not terminated the agent's contract in such circumstances. The defendant, Pure Fishing (UK) Ltd, says that the judge was wrong. Termination should mean the same in both regulations; it did not renew the claimants' contracts because they were in fundamental breach of their expiring contracts.

3. The three claimants had acted as commercial agents of the defendant and its predecessors since the mid-1980s. By 1999 the defendant was owned by an American company and manufactured three different brands of fishing tackle for sale in the United Kingdom: Abu Garcia, Berkley and Fenwick. By this time the claimants' agencies were governed by six-monthly contracts with a separate contract for each brand. Each claimant had the exclusive right to market the defendant's products in a defined territory. The latest contracts ran from 1st January to 30th June 1999. The contracts expressly provided that the agent would use his best endeavours to promote and market the products in his territory. Each agreement described the products in general terms, categorised them as core and non-core products and entitled the defendant to extend the range from time to time.
4. But the contracts did not prevent the claimants from selling the products of other fishing tackle manufacturers. The defendant knew that the claimants also acted as commercial agents for an English manufacturer, Drennan International Ltd. Before they started to act for the defendant the claimants had obtained Drennan's consent to do so. The judge found that in about May 1985 Mr Brightwell, the defendant's managing director, and Mr Peter Drennan discussed the position and the difference between the products sold by their companies and had agreed that there was no real conflict: Drennan had no intention of going into reels and lures (the defendant's core products); Abu Garcia would not be going into floats and swim-feeders (two of Drennan's high quantity products). This was not a binding contract but an understanding which appears to have worked satisfactorily until 1998.
5. In early 1999 the defendant decided to produce a new range of Abu Garcia products which included floats and swim-feeders. The claimants were told about this development in March 1999 and immediately objected, saying that their contracts with Drennan prevented them from marketing floats and swim-feeders for the defendant. Meetings and correspondence ensued in which various proposals for dealing with the problem were considered but not agreed. On 14th May 1999 the defendant alleged that the claimants' refusal to sell the new products amounted to a fundamental breach entitling it to repudiate their contracts. But the letter continued:

"However, since we acknowledge your admission that you cannot sell our products and we cannot insist you do so, the most sensible course is for us to mitigate the company's losses by appointing additional agents to sell the products you have refused to sell."

Three days later the defendant employed a sales representative for one of the claimants' areas to sell products which would be further defined "when the marketing agents currently covering this territory are not offered a new agency agreement". Correspondence with the claimants continued, but on 16th June Mr Brightwell wrote to each of them saying:

"As you are aware, your Marketing Agency contract with this company for the sale of Abu Garcia products and your contract for the sale of Berkley products both dated the 1st January 1999 will expire automatically at the end of their fixed terms on the 30th June 1999.

I regret to inform you that the company will not enter into new contracts with you for the sales of these or any other of [the defendant's] products.

As I have made clear, you are in material breach of your contracts on several counts, including your refusal to sell the products specified in your contracts and your likely failure to reach invoice targets.

I have repeatedly attempted to work with you to improve the situation and resolve your difficulties, but, lacking your co-operation, have not been successful."

These proceedings followed.

6. The judge rejected the claimants' claim that they were entitled to payment in lieu of notice and there were issues about their entitlement to post-termination commission under the provisions of regulations 7 to 9 of the regulations which he resolved in their favour. Neither of these matters is the subject of this appeal.
7. On the claim for compensation under regulation 17 the judge relied on earlier authority to reach the same conclusion as this court reached in Ty Europe that there had been termination of the claimants' agency contracts when they came to an end by effluxion of time on 30th June 1999. The defendant does not challenge this conclusion.
8. The judge said that it did not follow that the words "has terminated" in regulation 18 had the same meaning as the word "termination" in regulation 17. He said:

"In my judgment the words 'principal has terminated the agency' in Regulation 18 mean that the principal has brought the agency to an end before it comes to an end by time ... It entails a deliberate decision by the principal which is notified to the agent." (paragraph 22)

and:

"... an agent does not lose his entitlement to compensation under Regulation 18 unless that contract is terminated by the principal and for that purpose a decision by a principal not to re-engage an agent when a contract expires by effluxion of time is not termination by the principal for this purpose." (paragraph 26)

