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You are here: BAILII >> Databases >> England and Wales High Court (Queen's Bench Division) Decisions >> Rossetti Marketing Ltd v Diamond Sofa Company Ltd & Anor [2011] EWHC 2482 (QB) (03 October 2011)
URL: http://www.bailii.org/ew/cases/EWHC/QB/2011/2482.html
Cite as: [2012] 1 All ER (Comm) 18, [2011] ECC 28, [2011] EWHC 2482 (QB), [2012] Eu LR 249, [2012] Bus LR 571

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Neutral Citation Number: [2011] EWHC 2482 (QB)
Case No: TLQ10/1187

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL
03/10/2011

B e f o r e :

MR JUSTICE CRANSTON
____________________

Between:
Rossetti Marketing Ltd
Claimant
- and -

(1) Diamond Sofa Company Ltd
(2) Solutions Marketing Ltd
Defendants

____________________

Nigel Jones QC and David Lewis (instructed by Bankside Commercial Ltd) for the Claimant
David Uff and Daniel Metcalfe (instructed by Betesh Partnership Solicitors) for the First Defendant
Hearing dates: 8-14 June

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

    Mr Justice Cranston :

    INTRODUCTION

  1. The claimant's case against the first defendant is for compensation under the Commercial Agents Regulations 1993 (based on European Directive 86/653/EEC), for sums due under contract and for damages for breach of contract. The agency was determined summarily on 4 June 2008. The dispute is between the claimant as agent and the first defendant as principal under an agency contract dating from early 2004. Neither the claimant nor first defendant seek any relief against/from the second defendant, and it seeks no relief of its own. The second defendant and the claimant are related entities and prior to early 2008 the second defendant acted as the first defendant's agent. The agency was then transferred to the claimant.
  2. At pre-trial review on 15 April 2011 the judge ordered the trial of certain preliminary issues. In broad terms these issues are firstly, whether the Commercial Agents Regulations 1993 apply to this agency, whether under them an agent is permitted to act for multiple principals and whether these principals can include principals who are in competition with one other. There appears to be no authority on these issues under the Regulations or the European Directive on which they are based. A second category of issues is whether the change of agent in 2008 from the second defendant to the claimant gave rise to an assignment, a novation or a new contract of agency, and what the consequences of that are. After the hearing the only issue remaining in the third category of preliminary issues identified by the judge is the duration of the agency agreement.
  3. The advantage of resolving the first category of issues is said to be to determine whether the claimant is entitled to make a claim under the Commercial Agents Regulations 1993 and whether the first defendant can pursue any breach of contract case against the claimant. The effect of resolving the second category of issues is said to determine whether the claimant's case under the Regulations can include compensation arising from the first period when the second defendant acted as its agent, and whether the first defendant can pursue any breach of contract case against the claimant arising in that first period. Determining the duration of the agency will assist in what is to happen with the first and second category of issues. Having heard the case I am not at all persuaded that the determination of preliminary issues was the right approach to handling the litigation. It would have been far better to have had a trial to resolve all the issues in what has no doubt become a very costly dispute.
  4. BACKGROUND

    The parties

  5. In 2001 Richard Willan and Martin Thomas became co-directors and equal shareholders of the second defendant, Solutions Marketing Ltd ("SML"). Mr Willan had had 32 years experience in the furniture industry and had become chief executive of Christie Tyler plc. At that point Christie Tyler had a quarter of the UK market in furniture, that market being worth some two billion pounds. Mr Thomas had also been with Christie Tyler, on the product design side. In 2008 Mr Willan and Mr Thomas formed a new company, the claimant, Rossetti Marketing Ltd ("RML"), and SML's business was transferred to it. The precise details of why and how this was done are addressed later in the judgment.
  6. As Mr Willan explained in his evidence the intention in forming SML was to represent Asian furniture manufacturers which wished to sell their products in UK markets. The manufacturers would benefit from SML's product knowledge and expertise in selling in these markets, in particular from its established contacts. SML's preferred approach was to sell in volume to large furniture wholesalers such as the Steinhoff group, buying groups such as Associated Independent Stores Ltd, and national retailers such as Land of Leather, Harveys (later wholly owned by the Steinhoff group) and Argos. In late 2005 Mr Willan's daughter, Mrs Clare Evans, began working as a sub-agent for SML, her role being to manage marketing to independent retailers while Mr Willan concentrated on the larger importers.
  7. The first defendant, Diamond Sofa Company Ltd ("Diamond"), was one such Asian manufacturer of leather upholstery. Diamond is based in Thailand, its managing director being Panchanin Charoenyos. Mr Charoenyos is also managing director of Universal Sofa Company Ltd ("Universal"), another Thai company, which was engaged in the manufacture and distribution of furniture between March 2004 – October 2008. Whereas Diamond aimed its models at the middle of the market in terms of quality and price, Universal was able to price its models more competitively by using PVC and leather and by having a limited number of models and colours. Mr Charoenyos' wife, Pat, is also involved in these businesses. In his evidence Mr Charoenyos explained that he had been educated in the United Sates from the age of 16 until graduation from college. In the 1990s he worked for Diamond Sofa Company, based in the United States, acting as its buying agent in south-east Asia. He was also paid by Thai manufacturers to assist them to develop their businesses. Eventually, in 1999 he began manufacturing leather upholstery in Thailand himself, inspired by Italian designs.
  8. When SML began acting as agent for Diamond in 2004, there were some 20 Asian furniture manufacturers having an interest in selling products designed for the Western market into the UK. They were predominantly producing leather upholstery furniture such as chairs and sofas. These were either "fixed" or "motion" (for example, reclining chairs). Because of the labour input into leather upholstery Asian manufacturers had a competitive advantage over manufacturers in the UK. Because Asian upholstery manufacturers exported their furniture to Europe in volume, it is shipped in containers.
  9. The Asian leather upholstery manufacturers which feature in the case include Linkwise (later called Soffine), ArtPeak and Creative, all based in China, and Casarredo, based in Vietnam. Linkwise upholstery was towards the bottom part of the market, measured by factors such as quality and price, and thus attractive in the UK to a retailer such as Argos or Land of Leather. By contrast ArtPeak furniture was at the higher end of the market. Diamond itself manufactured middle market upholstery. Products of a similar style can be at different levels in the market, depending on quality and price. It is no part of my task in the present litigation to determine to what extent there was an overlap with the products of these different manufacturers but it is obvious that there was some at the different ends of the ranges.
  10. From its formation SML's business plan was to act as agent for more than one of the Asian furniture manufacturers. As Mr Willan put it in evidence, he was looking to sell as much furniture for as many people as possible. Christie Tyler had had 25 percent of the market; it would be nice if SML could capture 5 percent. In Mr Willan's perception there was no difficulty with acting for multiple manufacturers. There were other agents in the UK who did so. Part of Christie Tyler's business model had been to create subsidiaries for its different factories, each with different management teams, so that if for whatever reason, including the personality of the parties, one could not satisfy a customer, another could. There is no convincing evidence that Mr Chareonyos ever knew the details of the Christie Tyler business model.
  11. In Mr Willan's evidence, which I accept, retailers typically have 70 "slots" in any one retail outlet, displaying a range of different products. At any one time they may require upholstery for a few of those slots. The agent representing a number of manufacturers is in a better position to offer products to fill those slots. UK importers make their decision about what furniture to purchase on the basis of a range of factors such as style, quality and price, but also factors such as the speed, cost and guarantee of delivery. Similar styles could be higher or lower in the market. The market is fluid. Since all manufacturers attempt to sell what the market demands, if one manufacturer's range or specific products within a range are selling well other manufacturers may try to emulate them.
  12. The 2004 agreement

