Cureton v Mark Insulations Ltd.

A commercial agent must disclose proposed activities that may create a conflict between duties owed to the principal and duties owed to another business. Disclosure must be made sufficiently to enable the principal to give informed consent. Failure to disclose such a conflict may constitute a sufficiently serious breach of the agency relationship to justify summary termination under regulation 16(a) of the Commercial Agents (Council Directive) Regulations 1993.

Under the Copyright and Rights in Databases Regulations 1997, a database compiled by an agent and its staff belongs to the database maker unless the Regulations or an agreement provide otherwise. Commission remains payable where a transaction is mainly attributable to the agent’s efforts, despite later price changes or alterations to the transaction.

The claimant operated an insulation-sales agency business for the defendant for many years. The agency was oral. The claimant’s staff also promoted windows for a separate company controlled by him, including to the defendant’s customers, without disclosing that activity to the defendant.

The defendant terminated the agency summarily, relying on breach of the agency obligations and regulation 16(a) of the Commercial Agents (Council Directive) Regulations 1993. The claimant sought commission and damages for failure to give notice. The defendant counterclaimed concerning ownership of a customer database and an alleged fraudulent or unauthorised five per cent reduction in quoted insulation areas.

The central issues were whether summary termination was justified, what commission was payable, who owned the database, and whether the five per cent practice gave rise to liability.

1. Summary termination. There was no express term prohibiting the claimant’s staff from undertaking all other work. However, an agent must not place itself in a position where its duty to the principal may conflict with a duty to another principal without disclosing all material facts and obtaining consent. The claimant’s undisclosed promotion of windows to the defendant’s customers created a potential conflict and breached the agency agreement and regulations 3(1) and 3(2)(b) of the Commercial Agents (Council Directive) Regulations 1993. The breach was sufficiently serious to justify immediate termination under regulation 16(a). The claim for three months’ loss of profit therefore failed.
2. Commission. Under regulation 8(a), commission remained payable on transactions mainly attributable to the claimant’s efforts during the agency. The claimant was entitled to commission on the disputed McCann Homes and Morris Homes transactions, notwithstanding changes to specifications, plot-by-plot ordering, and later price renegotiation. Judgment was therefore entered for commission of £58,316.18, subject to unresolved VAT and interest issues.
3. Database. The database was made by the claimant and his staff, not by employees of the defendant. Under regulations 13 to 15 of the Copyright and Rights in Databases Regulations 1997, the maker was the first owner of database right. The general law of agency and the claimant’s undertaking to deliver up the defendant’s documents did not alter that result. The database counterclaim was dismissed.
4. Five per cent issue. The defendant failed to prove fraud or breach of an express instruction. The practice had become known to and tolerated by the defendant. The counterclaim on this issue was dismissed. The proposed damages calculations would in any event have faced substantial problems of causation and quantum.
5. The question whether fraud discovered after summary termination could defeat a commercial agent’s claim for wrongful termination was left undecided because it was academic on the findings.