Commercial Agency Law: Gledhill v Bentley Designs

An agent’s relationship with a principal rests on trust, and the Regulations require the agent to act dutifully and in good faith. So what happens when an agent tells the principal exactly what they think? Disparaging remarks about a principal are very likely to breach that duty, but that does not automatically hand the principal a right to terminate and avoid paying compensation. It turns on how serious the breach is, and that is decided case by case.

Two cases show the line. In Anderson & Albrecht v Crocs Europe BV the Court of Appeal held that a mocking, “obviously jokey” spoof was a breach but not serious enough to justify termination, so the agents kept their compensation. In Gledhill v Bentley Designs a long-serving agent’s abuse of his principal, followed by an inadequate apology, was serious enough, and he lost a substantial compensation claim. The contributions below cover both. Each is reproduced in full and attributed to its author.

Watch what you say about your principal!

The Court of Appeal position: disparaging remarks are a breach, but the principal can only terminate if the breach is serious enough. Here it was not.

It may be an obvious point of common sense, but if you make disparaging remarks about your principal the likelihood is that they will be entitled to terminate your agency contract and you will lose your right to compensation or indemnity under Regulation 17 of the Commercial Agents (Council Directive) Regulations 1993 (the Regulations).

However, it is clear from the recent Court of Appeal decision in Anderson & Albrecht v Crocs Europe BV that the principal will not automatically have a right to terminate in these circumstances and avoid compensation/indemnity payments. Each case will be decided on its own facts and the Court will look at how serious the breach of contract is before determining whether the principal is entitled to terminate.

Regulation 3 implies into the contract between a commercial agent and his principal (the agency contract) obligations on the commercial agent to “…look after the interests of his principal and act dutifully and in good faith”. The commercial agent and his principal cannot ‘opt out’ of these obligations, which means they apply to all commercial agency contracts, whether those contracts are written or verbal and irrespective of whether the contract itself actually says something different.

What happened in the Crocs case?

The Claimant commercial agents had built a very successful agency in the UK for Crocs’ products over a relatively short period of time (about 3 years) and Crocs became unhappy with the levels of commission it was paying to them. By its own admission Crocs was looking to end the agency contract, but it had not taken that step because it would have faced a sizeable claim for compensation under Regulation 17. The parties had tried to negotiate a way out of the situation, but could not reach agreement and a tense stand off ensued for several months before Crocs terminated the agency contract citing breaches by the Claimants of their obligations under Regulation 3.

The breaches relied upon by Crocs related to the creation by a member of the Claimants’ customer services team of a spoof “Star Wars crawl” (the text at the beginning of each Star Wars film which rolls up the screen and disappears into space). A member of Crocs’ customer services team in Holland had found a website which enabled an individual to create their own “crawl” using whatever text they wished.

He used this to create a “crawl” about a typical working day for the Crocs’ customer services team and sent a link to the website page he had created to staff in the Claimants’ office. In turn, one of them created a “crawl” which poked fun at the difficulties Crocs had had over a number of years in making deliveries to customers in the UK, in mock-heroic Star Wars terms complete with dark lords, storm troopers and the “spectrum crew” surviving “battered, bruised but laughing”.

As well as claiming that the Claimants’ contract was with Crocs Europe BV’s parent company rather than Crocs Europe BV and that the Regulations did not apply to Claimants’ contract, Crocs also argued that the Claimants had breached their obligations under Regulation 3 by (i) creating the “crawl” and (ii) circulating a link to the “crawl” to a group of friends of the Claimants which included a number of Crocs’ customers. Crocs argued that it was therefore entitled to terminate the contract (and thereby avoid having to pay compensation to the Claimants).

High Court decision

The High Court Judge had no hesitation in finding that the Claimants’ contract was with Crocs Europe BV and that the Regulations did apply to it. He also found that the Claimants had breached their obligations under Regulation 3. Crucially, however, he also decided that the seriousness of that breach fell “a long way short” of the level of seriousness required to entitle Crocs to terminate the agency contract. In reaching that conclusion, he relied on a number of factual matters including that:

1. the “crawl” was obviously intended to be humorous (and sounded worse in a Court than in the world of the web);
2. the circulation of the “crawl” was very limited and to persons who would see the joke;
3. it was very unlikely that Crocs’ customers would see the “crawl” unless they had the specific link (there had been a dispute between the parties as to whether the “crawl” was available “to the world at large” as claimed by Crocs or had very limited accessibility because it could not be located via search engines such as Google but could only be accessed via a specific link to the web page on which it had been created);
4. the situation at Crocs which was the subject of the crawl’s humour was well known to Crocs’ customers.