  13. In 2004 SML and Diamond entered into an oral agreement whereby SML would act as agent for Diamond in the sale of its leather upholstery in the UK and Irish markets. The character of the agreement is at the heart of the present litigation. At the time of the agreement Diamond was seeking new markets, since a move in the exchange rate between the US dollar and the Thai baht had led to a loss of business in the American market.
  14. The agreement followed the meeting at the Cologne furniture fair in January 2004 between Mr Willan and Mr Thomas on the one hand, and Mr Charoenyos on the other. At that show Mr Willan represented Aimwood, a Malaysian cabinet manufacturer, on its stand, and Mr Thomas represented Linkwise, on its stand. In the same corridor of the same hall as Aimwood's stand was Diamond's stand, with Mr Charoenyos in attendance. The Linkwise stand was in another hall. At that point neither Mr Willan nor Mr Charoenyos knew each other and Mr Willan had not heard of Diamond. In his evidence Mr Willan accepted that Mr Charoenyos had no knowledge of the UK furniture market, in particular whether agents acted for more than one manufacturer, only what Mr Willan told him. Likewise, Mr Charoenyos had no reason to know either Mr Willan or Mr Thomas or of their experience and reputation. Mr Willan also accepted that at that time Mr Charoenyos did not know about Linkwise before he told him. Mr Willan had advised him to visit its stand in the other hall but Mr Charoenyos' evidence was that he did not do so because of a cultural inhibition about intruding onto another manufacturer's territory. Mr Charoenyos did not have the Linkwise or ArtPeak catalogue or price list.
  15. In evidence Mr Willan accepted that at the show he did not go into great detail about the other manufacturers he represented. He may have told Mr Charoenyos that the products of his existing agencies and those of Diamond were in different parts of the market. There was a discussion between the two of a potential customer for Diamond, not named, and of the commission which Mr Willan wanted as Diamond's agent. That was 10 percent, but Mr Willan advised that it could be added to the price and that the price lists should be adjusted to reflect this and the need to meet UK fire resistance standards. In his evidence Mr Charoenyos said that the only representations Mr Willan made that he believed were that he acted as agent for Linkwise and ArtPeak, that he had worked for Christie Tyler and that he knew many people in the industry.
  16. Following the Cologne fair Mr Willan emailed Mr Charoenyos on 26 January 2004 to confirm the action which he was about to take following the meeting at the fair. Mr Willan said that he was expecting to receive Diamond's price list, adjusted to include the UK FR (fire resistance) specification and the 10% commission payable to SML. The email continued that another potential customer, Land of Leather, had told him that they thought Diamond was expensive, but that he intended to show them Diamond's CDRom and tell them what excellent value Diamond was. Mr Willan then mentioned a Land of Leather order placed with Linkwise.
  17. A few days later, on 30 January, Mrs Charoenyos replied that Diamond would soon send the adjusted price list. Land of Leather representatives had visited Diamond's stand at the fair, requesting pricing, she explained, but had not returned when she suggested that they do so to discuss it with her husband. Later that day, 30 January, Mr Willan emailed that the customer's name was Harveys. His appointment to meet with Land of Leather was for the following week. Business with these two customers should generate $5 million in the first full year of trading, if the products were commercial. However, he had a proposal. SML was in the third year of selling Linkwise products in the UK, targeting US$10 million.
  18. "Your product range does not "clash" with either of our upholstery companies, Linkwise and ArtPeak, who are both based in China. Why not appoint [SML] as your exclusive agents for twelve months from 1 March 2004 and see what we can do for you? "

    In his evidence Mr Willan explained that the word "clash" was used there in the context of the business of leather upholstery manufacturers in Asia. These supply the same market, and the product range of one may to a greater or lesser extent be competitive with the product range of another, depending on the factors mentioned earlier. That is evidence I accept.

  19. A few days later Diamond both emailed and faxed the price lists with the UK FR specification and 10 percent commission incorporated. On 5 February Mr Willan reported a positive meeting with Harveys, who were interested in the "Britain" model, with an initial order of 180 sets and backing orders of a minimum of another 900 sets. In anticipation of a meeting with Land of Leather, Mr Willan emailed on 9 February that, by way of example, he had recently sold them a Linkwise model, "Amanda", similar to Diamond's "Barbara" model for $770 as the cif price. Mrs Charoenyos replied on 7 February, that they preferred not to touch that since it was one of the most difficult models to produce. In Mr Charoenyos' evidence they were not interested because they would have had to price it at close to $900. It confirmed in his mind that Linkwise was lower in the market. In reply to Mrs Charoenyos' email, Mr Willan emailed the same day that his question about the "Barbara" model had been hypothetical.
  20. In late February 2004 Mr Willan visited Diamond's factory in Thailand. In evidence Mr Charoenyos said that this impressed him. Many potential agents "talked big" but Mr Willan's visit showed commitment. It was on this basis that Diamond awarded the UK agency to SML. After the meeting Mr Willan emailed some notes on 11 March 2004, which he hoped accurately reflected what the parties had agreed for the following 12 months. The email requested Mr Charoenyos to let him know whether he agreed with them and to send any alterations. The notes recorded details of Diamond, including its product range, in particular Diamond's preference for fixed rather than motion upholstery. They continued that Mr Charoenyos had agreed to a one year period from 1 March 2004, when SML would have total exclusivity to develop the UK market. The customers which Diamond had acquired directly, as a result of the NEC (Birmingham) furniture fair, would be passed to SML if it was seen to be developing the business.
  21. In my judgment the notes accurately reflect the express terms of the agreement between SML and Diamond. In evidence Mr Charoenyos said that he did not agree with the notes but acknowledged that he never responded to the email to suggest amendments. In evidence the only error he could identify in the notes was that they suggested an exclusive agency, whereas he had existing customers in the UK. As I have indicated the notes did in fact deal with the existing customers recruited at the NEC fair. Mr Charoenyos' evidence was that he wanted to see Mr Willan's commitment, which I accept, but that was represented by the 12 month period, enabling him to assess SML's success during that period in marketing Diamond's product. I do not accept that it was a condition of the agreement that SML had to increase Diamond's sales in the UK year on year, not least because its duration was one year only.
  22. Nor do I accept that there was a term that SML could not act as agent for other conflicting manufacturers. It was clear that SML was acting for Linkwise and ArtPeak and would continue to do so. Otherwise the issue did not arise: the focus was on Mr Willan's ability to sell Diamond products. In evidence Mr Charoenyos said that he raised the issue of competing agencies at the Cologne fair and was given an assurance by Mr Willan that there would be no conflict. However, this takes the matter nowhere, since Mr Charoenyos' other evidence was that he relied very little on what Mr Willan had said at the fair, certainly nothing to do with this subject. As for Mr Willan, the position he accepted in his oral evidence was that he did not tell Mr Charoenyos explicitly that he intended to secure further competing agencies. Overall, the matter went no further than that stated in Mr Willan's 30 January email, that SML's existing agencies, Linkwise and ArtPeak, would continue and that their product ranges did not clash with Diamond's.
  23. Conduct of the agency 2004-2008