9. On the assumption that he was wrong about what regulation 18 meant and the defendant had terminated the claimants' contracts, the judge went on to consider whether immediate termination was justified. He concluded that it was not. In breach of its duty of good faith the defendant had attempted to use its contractual rights to create a conflict of interest for the claimants and had engineered the situation which it (correctly) believed they would find intolerable in order to replace them with direct employees. The defendant challenges these findings and says that the judge should have concluded that it terminated the claimants' contracts for breaches which would have justified their summary dismissal.
10. The main point on the appeal, and the only point on which in the event we have heard argument, is one of construction of regulation 18(a). The defendant contends that a "principal has terminated the agency contract" if he decides not to re-engage an agent and permits his contract to expire by effluxion of time. Here the defendant decided not to renew the agents' contracts although they were willing and expected to be re-engaged. The defendant does not however contend that its letters of 16th June 1999 terminated the contracts. They plainly did not. They explained the reason for non-renewal, but did not assert a right to terminate for breach.
11. In support of the appeal Mr Conor Quigley QC submits that the word "terminated" in regulation 18 should have the same broad meaning as the word "termination" in regulation 17. The words are used interchangeably. For example regulation 17(8) gives an entitlement to compensation where the contract "is terminated as a result of the death of the commercial agent". He took us to the English and French versions of the Directive and pointed to small differences in the language used in the Directive and the regulations and submitted that this demonstrated that it would be wrong for this court to adopt strict rules of construction when looking at the language in regulation 18(a). He argued that it was the purpose of the regulation which mattered and that it was only fair that a principal who allowed a contract to expire by effluxion of time should be entitled to rely on the exemption afforded by regulation 18(a), even if he had not complied with the mechanics which the regulation apparently requires.
12. Mr Quigley submits that his construction of regulation 18(a) is consistent with the correct construction of regulation 18(b) which excludes the right to compensation where the agent:

"... has himself terminated the agency contract, unless such termination is justified-

(i) by circumstances attributable to the principal, or

(ii) on the grounds of the age, infirmity or illness of the commercial agent in consequence of which he cannot reasonable be required to continue his activities; ..."

13. Mr Quigley also relies on regulation 16 to which reference is made in regulation 18(a). It says that:

"These Regulations shall not affect the application of any enactment or rule of law which provides for the immediate termination of the agency contract-

(a) because of the failure of one party to carry out all or part of his obligations under that contract; or

(b) where exceptional circumstances arise."

Mr Quigley says that regulation 16(b) is apt to apply to cases of force majeure or frustration and so this shows that regulation 18(a) is not confined to cases where termination is effected by the unilateral act of the principal.

