Explora Group Plc v Hesco Bastion Ltd & Anor

An enforceable commercial bargain should be construed as a contract. It ordinarily leaves no need to impose a constructive trust based on the Pallant v Morgan equity or to apply a fiduciary renewal principle. A long-term procurement arrangement may be separate from a pre-existing agency agreement where the parties jointly negotiate it, undertake defined responsibilities and share its proceeds. If commission is earned by securing the procurement contract, the right is earned on that introduction rather than on individual orders or continuing marketing, and survives termination, subject to assessment and set-off. An express prohibition on assigning an agency agreement may extend to its fruits. Here, commission already earned was retained as book debt under the asset-sale agreement. No entitlement arose from later renewal or extension of the procurement contract.

Hesco appointed The Trading Force Ltd (TTF) as its marketing agent under a 1995 agency agreement. Hesco and TTF jointly pursued a United States Defence Supply Centre Columbus procurement contract. The resulting five-year contract was issued to Hesco alone, but Hesco acknowledged its obligation to TTF and paid TTF 15% of all sales under the contract.

TTF entered receivership and, on 30 April 2002, purported to transfer its business and contract rights to Explora without Hesco’s consent. Hesco terminated the relationship on 14 June 2002. Simon J, in [2004] EWHC 1863 (QB), held that Hesco held the procurement contract for TTF, that TTF earned 15% on all sales under it, and that Explora acquired the relevant rights through 18 February 2003. The appeal concerned the contractual basis of the commission, its survival and assignability, the effect of the asset-sale agreement, and any entitlement arising from extensions or renewals.

Disposition. Rix LJ gave the leading judgment. Jonathan Parker LJ agreed. Longmore LJ agreed with the result and reasoning save for a different analysis of post-termination commission under the separate procurement arrangement. Hesco’s appeal succeeded and the cross-appeal failed, subject to any residual commission claim under the 1995 agency agreement.

1. Contractual basis. The parties’ relationship concerning the procurement contract was contractual but separate from the 1995 agency agreement. The joint offer, defined responsibilities, intended five-year duration and agreed sharing of proceeds showed a distinct arrangement. The procurement contract was not merely a new territory under the earlier agency agreement. Since an enforceable contractual bargain existed, there was no need to impose the Pallant v Morgan equity or a constructive trust. Jonathan Parker LJ emphasised that equitable intervention is unnecessary where the parties are bound by an enforceable contract.
2. Commission. TTF earned its remuneration by obtaining the procurement contract. The right was not conditional on obtaining individual orders or continuing marketing, although its amount was quantified by reference to orders. The course of dealing confirmed that TTF was paid 15% on all sales under the contract. The right to commission earned before termination was not divested by termination, even where termination followed TTF’s repudiatory breach. It remained subject to assessment and any proper set-off or counterclaim.
3. Termination under the 1995 agreement. Clause 9 applied where Hesco terminated after TTF’s repudiatory breach or unauthorised assignment. Commission remained payable for pre-termination enquiries only where Hesco received the resulting cash within six weeks after termination.
4. Assignment and book debts. In the absence of an express prohibition, TTF could assign its share of the fruits of the procurement arrangement. Clause 5(g) of the 1995 agreement, however, prohibited assignment of the benefit of that agreement, including its fruits. Under the CSA agreement, commission already earned by 30 April 2002 was a retained book debt, not part of the transferred benefit of uncompleted sale or marketing contracts. Any qualifying post-transfer commission under the 1995 agreement could be held by TTF on trust for Explora.
5. Extensions and renewals. TTF had no prima facie entitlement to the fruits of extensions or renewals after expiry of the original five-year contract. The absence of an express partnership or trust, the contractual time limit, TTF’s inactivity and the loss of the original introduction as the efficient cause prevented application of the principles in Don King Productions v Warren and Keech v Sandford.
6. Obiter guidance. If assessment of post-termination remuneration had been necessary, it would not automatically have been the full 15% of later supplies. The court would have considered the likelihood of orders during the remaining period and the agent’s saved expenses and the principal’s additional expenses. A set-off or counterclaim for breach had to be pleaded. These issues did not ultimately arise.

• Court of Appeal (Civil Division) — On appeal from the Queen’s Bench Division, the court allowed Hesco’s appeal and dismissed the cross-appeal, subject to any qualifying post-transfer commission under the 1995 agency agreement.
• Queen’s Bench Division — Simon J held in [2004] EWHC 1863 (QB) that Hesco entered into the procurement contract as agent or trustee for TTF, that TTF was entitled to 15% of sales under it, and that Explora acquired the relevant rights through 18 February 2003.