  24. Thus SML began to act as exclusive agent for Diamond in the UK. Without any express agreement, it continued to do so on the same terms after the initial 12 months. SML was remarkably successful on Diamond's behalf. The turnover of Diamond upholstery sold during the remainder of 2004 through the SML agency was just over US$1 million, with an additional US$445,000 for Universal. (Pricing was in US$ but was gradually expressed in sterling.) Thereafter, in 2005 the respective figures had increased significantly to over US$10 million for Diamond and US$4,494,000 for Universal. During 2006 and 2007 the turnover increased yet again. In 2007 the figures were for Diamond US$968,741 and £15 million, for Universal, £84,537. Then in 2008 there was a fall, attributable by Mr Willan to the economic recession. Thus Diamond upholstery sales in the UK increased each year, up to 2008. Steinhoff became its largest customer in the UK, with Land of Leather representing a substantial percentage of Diamond's other sales here.
  25. One aspect of the way business was conducted was that over the four year period Mr Willan, and later Mrs Evans, would meet representatives of UK customers at Diamond's factories in Thailand. On those occasions Mr Charoenyos would generally leave negotiations about price to Mr Willan: his factory might not be able to meet the pricing demands of the visiting customers. Diamond also exhibited at a number of furniture fairs over that period, along with the other Asian upholstery manufacturers. In his evidence Mr Charoenyos accepted that he never raised with Mr Willan any concerns he had about SML, and later RML, acting for the other manufacturers. When matters came to a head at the end of May 2008, Mr Charoenyos expressed his concern in terms of what he characterised as a lack of commitment by RML and its failure to obtain better prices.
  26. In the course of the evidence various incidents were highlighted to show the relationship between SML and Diamond and the nature of the UK upholstery market. Thus early on, in early August 2004, Steinhoff emailed Mr Willan about sourcing "Harvard" 3 seater models from China or Thailand for around $335 fob. Mr Willan forwarded the email to Diamond, referring to the possibility of developing a volume range for Steinhoff and the sales potential. At the Singapore furniture fair in the first part of 2006 representatives of Wade Upholstery, part of the JDP group, visited the Diamond stand. Mr Willan pursued that contact on Diamond's behalf. In January 2007 Rosebay, a Birmingham furniture retailer, placed an order with Diamond, but then cancelled it. SML had introduced Rosebay to Casarredo about this time. When cross-examined about the cancelled order Mr Willan said in evidence that Rosebay had found that it could obtain the product more cheaply elsewhere. In late July 2007 Mr Willan explained that, with the approval of Cassaredo and Steinhoff, he had recently sold a model of Cassaredo's to Land of Leather. It was a model designed for Steinhoff/Harveys. Steinhoff had asked Mr Willan whether Diamond would be able to make the model. In the event Diamond did not take up the opportunity.
  27. Over the four year period of the agency SML regularly explored with Diamond the possibility of manufacturing motion furniture, such as reclining chairs, which was over a half of the total UK market in upholstery. Diamond preferred not to, because of the difficulties it would present for its business model. With UK purchasers such as smaller independents, that meant Diamond was a less desirable source because they preferred a mix of fixed and motion furniture in any one container imported. On 18 October 2006 Mr Willan emailed Mr Charoenyos, confirming a discussion about motion furniture, and that Diamond did not feel that its factories would be able to produce significant quantities for some time to come. The email continued that Mr Willan had told Mr Charoenyos that
  28. "we have an alternative source which we could develop in Vietnam called Cassaredo. You said that you would be happy for us to do this".
  29. During the four year period of the agency with Diamond, SML acquired the agency for Casarredo in 2003, and in 2006 for Creative. For SML Mr Willan, and later Clare Evans, would regularly make visits to these other manufacturers' factories, often meeting representatives of UK importers there. There is no doubt that Mr Charoenyos knew that when Mr Willan and Mrs Evans visited Diamond, they would have visited, or would be visiting, other manufacturers which SML represented as agent during any Asian trip. Diamond would sometimes purchase the airline tickets for these visits, since it was cheaper to purchase tickets for flights within Asia in the region itself.
  30. Representing these different manufacturers meant SML (and later RML) were sometimes acting as agents for principals selling similar products. Mr Willan accepted this in his evidence: he was representing different manufacturers over their whole range, although he may not be selling the whole range at any one point in time. From any one product range he could happily sell models alongside models from another product range. Certainly Diamond was in competition with Casarredo and with Creative. Thus in 2005, when SML began acting for Casarredo, there was a similarity in some of the products in the Diamond range. But in Mr Willan's evidence that meant there was a greater chance of being able to supply UK customers and potential customers with their product needs when an opportunity arose. It was a customer driven business and customers decided which models from which manufacturers they would purchase. Mr Willan would disclose to a manufacturer information about another manufacturer for which he was acting as agent, as long as it was not confidential. Diamond's cushion construction, a key selling point, was confidential.
  31. Transfer of SML business to RML

