Information and Communications Technology: Case Note - Crowther v Brownsword and Another

Jane Lambert

22 July 1999
This case note first appeared on the Old Colony House website

It is trite law that upon an innocent party's acceptance of a repudiation both parties are released from further performance of a contract but their accrued rights and liabilities survive. Sometimes this can produce anomalous results as in this case where a commercial agent, who had repudiated his agency contract by competing with his principals, was found to be entitled to commission on sales that he had not procured for the period between his first repudiatory breach and his principals' acceptance of his repudiation. Parties can, of course, agree to modify that general rule by a well-drafted exceptions clause which allows certain contractual provisions to survive discharge by repudiation or fundamental breach as in Suisse Atlantique d'Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361. Provisions that the courts usually uphold include arbitration, choice of law and confidentiality clauses. This subject matter of this case was agency but there are important lessons for anyone drafting distribution, franchise, licensing and even employment agreements.
The Agreement
The defendants appointed the claimant under a written agreement to promote and solicit customers for their fishing tangle in the United Kingdom south of Manchester ("the territory"). The claimant agreed to:

	use his best endeavours to promote and market the products in the territory
	seek orders for the products in the territory, and
	generally assist the defendants in the sale of their products in the territory.

He was to be paid not by results but in consideration of the obligations that he undertook. The defendants agreed to pay commission equal to 10% of the net invoice price of all products which, at any time during the continuance and within 2 years after the termination of the agreement they sold in the territory, whether or not the customer was introduced by the claimant, and however the agreement was terminated. It is hardly surprising that Mance LJ described the agreement as verbose and in some important respects inadequate.

The Dispute
In November 1993, the parties’ relationship broke down. A meeting took place on the 29 at which the defendants used language that amounted to repudiation of the agreement. The claimant did not accept this repudiation. However, he did no further work for the defendants but procured orders for goods that he supplied to two customers without informing the defendants. The defendants learned of one of those transactions in May 1994 and treated it as repudiatory breach of contract, which they accepted. Despite the claimant's inactivity the defendants continued to make sales on which the defendants refused to pay commission upon the ground that the claimant had nothing for that money. The claimant sued for commission on the defendants' sales in the territory between November 1993 and May 1996, the second anniversary of the discharge of the agreement. At trial, Mr. Recorder Onions QC dismissed the claim on the grounds that the claimant was in repudiatory breach not only for the period after acceptance of the repudiation but also before.
Judgment
The Court of Appeal allowed the appeal in part by awarding the claimant commission on sales made between November 1993 and May 1994. His right to commission was expressed to be "in consideration of the obligations undertaken by the Agent hereunder", not by their performance. Whether or not he performed his obligations was irrelevant to his entitlement to commission as such. The claimant's failure to perform his obligations might have led to a claim for damages that could have been set off against commission, but no such claim or set-off had been raised. Not even the repudiatory breaches could relieve the defendants from paying commission before acceptance of the repudiation. The claimant's contractual right to that commission was not extinguished by his breach of fiduciary duty except in respect of the two orders that should have been fulfilled by the defendants but which he had supplied himself.
The recorder's dismissal of the claim for commission for the 2 years after acceptance of the claimant's repudiation was, however, upheld. The discharge of the contract relieved the defendants of their obligation to pay further commission notwithstanding the provision that commission was to be payable however the agency might be terminated. Their starting point was Lord Diplock's observation in Photo Production Ltd. v Securicor Transport Ltd. [1980] AC 827, 849, that where a repudiation or repudiatory breach is accepted:

"(a) there is substituted by implication of law for the primary obligations of the party in default which remain unperformed a secondary obligation to pay monetary compensation to the other party for the loss sustained by him in consequence of their non-performance in the future and (b) the unperformed primary obligations of that other party are discharged. This secondary obligation is additional to the general secondary obligation; I will call it ‘the anticipatory secondary obligation’."

This may, however, be modified by an appropriately worded exclusion clause so that

"the question whether, and to what extent, an exclusion clause is to be applied to a fundamental breach, or a breach of a fundamental term, or indeed to any breach of contract, is a matter of construction of the contract."

Such a clause has to be drawn very clearly and very tightly because the courts are reluctant to construe them in favour of the parties in repudiatory breach. Clauses regulating dispute resolution, such as jurisdiction or arbitration clauses, typically survive the discharge of primary obligations of performance because they enable the parties to work out their secondary obligations. The Court concluded that on the true construction of the agency contract the obligation to pay commission after termination was intended to apply only to terminations within the contractual framework. The language was not sufficient to indicate that the parties intended the ordinary consequences of accepted repudiatory breach to be modified.
Comment
The first lesson of this case is to link wherever possible remuneration to actual performance of the contract. Where a principal has his own contacts in a territory it may not always be clear whether an order was procured by the efforts of the agent or not. Similar difficulties arise in franchise and distribution agreements. A flat fee on all sales has the merit of certainty but certainty may be achieved in other ways such as requiring documentary evidence of the lead. An informal dispute resolution process can also be worked into the scheme. The second lesson is for the parties to apply their minds to the arrangements that should be made if things go wrong before they make their agreement. That is particularly true where a contractual obligation may be discharged by acceptance of repudiation but a non-contractual obligation such as a duty of confidence may not. That is particularly relevant to restraints of trade which are designed to a party's protect trade secrets or trade connections. The general rule is that those covenants are extinguished on termination by repudiation (see General Billposting Co. Ltd. v Atkinson [1909] AC 118 and Living Design (Home Improvements) Ltd. v Davidson [1994] IRLR 69). However, the Court of Appeal has recognized the possibility of a restrictive covenant sufficient to apply after repudiation on Securicor principles in Rock Refrigeration Ltd. v Jones [1997] 1 All ER 1. Further law suits waiting to happen include the interface between the compensation and indemnity provisions under the Commercial Agents Regulations and the exception where termination is justified on grounds of the agent's misconduct.

 

 

 

 

Relevant Articles
Jane Lambert	Computer Systems

   

 

Important