Court of Appeal decision

Undaunted, Crocs appealed the decision that the breach had not been serious enough to entitle Crocs to terminate the agency contract. Crocs raised a number of grounds of appeal, including (i) that any breach of Regulation 3 should automatically entitle the principal to terminate the agency contract and (ii) that the High Court Judge got it wrong and the Claimants’ breach was, in fact, serious enough to entitle Crocs to terminate the agency contract. The case came before the Court of Appeal.

Despite one of the Court of Appeal Judges indicating that he might have found in favour of Crocs if he had been the Judge in the High Court, the Court of Appeal upheld the decision of the High Court Judge.

The Court of Appeal agreed that the Claimants had breached their obligations under Regulation 3 but the breach was not serious enough to entitle Crocs to terminate the agency contract. The Court agreed with the reasons given by the High Court Judge and concluded that the crawl was “obviously jokey” and that there was no evidence of harm suffered by Crocs.

What do agents need to know from this?

Clearly, to be on the safe side and to avoid the risk of termination of the agency contract and the loss of your right to compensation or indemnity, a commercial agent should avoid making any disparaging or derogatory remarks about his principal.

If such remarks cannot be avoided in the heat of the moment or as tempers flare, all may not be lost. It is clear from other cases dealing with similar issues that, if a genuine and full apology is made by the commercial agent before the principal tries to terminate the agency contract, that might diffuse the situation and prevent the principal from being able to terminate. However, depending on the particular circumstances even a genuine apology might not be sufficient.

Each case will be decided on its particular facts, but a Court will very likely find disparaging or derogatory remarks to be a breach of the commercial agent’s obligations to his principal under Regulation 3. The Court will then have to decide whether that breach is serious enough to entitle the principal to terminate the agency contract without having to pay compensation or indemnity. Much will depend on the views formed by the Judge and it can be seen from the comments made in the Court of Appeal that this could be something of a lottery as different Judges may form different views based on the same evidence.

By Kevin Manship, Associate, Morgan Cole LLP
Kevin.manship@morgan-cole.com
Bradley Court, Park Place, Cardiff CF10 3DR
Tel: 029 2038 5502
www.morgan-cole.com

Disclaimer: This column does not contain legal advice and is for general guidance only. Agentbase, Morgan Cole LLP, and the writer accept no liability in connection with the general guidance given in this column.

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Why agents should think twice before telling their principal exactly what they think of him!

The other side of the line: Gledhill in full, where the abuse and an inadequate apology were serious enough, and the agent lost his compensation.

In the recent High Court case of Stephen Gledhill v Bentley Designs (UK) Ltd (2 June 2010) the Court was asked to decide whether an apology proffered by the agent (Mr Gledhill) to the managing director of his principal (Bentley) was adequate to maintain the necessary personal relationship of trust to enable the agency to continue.

Mr Gledhill had acted as agent for Bentley for around 17 years and had enjoyed substantial commission income averaging around £85k in the final years. He was a very effective agent and this was confirmed by his principal during the hearing. In short he had made himself and the principal substantial sums of money over a number of years.

However, there was friction and the agent thought the principal too demanding. One of the reasons for this was that the principal instituted changes in the final two years requiring the agent to change from fax to a paperless email communication system. Mr Gledhill was not comfortable with this and resisted the changes until it was too late. The principal was not impressed and levied “administration charges” of £100 + VAT for continuing to deal with Mr Gledhill’s faxes. This enraged him and created what the judge referred to as a “two year pressure build up”.

This in turn led Mr Gledhill to address his managing director in abusive terms in a voicemail (which was played to the court) and also in a telephone conversation. It is worth setting out the key parts of the offensive voicemail message, which the judge referred to as “personal abuse of the worst kind and gross insubordination”:

“… You are at your happiest when you are always causing grief for people and just try to sort of upset people, people that support you, and I just think you are a horrible, despicable little man. I really do. I just think you are absolutely gutless … You just seem more intent on sort of … as opposed to getting the business, the nitty gritty part, you seem more intent on causing trouble to people. I think you are an absolute shit, I really do. You are a despicable, horrible little excuse for a human being …”

It is difficult to contest the Judge’s view of the severity of the comments, which in the hearing he referred to as “like something from Blackadder”. And yet despite this almighty provocation the principal chose to give Mr Gledhill an opportunity to apologise and to make good the damage caused. In particular Mr Gledhill was given an opportunity to reflect on whether he in fact wished to apologise, and then when he decided this was a good idea, an opportunity to provide a written apology. Unfortunately when that “apology” came the principal, and so too the Judge, determined that it was inadequate and allowed the principal to terminate on the grounds of serious breach.