  32. In 2008 SML's business was transferred to RML. The background to the transfer of business was that retail customers suffered allergies from use of Linkwise furniture because of a chemical used in the treatment of the leather. That ultimately led to a collective action in the High Court against retailers such as Argos and Land of Leather, which had retailed Linkwise products. All SML business was transferred in January 2008, except for the Linkwise agency, although on the advice of SML's accountant commission payments continued to be made to SML until the end of its tax year, in May 2008. In his evidence Mr Willan explained that he was concerned with the negative publicity for SML and for the other manufacturers it represented in the UK and also with potential legal liability, albeit that SML had only acted as agent for Linkwise. Although he had no intention of abandoning any of his responsibilities to his principals and shareholders, he wanted to avoid the contingent liability should consumers adversely affected by using Linkwise furniture take legal proceedings. No specific sum was paid by RML to SML for transfer of the business. SML's landlord agreed to transfer the lease into RML's name. The intention was to carry on the business in the same way as previously, but for the absence of Linkwise, whose products were no longer marketable.
  33. In anticipation of the transfer, Mr Willan had approached those for whom he was acting as agent. On 16 October 2007 he told Diamond that, in case there was any litigation fall out from the allergy problem, he was thinking of changing SML to RML, with RML handling all SML's Far Eastern supplying customers except Linkwise. Everything would be exactly the same. Unless he heard to the contrary he would make the change. Mr Charoenyos recalls a conversation about the background to the change and that Mr Willan had explained that all new business would be carried out by the new company. Subsequently Mr Willan drafted a letter, which he requested be signed on Diamond letterhead. Mr Charoenyos agreed – he saw Mr Willan was stressed – and signed a letter as managing director of Diamond, dated 12 December 2007. It read:
  34. "As a result of poor publicity relative to Linkwise's allergic reactions to some of their furniture, we would prefer not to be represented by Solutions Marketing Ltd. Can you please let me know how this can be changed?"
  35. In an email in early January 2008 from Mr Willan to Diamond, summarising points discussed with Mr Chareonyos, the transfer was explained as resulting in RML becoming Diamond's sales agent in the UK instead of SML, the change taking effect on 1 January 2008, although invoicing would not change until 1 May 2008. A letter from SML/RML's accountant to Diamond spoke of the transfer resulting from "requests from manufacturers". RML would start trading in full on 1 May 2008. In evidence Mr Willan accepted that in fact he was responsible and that the letter from Diamond was inaccurate; the initiative had come from him. In his evidence Mr Charoenyos said that Mr Willan did not mention anything about RML taking on liability. It appears that invoices continued to be sent out by SML until 1 May 2008 coinciding with the start of the next accounting year. Following 1 May 2008 RML received all payments from Diamond.
  36. Termination of agency

  37. Five months after the transfer of the agency, on 4 June 2008, Diamond terminated the agency. The reasons for that termination are in dispute and are not for final determination in the current proceedings. However, since the circumstances surrounding the termination are relevant to some of the issues which are to be determined, some reference to them is necessary.
  38. The background to termination is that in mid December 2007, in anticipation of the NEC fair the following month, Mr Willan and Mr Chareonyos had a discussion about the progress made in Diamond sales in the UK and future prospects. A number of Diamond accounts had been lost or were a cause of concern for reasons such as price and a lack of variety. Mr Willan raised these issues, and the need for Diamond to have a better stand at the forthcoming NEC fair, independently of the Thai government export promotions umbrella. Mr Willan had raised such issues before, but he did not want a confrontation. Mr Chareonyos' evidence was that he took the view that Mr Willan was now trying to tell him how to run his business. At this point, however, he did not raise any concern he had about SML acting for competing manufacturers although he said in evidence that he was concerned when he was told by a customer that Casseredo was producing similar products to Diamond, and that at the NEC furniture fair in January 2008 RML represented four other Asian manufacturers, who appeared to be selling similar products.
  39. Around this time the exchange rate for the Thai baht was moving against Diamond, reducing the return on exports to the UK. At the January NEC furniture fair Mr Chareonyos' unhappiness with the performance and commitment of the SML/RML agency crystallised, in particular when he saw Mr Willan and Mrs Evans on the stands of competing manufacturers. However, there is nothing to support his evidence that he gave expression to these concerns. In late April Diamond announced that it was increasing its prices from July. On 30 May 2008 Mr Chareonyos told Mrs Evans, during one of her visits to the Diamond factory, that he would be halving RML's June commission. He said to her that he had wanted to do this for some time but his wife had dissuaded him. He told her that the factory was struggling financially.
  40. That evening Mr Willan met Mr Chareonyos at the airport in Bangkok. Mr Chareonyos explained the financial situation, that he was losing money on supplying Steinhoff/Harveys, and with other UK customers was only breaking even or making a small profit. He made no mention of any concerns about RML acting for other manufacturers. Even if RML had accepted a reduction in commission he said that he had intended to terminate the agency because of what he perceived to be a failure to achieve better prices with Steinhoff/Harveys, and a lack of commitment on RML's part. Mr Willan objected to the proposed reduction.
  41. There was a telephone conversation on 4 June during which Mr Charoenyos terminated the agency. He agreed that Diamond would continue to pay commission to RML on sales to existing customers on current models. Several attempts on Mr Willan's side to effect a reconciliation got nowhere. There were two conversations between Mr Willan and Mr Chareonyos on 16 June. A note which Mr Willan made, and sent to Mr Chareonyos at the time, accurately records those conversations. Three main issues emerged. First, Diamond was suffering cash flow problems, and a large part of that it attributed to the low prices which Steinhoff/Land of Leather were paying. Secondly, Mr Chareonyos felt that RML was not recruiting enough new customers for Diamond. Thirdly, he was also concerned that RML was not dedicated enough to Diamond and was representing too many factories. In response to the latter concern, Mr Willan had said that if Mr Chareonyos would continue with Diamond, RML would cease to act for Creative. Finally, Mr Chareonyos believed that there were falling sales in the UK market, which could not absorb price increases. In evidence Mr Chareonyos acknowledged that this was the first time he mentioned the issue of RML acting for too many factories. At that point he did not know that the issue went further, in that RML was acting for manufacturers which were actually in competition with Diamond.
  42. There was a further discussion between Mr Willan and Mr Chareonyos on 3 July 2008, the substance of which Mr Willan again recorded and sent to Mr Chareonyos. When asked for his explanation for terminating RML's agency, Mr Chareonyos said that he was unhappy about RML selling for others at the NEC fair earlier in the year. (Mr Willan's manuscript notes referred to Mr Chareonyos being unhappy with RML's commitment). RML had sold only 10 containers of Diamond furniture at the fair. By contrast the Irish agent had sold up to 60 containers at that fair. Mr Willan then raised the issue of compensation for the lost agency, standard practice in the UK. In response, Mr Chareonyos emailed that he had never agreed to compensate anyone, except to pay commission on existing customers with existing models.
  43. In a further email on 21 July 2008, Mr Chareonyos acknowledged that Mr Willan was unhappy with a 50 percent reduction on the Steinhoff commission, which he had agreed to continue paying, but if Diamond paid full commission it would have to discontinue supplying Steinhoff/Harveys because it was losing money. Mr Chareonyos added that "this is why we can no longer working [sic] together because [the] factory is losing money, but still [has] to pay your commission". A Diamond email of 19 September 2008 announced that it would cease accepting any orders from RML, since not only was it not getting RML's services and commitment, but Diamond orders appeared to be going elsewhere.
  44. COMMERCIAL AGENCY

