Npower Direct Ltd v South of Scotland Power Ltd

A detailed agency agreement will not ordinarily support broad implied terms preventing the principal from making sales more difficult for the agent. Such terms must be necessary to give the contract business efficacy and must be sufficiently certain.

Regulation 4 of the Commercial Agents (Council Directive) Regulations 1993 requires dutiful and good-faith conduct, but does not impose obligations wider than the parties’ express agreement where that agreement specifically defines the principal’s duties.

A party’s sustained refusal to perform its primary contractual obligations, or to resume performance unless paid compensation, may amount to repudiation. A contractual termination procedure does not exclude the common-law right to accept repudiation unless the contract clearly so provides.

Npower Direct Ltd appointed South of Scotland Power Ltd as a non-exclusive representative to obtain SME gas and electricity customers. The agreement was due to expire on 31 March 2004 but Npower terminated it on 11 February 2004 after SOSP had ceased making sales and declined to explain how it would resume performance unless its claimed compensation entitlement was resolved.

SOSP alleged that Npower had breached the agreement by requesting reduced sales, threatening or implementing commercially damaging price and administrative measures, and failing to give clear instructions to resume selling. The parties also disputed whether the Regulations applied and whether SOSP’s conduct justified summary termination.

The court determined whether Npower had breached the agreement and whether its termination was lawful, on alternative assumptions concerning the application of the Regulations.

1. Implied terms. The proposed common-law terms that Npower would not prevent, or substantially hinder, SOSP from making commissionable sales were too wide and uncertain. The agreement was lengthy and carefully drafted. The implication of such a term would therefore require necessity to give business efficacy to the contract or otherwise effect the parties’ intention.
2. Regulation 4. Regulation 4(1) imposed a duty on Npower to act dutifully and in good faith, illustrated by the specific obligations in regulations 4(2) and 4(3). The express agreement remained the starting point. Regulation 4 did not create a wider and uncertain obligation governing Npower’s pricing where Schedule 2 expressly defined its obligation to use reasonable endeavours to maintain reasonably competitive prices.
3. Alleged breaches. The request to reduce sales by 70 per cent was made in the context of serious commercial difficulties, was not proved to be an instruction, and could be disregarded by SOSP. The alleged threat of administrative delay was not implemented. Npower’s price increases complied with Schedule 2 and did not make sales impossible. Npower was therefore not in breach of the agreement or Regulation 4.
4. Repudiation. By February 2004 SOSP had ceased providing the Services, refused to cooperate in explaining how it would resume sales, and indicated that it would not perform unless Npower paid compensation. That conduct amounted to repudiatory breach. The fact that some of the conduct was not set out in the termination letter did not prevent Npower relying on it.
5. Termination. Clause 13 did not constitute an exhaustive code excluding the common law. The use of “may” did not require Npower to give a further opportunity to remedy conduct which was repudiatory and, in the circumstances, incapable of remedy. Npower lawfully accepted SOSP’s repudiation. The conclusion was the same whether or not the Regulations applied. Declarations were made that Npower was not in breach and was entitled to accept SOSP’s repudiation and terminate the agreement.