Goodwin (t/a Appropriate Solutions) v Unwins Properties Ltd.

On the proper construction of a commission agreement, seed originally returned by retailers or left unsold does not remain within the contractual definitions of “returned seed” or “residual stock” when it has been sorted, retained in date and given renewed commercial value through a recycling process. The court must construe the agreement objectively, considering its wording as a whole and the relevant factual background.

A contractual duty to act diligently and in good faith must be assessed against the interests protected by the agreement. Where the principal has decided to cease supplying the relevant goods, assisting the purchaser to obtain alternative supplies does not necessarily breach those duties, particularly where the principal was informed and raised no objection.

The claimant, trading as Appropriate Solutions, claimed unpaid commission from the defendant seed producer under a written agreement made in March 1993. The agreement concerned commission on sales of returned seed and residual stock supplied to a Russian purchaser introduced by the claimant.

The claimant alleged that the defendant had concealed sales, misclassified returned seed as residual stock, supplied returned or recycled seed after 1996, and wrongfully terminated the agreement. The defendant disputed liability and contended that payments made to a company formed by the claimant amounted to a novation, that termination was valid, and that recycled stock fell outside the agreement.

The court determined liability and commission issues up to 31 March 1998, together with the construction and termination issues.

1. Claim dismissed. The claimant failed to establish undisclosed payments, further commission entitlement, or supplies of returned, residual or recycled stock after 1996. The evidence did not justify the allegations of concealed trading or dishonesty required by the claimant’s case.
2. The payment arrangements with Enterprise Russia did not amount to a novation. On the facts, the claimant remained the person contracting with the defendant, while Enterprise Russia was merely a vehicle established to receive payments.
3. The defendant was not entitled to terminate the agreement in May 1998. The claimant had worked diligently to protect the defendant’s interests and had acted in good faith. By 1996 the defendant had decided to stop supplying returned and residual seed, and the claimant’s assistance to the purchaser in finding alternative suppliers did not conflict with the defendant’s then-existing interests. The claimant had disclosed the position and the defendant had raised no objection.
4. “Recycled stock” was not “returned seed” or “residual stock” within the agreement. Construction was an objective exercise, requiring consideration of the agreement as a whole and the relevant factual background. The agreement was directed to seed which otherwise had no value and would be destroyed. Recycling involved sorting returned and surplus stock, discarding out-of-date material, and retaining seed which had acquired significant value and could be sold in the domestic market. Such stock was effectively new production for the relevant purpose and attracted no commission under the agreement.
5. Since no post-1996 supplies of commission-bearing stock were proved, no account was ordered for the later period.

First-instance decision in the High Court (Chancery Division). The judgment states that the proceedings originated in the Exeter County Court, were transferred to the Cambridge County Court, and were later transferred to the Chancery Division.