  45. In outline the claimant's case is that SML/RML were commercial agents under the Commercial Agents Regulations 1993. They were free to act as an agent for multiple principals, including principals in competition with Diamond, and that Diamond knew that SML/RML acted for other furniture manufacturers and impliedly consented to their doing so. Diamond's case is that while it impliedly consented to SML continuing to act for Linkwise and ArtPeak, that was on the basis of Mr Willan's assurance that there was no conflict between their and Diamond's product range. Diamond did not know whether any of the other principals for which SML acted as agent was in competition with it. In as much as SML and RML were free to act for multiple competing principals, Diamond also contends that they were not commercial agents within the meaning of the Commercial Agents Regulations 1993, or that they fell outside its scope because their activities were secondary within the terms of the Regulations.
  46. Commercial agents and their duties

  47. The origin of the Commercial Agents 1993 (Council Directive) Regulations 1993 SI 1993/3053 as amended ("the Commercial Agents Regulations") is the Council Directive 86/653/EEC of 18 December 1986 on the coordination of the laws of the Member States relating to self-employed commercial agents ("the Commercial Agents Directive"). According to its recitals the Directive sets out the co-ordinating measures to be implemented across the European Union to further competition in the common market, the protection of commercial agents vis a vis their principals, the security of commercial transactions, and the conclusion and operation of commercial representation contracts of parties in different Member States. The Regulations track closely the language of the Directive. They brought about a fundamental shift in English law to a regime in which, whatever the parties agree, a commercial agent is entitled to recover compensation for the value of the agency lost by termination of the agency. That right is contained primarily in regulation 17, which mirrors article 17 of the Directive.
  48. Following article 1.2 of the Directive, a commercial agent is defined in regulation 2(1) as a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person (the "principal"), or to negotiate and conclude the sale or purchase of goods on behalf of and in the name of that principal. Regulation 3 states that in performing their activities commercial agents must look after the interests of their principal and act dutifully and in good faith. In particular, commercial agents must: (a) make proper efforts to negotiate and, where appropriate, conclude the transactions they are instructed to undertake; (b) communicate to their principal all the necessary information available to them; and (c) comply with reasonable instructions given by their principal: regulation 3(2). The mirror in regulation 4 is that in their relations with their commercial agents principals must act dutifully and in good faith. Regulation 5 prohibits derogation from Regulations 3 and 4.
  49. Under regulation 16 of the Regulations, the ordinary law applied as regards the immediate termination of the agency contract because of the failure of a party to carry out their obligations under it. Regulation 18(a) then provides that the right of indemnity or to compensation provided for in regulation 17 should not operate where the principal has terminated the agency contract because of default attributable to the commercial agent which would justify its immediate termination. (In English law repudiatory breach by the agent would justify immediate termination by the principal.) Neither does the right of indemnity or to compensation arise where the commercial agent, with the agreement, of the principal, assigns his rights and duties under the agency contract to another person: reg.18(c).
  50. Articles 3 and 4 of the Directive, and their counterparts in the Regulations, contain obligations to act in good faith and dutifully. "Good faith" is a concept which occurs with increasing frequency in English law as a result of European Union instruments. In Director General of Fair Trading v First National Bank plc [2001] UKHL 52, [2002] 1 AC 481, Lord Bingham held that good faith in the context of the Unfair terms in Consumer Contracts Regulations 1999, 1999 SI, No 2083 (based on Council Directive 93/13/EEC) is not an artificial or technical concept but connotes fair and open dealing, openness requiring that the terms should be expressed fully, clearly and legibly, containing no concealed pitfalls or traps, with appropriate prominence being given to terms which might have operated disadvantageously. Fair dealing requires that a supplier should not, whether deliberately or unconsciously, take advantage of the party's necessity, indigence, lack of experience, unfamiliarity with the subject matter of the contract, weak bargaining position or other factors.
  51. The concept in regulation 3 of a commercial agent "acting dutifully" has not received the same attention as has that of good faith. In my view it connotes the obligation to act loyally. For present purposes both sides accept that the duty of loyalty reflects the fiduciary duty of an agent at common law: see Fergus Randolph QC and Jonathan Davey, The European Law of Commercial Agency, 3rd ed, 2010, 55. Strictly speaking, to act dutifully is a concept of European law, with an autonomous meaning, albeit one which may draw on national analogies. The fiduciary duty of an agent at common law is summarised in the judgment of Millett LJ in Bristol and West Building Society v Mothew [1998] Ch 1. In particular Diamond placed emphasis on two principles identified by Millett LJ: first, an agent who properly acts for two principals with potentially conflicting interests is bound to serve each principal as faithfully and loyally as if he were his only principal ("the no inhibition principle"); and secondly an agent cannot act where there is an actual conflict of duty so that he cannot fulfil his obligations to one principal without failing in his obligations to the other ("the actual conflict principle"): at 19 F-H.
  52. Were SML/RML commercial agents?