14. Finally Mr Quigley submits that any other construction produces absurd results. A principal unaware of his agent's fraud who allowed his contract to expire by effluxion of time would be unable to rely on his subsequent discovery of the fraud in defence of a claim for compensation. This is contrary to English law established by cases such as Boston Deep Sea Fishing and Ice Company v Ansell (1888) 39 Ch D 339 that summary dismissal may be justified by the subsequent discovery of misconduct of which the principal or employer was unaware at the time of dismissal.
15. The starting point must be the language of regulation 18(a) itself. The words which have to be construed are not simply "the principal has terminated the agency contract", but also the following words "because of default attributable to the commercial agent which would justify immediate termination of the agency pursuant to regulation 16..." Read as a whole the natural meaning of these words is that the principal has done something unilaterally which brings the contract to an end and that his reason for doing so is some default on the part of the agent which justifies summary termination -- in other words, because the agent has committed a serious breach of the contract which entitles the principal to bring it to an end. The principal's act in terminating the contract is his acceptance that the breach has brought the contract to an end. I do not see how this analysis of what regulation 18(a) apparently says can possibly be applied to a termination which occurs when a contract comes to an end simply by effluxion of time. In the absence of any term to the contrary, the parties must be taken to have intended that their contract will come to an end at the agreed expiry date. Termination in this way does not require anything to be done by either party. Nor is it in any way dependent upon default. The position here is not so much that the expiring contract has come to an end but that the principal has decided not to enter into a further contract. Failure to enter into a future contract cannot be characterised as termination. This situation is very different from one in which a principal terminates for default. Where a contract simply comes to an end by effluxion of time the principal has not terminated it; nor has he done so because of default. It seems to me that before the exception applies both conditions have to be met. It will apply if the principal himself terminates the contract and, judged objectively, he does so because of default by the agent which would justify immediate termination.
16. I am not persuaded by Mr Quigley's reference to the wording of the directive or his general plea for fairness justify ignoring the actual wording of and rewriting regulation 18(a). The purpose of these regulations is to protect agents. Regulation 17 gives a general right to compensation. Regulation 18 makes exceptions to that general right and those exceptions have to be construed according to their terms. There is nothing unfair about requiring the principal to comply with the procedure clearly prescribed by the regulation before he is entitled to rely on it.
17. There is no point in comparing the words "termination" in regulation 17 and "terminated" in regulation 18. Regulation 18 excepts certain terminations which fall within the broad definition in regulation 17. The comparison anyway should be between the words "termination" which includes coming to an end by effluxion of time and "the principal has terminated" which obviously does not. The use of these words in other parts of the regulations take their meaning from the context in which they appear -- see the comments of Davis J in Tigana Ltd v Decoro Ltd [2003] EuLR 189 at paragraph 75. Regulation 17(8) does not shed any light on the matter. There the termination is caused by or the result of the death. Regulation 18(b) does not support Mr Quigley's argument either. This exception only applies where the agent "has himself terminated the agency contract". It does not therefore apply simply because the agent has decided not to renew his agency contract. The reference to regulation 16 in regulation 18(a) must be to regulation 16(a). It cannot be a reference to regulation 16(b) because it is not the principal who has terminated the contract in cases of force majeure or frustration but the event or events which have this effect. Finally, I do not think Mr Quigley's point based upon the Boston Deep Sea Fishing principle carries his argument very far. In a case where it was subsequently discovered that the agent had been guilty of fraud which would have justified immediate termination, it could probably be argued that he had suffered no damage as a result of the termination.
18. For these reasons I do not accept Mr Quigley's submissions. I think the judge reached the right conclusion. The claims for compensation were not excluded by regulation 18(a). This makes it unnecessary to consider the judge's conclusion that in any event immediate termination of the agency contracts was not justified, and I say nothing about that aspect of the appeal.
19. But for the reasons I have given, I would dismiss this appeal.
20. SIR MARTIN NOURSE: I am in complete agreement with the judgment of my Lord, Lord Justice Tuckey. Despite Mr Quigley's well-sustained argument, the construction of regulation 18(a) which he seeks to establish is in my opinion unarguable.
21. LORD JUSTICE PETER GIBSON: I also agree.
22. Mr Quigley's elaborate argument involves, in my judgment, a rewriting of regulation 18(a) so that regulation 17 should not apply where default attributable to the commercial agent would justify immediate termination of the agency contract. But it is in my judgment plain beyond argument that regulation 18(a) requires action by the principal to terminate the agency contract, and I emphasise that it is the contract and not the agency relationship stressed by Mr Quigley which has to be terminated by the principal.
23. There is nothing in the authorities which supports Mr Quigley's construction. On the contrary, it seems to me that there are two observations in the authorities which are against him.
24. One is the observation of Mr John Mitting QC, sitting as a deputy judge of the High Court, in Moore v Piretta PTA Ltd [1999] 1 All ER 174 at 179, where, after setting out the contents of regulations 17 and 18, he said this:

"It is to be noted that the grounds upon which the right to indemnity or compensation can be excluded do not include the expiry of the term of the agency contract ..."

25. The other is in the Light case, to which reference has been made, where Lightman J said in this court, after referring to the meaning of termination as plainly including expiration by effluxion of time for the purposes of regulation 17:

"This conclusion may place a premium on a principal, when sufficient grounds exist, terminating an agency contract on grounds of default as provided for in Article 18 prior to expiration of the agreement by effluxion of time rather than allowing the agency contract to run its full course."

26. For these as well as the reasons given by Lord Justice Tuckey, I too would dismiss this appeal.

ORDER: Appeal dismissed with costs summarily assessed in the sum of £29,000 inclusive of VAT; application to amend the grounds of appeal allowed in relation to paragraphs 1 and 2; application for permission to appeal to the House of Lords refused.

(Order not part of approved judgment)