The Judge was decidedly unimpressed by the “letter of apology”, which used the word regret followed by a statement apparently justifying the attack, noting that “‘Regrets’ do not without more amount to ‘apologies.'” During the hearing the Judge referred to the expression of regret as being similar to the tactic used by Gordon Brown on the election trail where he expressed regret for describing Rochdale voter Gillian Duffy as a “bigoted woman”. It was clear that the Judge found the “apology” offered to be undercooked, insincere and insufficiently generous to allow the two parties to go on working together.

The outcome was that Mr Gledhill’s claim failed and his entitlement to a substantial compensation payment that would otherwise be due on termination disappeared.

In the course of the judgment consideration is given to analogous employment law cases dealing with similar events and in particular Charles Letts & Co v Howard [1976] IRLR 248, which found that a sufficiently fulsome and heartfelt apology may mean that words spoken in heat and haste need not be treated as repudiatory.

The message to be taken from this is that if an agent finds himself pushed into a corner and snaps, resulting in a torrent of abuse, he must quickly reflect on whether he meant those words and if not a genuine and heartfelt apology must be given at the earliest opportunity.

Effectively what the court is seeking to analyse is whether a worthwhile constructive business relationship will be able to flourish after the event or whether the conduct has caused irreparable damage.

Agents must also give proper attention to the requirements contained within Regulation 3 of the Commercial Agents (Council Directive) Regulations 1993, namely the requirement to act dutifully and in good faith and also comply with reasonable instructions. The Judge made no absolute determination as to whether the change from fax to email was a reasonable instruction; however, he does comment that “Older established businessmen tend to be slower to adapt to these changes and understandably find it difficult to embrace them or are fearful of them. Mr Gledhill falls into that category and one must respect him for that.”

Whilst these comments are non-judgmental evidence was given during the hearing that this intransigence was holding up development of the business and creating more burdensome administrative processes. Further, if an agent and principal are working on different systems this is bound to cause frustration and may eventually cause a rupture in the relationship. Therefore every effort must be made by the agent to adopt modern business practices where there is a clear operational advantage.

This is a sad tale of an outstanding agent failing to change with the times, lashing out at his principal and not taking the opportunity to mend bridges when given the chance. So before you choose to tell your principal exactly what you think of him just think of where it left Mr Gledhill. Biting your tongue may be the best option, particularly where lucrative compensation is at stake.

Thom Vaughan is a solicitor with E.A.D Solicitors LLP and specialises in commercial agency matters.
Head Office: Prospect House, Columbus Quay, Liverpool L3 4DB
Tel: 0151 735 1000
www.eadsolicitors.co.uk

Disclaimer: This column does not contain legal advice and is for general guidance only. Agentbase, E.A.D. Solicitors and the writer accept no liability in connection with the general guidance given in this column.

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Commercial Agency Law: Gledhill v Bentley Designs

A shorter recap of the same decision, with a practical point on the safer ground the principal could have relied on.

The recent case of Gledhill v Bentley Designs has highlighted an important issue in commercial agency law.

Mr Gledhill had been a commercial agent for Bentley Designs for 17 years, during which time he was their best agent, earning on average £85,000 a year from them in commission.

However, in 2006 Bentley Designs informed its agents that they would have to use email for future communications.

Mr Gledhill refused to comply with these instructions, and continued to use phone and fax in his dealings with the company despite multiple requests not to do so. Bentley Designs claimed that the change was particularly relevant to Mr Gledhill, as his handwriting was difficult to read and had led to mistakes being made in the past.

Bentley Designs offered Mr Gledhill personal training in the use of email, and stated that, should he again fail to change his working practices, he would be charged a monthly administration fee of £100.

Mr Gledhill responded by verbally abusing the managing director of Bentley Designs through voicemail and over the telephone. Due to these actions, and the fact that Mr Gledhill refused to apologise, Bentley Designs felt they had no choice other than to terminate his agency agreement.

Under the commercial agency regulations, an agent will not be entitled to compensation or indemnity on the termination of an agency agreement if the reason for termination is because the agent has failed to carry out all or part of their obligations under the agreement.

As it was, the court decided that Mr Gledhill was not entitled to compensation or indemnity from Bentley Designs due to the way in which he had spoken to the managing director of the company.

Although the matter was resolved in their favour, Bentley Designs would have been at less risk of having to make a substantial payout to Mr Gledhill if they had terminated the agency agreement due to his failure to comply with the new communication policy they had imposed. This was a much clearer breach of the agency agreement, and it would have been a great deal easier to justify their actions based on these grounds.

Ashby Cohen Solicitors Ltd
18 Hanover Street, London W1S 1YN
Tel: 0207 408 1338
Fax: 0207 491 0414
Email: info@ashbycohen.co.uk
www.ashbycohen.co.uk

Disclaimer: This column does not contain legal advice and is for general guidance only. Agentbase, Ashby Cohen and the writer accept no liability in connection with the general guidance given in this column.