  53. Diamond contends firstly that acting for multiple principals in competition is inimical to the relationship of commercial agent and principal under both the Commercial Agents Directive and the UK Regulations. That is because they are to be construed as importing a non-derogable duty of loyalty. The submission is that it is inherent in an agreement under which an agent may act for competing principals that the no inhibition principle and the actual conflict principle are "derogated from". That is permissible as a matter of English law, which respect the right of parties' freedom to contract but not in the case of a commercial agent under the Directive and Regulations because the duties are expressly stated to be non-derogable. Diamond submits that where the duties are modified or excluded by the terms or context of the underlying agreement, the relationship is not one of principal and commercial agent but merely one of principal and agent to which the English common law principles apply.
  54. Thus Diamond contends that article 1.2 of the Directive, and accordingly regulation 2(1) of the Regulations, should be interpreted as meaning that a commercial agent is a self employed intermediary who has, at least in respect of goods of a particular kind, continuing authority to act on behalf of one other person, the sole principal. That is said to be consistent with the language used, which provides that the commercial agent is bound to act on behalf of another person, called the 'principal', but does not refer to another person or persons called the principal(s). That the agent is so bound in respect of a particular kind of goods is said to be wholly unremarkable. Elsewhere, the Directive and the Regulations make reference to the kind of goods covered by an agent's agency under the contract: article 20.2(b), reg. 20(1)(b). It is entirely apposite that the activities of a commercial agent should be restricted in respect of the kind of goods covered by his agency. Alternatively, Diamond contends that where the agreement of the parties is materially inconsistent with the mandatory rules imported by the Directive and Regulations, the agreement and the context may establish that the relationship is not one of commercial agency. The observation of Longmore LJ in Sagal (Trading as Bunz UK) v Atelier Bunz GmbH [2009] EWCA Civ 700; [2009] CLC I is invoked:
  55. "It does not follow that every agent acting on behalf of the principal is necessarily a "commercial agent….": [14].
  56. Diamond draws support for this interpretation from the derivation of the Directive, on which the Regulations are based. The Directive's substantive provisions were modelled primarily on the provisions of German domestic law: John Harold Crane v Sky In-Home Service Ltd [2007] EWHC 66; [2007] 1 CLC 389, per Briggs J at [30]. German law seems to have a special category of agent who acts for a principal, who must be a standing client. In Tamarind International Ltd & Others v Eastern Natural Gas (Retail) Ltd [2000] CLC 1397, [2000] EU LR 908 Morison J reviewed the genesis of the Directive and made reference to Law Commission Report No 84, 1977 which said:
  57. "The provisions of the Directive were clearly based upon the German Commercial Code and related to a special category of agent who acted for his principal 'who must be his standing client'. In German law the commercial agent is 'identifiable as a member of a particular social group with special social and economic needs'. Such an agent was a quasi employee requiring protection from exploitation".
  58. Moreover, Diamond points out that in French law the commercial agency contract is regarded as an enterprise of common interest between a principal and an agent: see Severine Saintier and Jeremy Scholes, Commercial Agents and the Law, London, 2005, 80-1. That is also suggestive, it submits, that multiple principals are not permitted. Diamond also refers to paragraph 3(c) of the Schedule to the Regulations – set out below – as appearing to contemplate that a commercial agent may devote his time to representative activities either for one principal, or for a number of principals, "but only those whose interests are not conflicting".
  59. In my judgment whether a party is a commercial agent within the meaning of the Directive or the Regulations is a straightforward matter, to be determined by reference to the terms and the context of the agreement at the date it is concluded: Sagal (Trading as Bunz UK) v Atelier Bunz GmbH [2009] EWCA Civ 700; [2009] 2 CLC 1 [13] and [17]. Article 3.2(a) of the Directive and regulation 3(2)(a) of the Regulations contemplate two types of agency relationship, a relationship where the agent has authority to negotiate transactions on behalf of his principal and one where the agent has authority to negotiate and conclude such transactions. In both types of agency relationship the agent has the power to alter the legal position of the principal, either by receiving and communicating information on the principal's behalf in the case of the first, or by creating legal relations on the principal's behalf in the second. In both cases the agent has knowledge of and power over a principal's affairs and the principal reposes trust and confidence in the agent. None of this means that the non-derogable obligations of the commercial agent under article 3.1 and regulation 3(1), to look after the interests of the principal, and to act dutifully and in good faith, are to be imported into the definition of a commercial agent so that an agent acting for multiple principals does not fall within it.
  60. Reference to German law and French law takes the matter nowhere since in the present case there is no expert opinion on the German Commercial Code and its surrounding jurisprudence or on the French legal provisions. In any event a chapter on 'Commercial Agency Law in Germany', written by Dr Michael Reiling, a Rechtsanwalt at Noerr LLP, in The European Law of Commercial Agency, contradicts the proposition that German agency law precludes acting for multiple principles:
  61. "[T]he commercial agent has to comply with the obligation not to work for competing principals (wettbewerbsverbot) which originates from the obligation to safeguard the principal's interests. In judging competitive activity, the court rulings focus on the mere possibility of influencing the interests of the principal. In such circumstances, the commercial agent has to inform the principal and obtain its approval ... The prohibition not only covers the obligation not to work directly for competing principles, but also every activity which could influence the interests of the principal, eg activities as a shareholder of a competing company": at 135.

    More importantly, as the editors of Bowstead and Reynolds on Agency, 19th ed, 2010, comment, while the Directive has considerable similarities with German law it is obviously not to be presumed that it was simply intended to generalise the legal position in any one national system of law: para 11-002.

  62. In accordance with standard techniques of interpretation the Directive, and the Regulations based on it, must be interpreted in the light of their wording and purpose of the Directive: Case C-106/89, Marleasing SA v La Comercial Internacional de Alimentacion SA, [1990] 1 ECR 3313, [8]-[10]. As the authors of Bowstead & Reynolds on Agency observe, standard English methods of statutory interpretation are in many cases of dispute not at all appropriate: para. 11-004. What is demanded is that the Directive be interpreted uniformly throughout the Community, and in a purposive manner: Case C-381/98, Ingmar GB Ltd v Eaton Leonard Technologies Inc [2001] ECR 1- 9305, [2001] 1 CMLR 9, [23]-[24].
  63. Adopting that approach I cannot see how the Directive, or the Regulations, can be read as excluding from their scope a commercial agent who acts for multiple, competing principals. The structure of the Directive and Regulations is simple. Part 1 defines the relationship; part 2 establishes rights and obligations; part 3 sets out principles as to remuneration; and part 4 provides for what happens in respect of the termination of an agency. So one begins with the issue of the existence of a relationship before turning to the rights and obligations which flow in the second part. The duty in article 3 and regulation 3, which is non-derogable, only applies if the agent is a commercial agent in the first place. Article 1.2 and regulation 2(1) define a commercial agent. The words are clear and no gloss is required. Rosetti falls within the second head, those with authority to negotiate and conclude transactions on behalf of a principal. The singular "principal" is not determinative since there is no indication that the plural is excluded (cf. Interpretation Act 1978, s.6(c)). Article 1.3 and regulation 2(2) then set out types of agent to whom the instruments do not apply. Multiple or competing principals are not listed.
  64. Once it is established that the agent is a commercial agent, the task then moves to see how that relationship is regulated. In doing so, the Directive and the Regulations establish a non-derogable duty of good faith and loyalty on the part of the agent. If the agent acts in breach of those obligations and the principal terminates on that basis the agent loses his right to compensation under article 17 and regulation 17. That this is the correct approach to interpreting the Directive and the Regulations derives support from their protective purpose: Case C-381/98, Ingmar GB Ltd v Eaton Leonard Technologies Inc [2001] ECR 1-9305; [2001] 1 CMLR 9, [20]. To suggest that agents with competing principals do not come within their protection limits their scope to agents with one principal per class of goods, regardless of the commercial context. That cannot have been the legislative intention, designed to protect commercial agents. It is not surprising that there is support in the commentaries for agents with competing principals falling within the scope of the Directive and the Regulations: Sainter and Scholes Commercial Agents and the Law, 31.
  65. SML/RML's duties

