Should a breach of trust be 'serious' to end an agency agreement?

An agent owes fiduciary duties to his principal, including the duty to act loyally. Such fiduciary duties import on the agent an obligation to act in the interests of his principal rather than his own. This, in turn, gives rise to a relationship of trust and confidence. In this regard, the relationship between principal and agent is special.

Where a commercial agent acts in breach of his duties to his principal, the Commercial Agents (Council Directive) Regulations 1993 allow the principal to terminate the relationship immediately (regulation 16). As a result, the agent is not entitled to receive a termination payment in the usual way (regulation 18). At least, this appeared to be the position until (1) Craig Anderson (2) Todd Albrecht (trading as Spectrum Agencies) v Crocs Europe BV.

The High Court had to consider whether a a thread posted on a website referred to in the ruling as a web crawl prepared by an employee of Spectrum Agencies, which disparaged the Crocs brand, constituted a breach of duty enabling Crocs to treat the agency agreement as having been repudiated by Spectrum. Curiously, Sir Raymond Jack gave judgment in favour of Spectrum on the basis that its breach of duty was not sufficiently serious as to enable Crocs to rely on it. The judge believed the crawl was simply a joke about Crocs' failure to deliver orders to customers on time and that it was obviously intended as such. As to the issue of damage, he took the view that circulation of the crawl had been limited and that, in any event, the situation at Crocs, which was the subject of the joke, was already well known to Crocs' retailers. He also considered that Crocs' reaction suggested that it did not view the crawl as a serious breach by Spectrum, nor that a reasonable person would conclude that the breach showed an intention on the part of Spectrum not to fulfil the contract.

The judgment appears surprising because of the question of whether Spectrum's breach was sufficiently serious as to justify immediate termination. It would seem that under the regulations this is not the proper test. Instead the judge should have considered whether Spectrum had failed to carry out all or part of its obligations under the contract (regulation 16) as what matters is whether there was a breach at all. It also appears surprising when compared with the facts in Stephen Gledhill v Bentley Designs (UK) Limited.

Crocs appealed to the Court of Appeal and at the hearing on 4 July 2012 Fergus Randolph QC for Crocs argued that the statutory obligation on an agent to act dutifully and in good faith under the regulations is an implied condition of the agency agreement with the result that, if there is a breach by the agent, the principal is entitled to accept it as a repudiatory breach. In this respect he relied on Malik & Anor v Bank of Credit and Commerce International SA.

Breach sufficiently serious

He also asserted that in any event, Spectrum's action constituted a breach of its fiduciary duties owed to Crocs, including the duty to act loyally. It followed that Sir Raymond Jack had been wrong to focus on whether or not the breach was sufficiently serious.

In arguing these points, Fergus Randolph QC relied on, and said that the High Court had been wrong to ignore, Gledhill, the facts of which had certain similarities to the Crocs case. In Gledhill, the agency relationship came to an immediate end after the agent, who was frustrated by changes that had been implemented to his working practices, subjected his principal's managing director to an abusive tirade over the telephone. His Honour Judge Simon Brown QC concluded that Mr Gledhill's conduct in personally abusing his principal, coupled with his avoidance of proffering any apology despite being given ample and generous opportunity, was a 'course of conduct calculated, or at the very least likely, to destroy or seriously damage the relationship of confidence and trust between principal'¦and agent'.

Fergus Randolph QC relied on this point in the Court of Appeal. The relationship of trust and confidence is the essence of the principal/agent relationship. Once it is damaged, it is difficult, if not impossible, to repair. In any event, as His Honour Judge Simon Brown QC commented: 'Such repair could only be at the indulgence of the abused'. In the event that the principal does not feel that the relationship can be restored, it is entitled to bring it to an end with immediate effect. The question of seriousness does not, therefore, come into play.

The Court of Appeal has yet to give its decision. Unfortunately for Crocs, The appeal judges did not appear convinced that the issue of seriousness could be ignored

In essence, the nature of a principal/agent relationship is such that it can either be alive or dead '“ it cannot be half dead.