Rossetti Marketing Ltd & Anor v Diamond Sofa Company Ltd

An agent owes a fiduciary duty of undivided loyalty and may not act for competing principals without the principal’s fully informed consent. The limited exception for an estate agent whose business necessarily involves acting for many principals does not extend to another commercial agency without clear supporting evidence.

For the purposes of the Commercial Agents (Council Directive) Regulations 1993, an agreed transfer of an agency business to a replacement agent may be treated as an assignment, even if domestic law would characterise the replacement as a new contract. An interim payment requires satisfaction on the balance of probabilities that the claimant will obtain a substantial net judgment, not merely that this is likely.

Rossetti Marketing Ltd (RML), which had replaced Solutions Marketing Ltd (SML) as Diamond Sofa Company Ltd’s commercial agent, sought compensation and commission following termination of the agency. Diamond alleged that SML and RML had breached fiduciary duty by acting for competing furniture manufacturers and relied on a set-off for lost profits.

Cranston J held, in [2011] EWHC 2482 (QB), that the agency fell within the Regulations, that RML had succeeded SML, and that the agents could act for certain other principals. He later ordered an interim payment of £500,000 and £300,000 on account of costs. Diamond appealed the competing-agency ruling, the characterisation of RML’s succession, and those monetary orders.

1. Appeal allowed in part. The court set aside the £500,000 interim-payment order. It also set aside the £300,000 order for costs on account, subject to further submissions on the replacement costs order.
2. An agent is ordinarily subject to a fiduciary duty of single-minded loyalty. It may not act for competing principals unless each affected principal has given fully informed consent. The estate-agent exception explained in Kelly v Cooper [1993] AC 205 was confined to its commercial setting. It did not apply to a furniture-sales agency without evidence that its business necessarily required it to represent competing manufacturers.
3. Diamond had consented to SML acting for specified manufacturers only so far as their furniture did not clash with Diamond’s range. General knowledge, silence, or the availability of information did not establish informed consent to representation of a direct competitor. Nor could possible awareness of a breach for a few months, without more, vary the agency agreement.
4. The court doubted that the common-law analysis of RML’s replacement of SML was an assignment. That characterisation did not decide the statutory question. Regulation 18(c) of the Commercial Agents (Council Directive) Regulations 1993 contemplated a successor agent where the principal agreed to a transfer of the agency business. RML could therefore rely on SML’s rights for the relevant regulatory purposes, but also took the burden of any available set-off against SML.
5. The unresolved questions concerning termination for an unknown breach and the effect of regulations 16 and 18(a) meant that RML’s claims under regulations 15 and 17 could not be treated as established. Applying Revenue & Customs Commissioners v GKN Group [2012] EWCA Civ 57, the court held that CPR 25.7 required satisfaction that RML would obtain a substantial net judgment. That threshold was not met.
6. Absent special circumstances, a court told of a Part 36 offer should normally make no costs order after determining liability unless reasonably certain that the claimant will recover more than the offer. The uncertainty created by the potential set-off made the costs order unsustainable.

• Court of Appeal (Civil Division): Allowed Diamond’s appeal in part. It reversed the interim-payment order and set aside the costs-on-account order pending further submissions.
• High Court, Queen’s Bench Division (Cranston J): In [2011] EWHC 2482 (QB), determined preliminary issues concerning the commercial agency and later ordered an interim payment and costs on account.