  66. The real issue is whether in acting for competing principals an agent will be in breach of the non-derogable duty of good faith and loyalty imposed under the Directive and the Regulations. Diamond is correct to identify the dangers. If a commercial agent negotiates with the same third party on behalf of several competing principals, the practical effect maybe that the third parties' interests are preferred to those of any of the competing principals. A simple example is that the price payable to any principal may be driven down by the mere fact of competition. For similar reasons the non derogable duty to make proper efforts to negotiate and conclude the transactions the agent is instructed to undertake may have no real content when the agent negotiates with the same third party on behalf of several competing principals. Moreover, the combination of the non derogable duties to communicate to the principal all the necessary information available to the agent and to comply with reasonable instructions, may be incapable of proper performance where the agent acts for competing principals.
  67. In closing its case Diamond submitted that the danger was from real and substantial, not trivial, competition between principals. Its solution is that if an agent is to avoid these consequences in representing competing principals what is required is full disclosure, which the agent must prove, and consent on the part of the principal. Dunne v English (1874) LR 18 Eq 524, 533-4 and other English authorities are cited in support. Illustrative is Hurstanger Ltd v Wilson [2007] EWCA Civ 299, where a finance broker put himself in the position in which he had a conflict of interest in obtaining a commission from the lender additional to that paid by his client. The client had signed a document containing a term acknowledging that in some circumstances the broker was to be paid commission by the lender. The Court of Appeal held that the consent was not fully informed and that the broker was in breach of fiduciary duty. Giving the leading judgment Tuckey LJ found that consent could only be given with full knowledge of all the material circumstances and of the nature and extent of the broker's interest: [34].
  68. Among the authorities Diamond invoked B Davis Ltd v Tooth & Co Ltd [1937] 4 All ER 118 as a practical example of the effect of the combination of the non-derogable duties of an agent to look after the interests of his principal and to make proper efforts to negotiate and conclude transactions in the principal's goods. But that was a case where the principal had appointed a sole distributor with specific contractual obligation to "devote the principal part of their energies so far as Scotch Whisky is concerned … pushing the sale of" a particular brand. The Privy Council held that the distributors had broken the contract in that they had not maintained a steady effort, through time, and throughout of the whole of the organisation, to sell that brand (128H-129C). It went on to uphold the New South Wales courts, which had found that there was no soliciting for orders of other brands (130 C-E). In my view that case has no bearing on the operation of the duties of good faith and loyalty in this case when there was no such express contractual term, or an express term from which any inference could be drawn about acting for competing principals.
  69. Kelly v Cooper [1993] AC 205 is the leading authority for English law regarding agents acting for competing principles in the absence of an express contractual provision bearing on the matter. It concerned a dispute between a client and an estate agent in Bermuda. The client sued the estate agent for damages for breach of duty in failing to disclose material information to him and for putting himself in a position where his duty and his self-interest conflicted. The Privy Council held that it was appropriate to imply a term into the contract to the effect that the agent was entitled to act for other principals selling competing properties and to keep confidential the information obtained from each of those principals, even though that information might well have been material to the client. Giving the opinion of the Privy Council, Lord Browne-Wilkinson said:
  70. "In a case where a principal instructs as selling agent for his property or goods a person who to his knowledge acts and intends to act for other principals selling property or goods of the same description, the terms to be implied into such agency contract must differ from those where an agent is not carrying on such general agency business. In the case of estate agents, it is their business to act for numerous principals: where properties are of a similar description, there will be a conflict of interest between the principals each of whom will be concerned to attract potential purchasers to their property rather than that of another. Yet, despite this conflict of interest, estate agents must be free to act for several competing principals otherwise they will be unable to perform their function … The scope of the fiduciary duties owed by the [estate agent] to the [client] (in particular the alleged duty not to put themselves in a position where their duty and their interest conflicted) are to be defined by the terms of the contract of agency": 214 B-C, 215D.

    It will be noted that Lord Browne-Wilkinson does not confine the analysis to estate agents but mentions acting as a selling agent for goods. The principles in Kelly v Cooper were restated by the House of Lords in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, 206, per Lord Browne-Wilkinson.

  71. Just as Kelly v Cooper [1993] AC 205 recognised that the agent's fiduciary duties in English law will turn on the contractual context, in my judgment the same applies to the obligations of commercial agents to act dutifully and in good faith contained in the Commercial Agents Directive. Those obligations are non derogable, but their content is not invariable and will be moulded by the contractual context. Because of the dangers when a commercial agent acts for competing principles however, the contractual context must be clear. The express or implied terms bearing on the duties to act in good faith and dutifully must delineate what the commercial agent is to do when acting for competing principals so that each party knows what to expect with these duties, attributable by law to the relationship between them.
  72. In this case there was no express term about SML/RML acting for competing principals. In my view, however, there was an implied term at the outset of the agency contract that SML would continue to act for Linkwise and ArtPeak. That was clear in SML's email of 30 January 2004, which was sent in the course of the negotiations leading to the consumation of the agreement the following month. Part of that implied term was that the product ranges of these other Asian furniture manufacturers did not clash with Diamond's. "Clash" has to be read in the light that with Asian furniture manufactures, at least at the time, there was inevitably some overlap at the top and bottom of their product ranges. Moreover, similar style furniture might be of a different quality or available at a range of prices, and the fluidity in the market also meant that a manufacturer may attempt to copy the successful products of another.
  73. Later, this implied term was varied by the course of dealing between the parties. First, SML assumed agencies for Casserado and Creative; Diamond knew of this and did not object. Secondly, it became clear on a number of occasions that in acting as agent, SML would assist UK customers place orders among its principals depending on what these customers wanted in terms of style, quality, price and other factors. For example, in October 2006 SML informed Diamond that it would channel orders for mobile furniture to Casseredo, since Diamond would not be in a position to produce that type of furniture for some time. But nothing in the course of dealing meant that there was an implied term in the agency agreement enabling SML/RML to place orders with other principals at the expense of Diamond. Whether that was done in practice is not a preliminary issue for determination in these proceedings.
  74. Exclusion as a secondary activity

  75. Diamond also contends that SML/RML cannot claim under the Commercial Agents Regulations 1993 because they do not fall within their ambit, their activities as commercial agents being "secondary". Article 2.2 of the directive provides that Member States have the right to provide that it should not apply to those persons whose activities are considered secondary by the law of that Member State. Regulations 2(3) and 2(4) took advantage of this: the Schedule to the Regulations has effect for identifying such persons. Paragraphs 1 and 2 of the Schedule state:
  76. "1. The activities of a person as commercial agent are to be considered secondary where it may reasonably be taken that the primary purpose of the arrangement with his principal is other than as set out in paragraph 2 below."
    2. An arrangement falls within this paragraph if -
    (a) the business of the principal is the sale, or as the case may be purchase, of goods of a particular kind; and
    (b) the goods concerned are such that -
    (i) the transactions are normally individually negotiated and concluded on a commercial basis, and
    (ii) procuring a transaction on one occasion is likely to lead to further transactions in those goods with that customer on future occasions, or to transactions in those goods with other customers in the same geographical area or among the same group of customers, and that accordingly it is in the commercial interests of the principal in developing the market in those goods to appoint a representative to such customers with a view to the representative devoting effort, skill and expenditure from his own resources to that end."

