CEP Holdings Ltd v CEP Claddings Ltd

An exclusive distributor’s obligation to use all reasonable endeavours requires it to do everything that a reasonably competent and energetic distributor would do, subject to a reasonable margin of commercial discretion. A notice alleging breach need identify the contractual obligation and the alleged failure; it need not particularise every evidential matter supporting the allegation. A contractual assignment prohibition requiring prior written consent prevents a valid assignment until consent is given or a court declares that consent has been unreasonably withheld. Mutual agreement to annual price revisions is binding and cannot ordinarily be reopened retrospectively without clear contractual wording.

Holdings and Claddings claimed damages from Steni concerning the termination of an exclusive distributor agreement and alleged overcharging. They argued that the agreement had been novated or assigned to Claddings, or that Steni was estopped from denying that position. Steni counterclaimed for unpaid invoices and damages for Holdings’ failure to promote its products using all reasonable endeavours.

The court also considered whether Steni was entitled to terminate after serving a default notice, whether products supplied for the Aberfeldy project justified withholding payment, and whether annual price revisions breached the agreement.

1. The alleged novation failed. Novation requires the consent of all parties, and the evidence did not establish any consensual agreement between Steni, Holdings and Claddings. The circular letter did not amount to an offer to novate, and Steni’s subsequent trading conduct could not constitute acceptance.

2. There was no legal assignment. No written notice satisfying section 136 of the Law of Property Act 1925 had been given. The contractual requirement for prior written consent had also not been satisfied. Nor did Steni’s conduct establish waiver or estoppel.

3. Clause 2.3 required Holdings to do everything that a reasonably competent and energetic distributor would do to promote and sell the products, while allowing a reasonable margin of appreciation in choosing its commercial methods. The default notice adequately identified the obligation and alleged failure. It was unnecessary to specify every respect in which the obligation had been breached.

4. Viewed cumulatively, the evidence established a failure to use all reasonable endeavours. Relevant matters included declining sales against a growing market, inadequate sales and marketing organisation, poor forecasting and specification systems, failure to cooperate with Steni, inadequate use of Steni’s branding and insufficient attendance at relevant promotional events. Holdings had not remedied the breach within the contractual period. Steni was therefore entitled to terminate.

5. The thickness of some Aberfeldy panels fell outside specification, but Holdings had failed to inspect them on delivery and had compromised with its customer without involving Steni. Steni’s liability was limited under the contractual guarantee to replacement and delivery of qualifying unmounted panels. Holdings was in breach of its payment obligation, although the compromise was not a breach of the separate guarantee-related provision.

6. The annual price revisions were mutually agreed, apart from one unilateral increase which complied with the contractual cap. The agreement contained no implied right retrospectively to review or readjust prices already agreed and paid. The overcharging claim therefore failed.

7. The claimants’ claim was dismissed. Claddings was liable for the unpaid Aberfeldy sum and admitted invoices. Holdings was liable to Steni for £125,000 for failure to use all reasonable endeavours.