    Paragraph 3 sets out five indications that an arrangement falls within paragraph 2, their absence being an indication to the contrary. One of the five is paragraph 3(c):

    "(c) the agent devotes substantially the whole of his time to representative activities (whether for one principal or for a number of principals whose interests are not conflicting).
  77. Diamond points to paragraph 3(c) of the Schedule and submits that conclusive weight should be given to the contrary indication contained there, that is, an agent who contracts for the right to act, without limitation, for competing principals is to be regarded as carrying on the business of a commercial agent as a secondary activity. In this case SML/RML acted for competing principals and thus fell outside the protection afforded by the Regulations.
  78. In my view this submission gets nowhere. The Court of Appeal has described the Schedule as poorly worded, unclear and unhelpful: AMb Imballaggi Plastci SRL v Pacflex Ltd [2009] ECC 381; [1999] 2 All ER (Comm) 249. What can be said is that regulations 2(3) and (4) clearly disapply the Regulations to persons whose activities as commercial agents are considered to be secondary. For example, if a person acts as a commercial agent and separately sells services, and the agency activities are secondary, the person will not acquire the benefit of the Regulations. Neither the Regulations nor the Schedule lead to the conclusion that an agent acting for multiple principals is conducting secondary activities.
  79. The Schedule begins in paragraph 1 with the proposition that activities are considered to be secondary where it may be reasonably be taken that the primary purpose of the arrangement with his principal is other than set out in paragraph 2. If the arrangement falls within paragraph 2 then the question of secondary activity does not arise. In the case of SML/RML the primary purpose is not secondary since each of the tests in the paragraph is met positively. Paragraph 3 sets out some indicators to consider in deciding the answer to paragraph 2, but resort to paragraph 3 is only necessary if one needs assistance with paragraph 2. In any event, the indication in paragraph 3 assumes an agent can act for multiple principals. The reference in paranthesis to "whose interests are not conflicting" could have been added so that no-one could allege that the inclusion of the reference to multiple principals without qualification might permit an argument that acting for multiple competing principals without agreement or consent was acceptable. In other words, competing principals. More importantly, since adoption of the Schedule was not mandatory, it cannot be the case that something in parenthesis in a list of optional and non-binding indicators can determine the construction of the Regulations themselves. That would be the tail wagging the dog.
  80. TRANSFER OF AGENCY

  81. The second category of preliminary issues concerns the transfer of agency business from SML to RML in early 2008. The background was the potential liability to which Mr Willan thought SML was exposed as a result of Linkwise furniture sold through outlets such as Argos and Land of Leather causing injury to consumers because of the way the leather was treated. The idea was that RML would acquire SML's agency business, except that the potential exposure because of Linkwise claims would remain with SML. Mr Willan orchestrated the letter signed by Diamond giving the false impression that the transfer was initiated by Diamond. Mr Chareonyos agreed to the arrangement. The transfer was to take effect on 1 January 2008. Until 1 May 2008, however, Diamond continued to pay invoices rendered by SML.
  82. The main legal issue identified in the preliminary issues is whether there was an assignment or novation of the existing agency agreement or a consensual termination of that agreement with a new agreement between RML and Diamond. On behalf of Diamond it is said that the agency agreement between RML and itself was not in law capable of constituting an assignment. As for novation, Diamond submits it is unclear that the arrangements put together by Mr Willan lead to the agreement on the part of Diamond to enter the new agreement with RML forming some part of the consideration for the discharge of the old agreement with SML – a prerequisite to novation. Diamond's case is that what happened as a matter of law was termination of the old agreement between SML and Diamond. However, it takes the view that it does not matter whether the consensual termination and the new contract were in law a novation.
  83. Rights under a contract, as choses in action, can generally be assigned to a third party, without the consent of the obligor. An equitable assignment is not defeated by an intention to remove the advantage of rights from those having claims on the assignor. The obligations (or burdens) of a contract cannot be assigned. As Lord Browne-Wilkinson said in Linden Gardens Trust Ltd v Lenesta Ltd [1994] 1 AC 85 lawyers inaccurately use the words, assign the contract, but as every lawyer knows the burden of a contract cannot generally be assigned: at 103E. However, it is possible, with the agreement of the promisee, to transfer the obligations under a contract to a third party: Chitty on Contracts 30th ed, 2008, vol 1, para 19-077, citing Tolhurst v Associated Portland Cement Manufacturers Ltd [1902] 2 KB 660, 668. In my view it is in that sense that regulation 18 (c) of the Regulations uses the phrase "assigns his rights and duties".
  84. In this case Mr Willan wrote in his 16 October 2007 email to Diamond of everything being exactly the same after RML took on the agency. Although the letter Mr Willan drafted for Mr Chareonyos to sign is misleading as to the initiator of the new arrangements, it seems to me that the theme running through the backdrop was of a seamless transition of the Diamond agency from SML to RML. In my judgment the rights under the SML agency were assigned to RML, with the obligations being transferred as well, with Diamond's agreement. The transfer of the Diamond agency in this way was quite independent of any contingent liability which SML had to third parties because of the harm caused to consumers by Linkwise furniture. That contingent liability remained with SML.
  85. The upshot is that following the transfer of the agency RML stood in relation to Diamond subject to the same terms and duties as SML was subject to at the date of the transfer. What those terms and duties were, including the right of RML to act for competing principals, is addressed earlier in this judgment.
  86. DURATION OF AGENCY

  87. The Agency Agreement of 14 February 2004 was for a provisional one year period. That agreement was governed by the Commercial Agents Regulations. Under regulation 14, an agency contract for a fixed period which continues to be performed by both parties after that period has expired is deemed to be converted into an agency contract for an indefinite period. That is the case here. Regulation 15 provides that an agency contract for an indefinite period benefits from certain minimum notice periods for termination, save where the parties agree on a longer period. There was no more extensive period agreed here. The notice period fixed by the Regulations is 1 month in the first year of an agreement, 2 months in the second year, and 3 months for agencies which go into their third year and beyond, Given my findings on the transfer of the agency, the 3 months period is applicable in this case.
  88. CONCLUSION

  89. An implied term of the agency contract between SML/RML and Diamond was that SML/RML could act for a number of principals, and those principals could be in competition with each other, in the manner defined earlier in the judgment. That agency contract was governed by the Commercial Agency Regulations 1993 and I reject the various submissions advanced by Diamond that they did not apply. Further, SML/RML conducted commercial agency business and were commercial agents under the Regulations. SML/RML were also agents under English law so that the ordinary fiduciary duties applied, as well as the duties to act in good faith and dutifully under the Regulations. The transfer of the agency from SML to RML in early 2008 constituted an assignment in English law. The assignment took effect in early 2008. At the time of the assignment Diamond knew that SML had been representing other principals, some of whom were in competition with it in the sense indicated, and impliedly consented to that state of affairs continuing with RML. The original contact of agency was for 12 months but was then extended indefinitely. Because of the assignment RML's contract with Diamond was thus of four years duration and was terminable on 3 months notice. It is eminently desirable that given this judgment on the preliminary issues the dispute between the parties now be settled given what has already been spent on legal proceedings.


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