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When Can a Principal Avoid Paying Compensation?

Published Summer 2011

The recent case of Gledhill –v-Bentley Designs examined the relationship between the Principal (Bentley) and the Agent (Stephen Gledhill) and considered the circumstances in which a principal could validly terminate a commercial agency without paying compensation.

Bentley is a company that manufactures and supplies dining and bedroom furniture. It trades with over 800 retail stores and contracts 10 national agents. Stephen Gledhill was one of their agents and had been working for Bentley Designs since 1991 servicing Yorkshire and the North East of England.

In 2006, Bentley decided to move to a “paperless environment”. All of the agents, including Stephen Gledhill, were told to use electronic communications such as e-mail rather than paper, i.e. fax or post. By January 2007, all of the agents had complied with this requirement with the exception of Stephen Gledhill.

Bentley repeatedly asked him to comply with this requirement but he continued to correspond by fax or post.

In May 2008, Bentley told Stephen Gledhill that he would be charged an administration fee if he continued to use fax and post, rather than e-mails. He was told that the fee would be £100 per month. Despite being told that an administration fee would be payable, Stephen Gledhill did not correspond in a paperless way and Bentley Designs started to charge him the administration fee.

On 5 August 2008 Stephen Gledhill faxed a letter to Bentley stating that he would not pay the administration fee. Bentley replied stating that they would continue to charge Stephen Gledhill until he corresponded in a
paperless way.

On 12 September 2008, Stephen Gledhill left an abusive telephone message on Bentley’s Managing Director’s mobile telephone. The message said “I see you have taken the money out of my account which I have asked you and told you not to do. I just can’t believe you. You are at your happiest when you are always causing grief for people and just try to sort of upset people, people that support you, and I just think you are a despicable, horrible little excuse for a human being…”.

There was a further conversation between Stephen Gledhill and the Managing Director later in the day in which Stephen Gledhill was again abusive towards the Managing Director. The Managing Director allowed Stephen Gledhill an opportunity to apologise for his comments. On 18 September 2008, Stephen Gledhill sent a letter in which he failed to apologise but instead proceeded to try and justify his actions. On 25 September 2008, Bentley terminated Stephen Gledhill’s agency and refused to pay compensation. Stephen Gledhill subsequently brought a claim for compensation pursuant to the Commercial Agents (Council Directive) Regulations 1993 (“the Regulations”) .

Under the Regulations, if the Agency Agreement has been terminated because of the Agent’s default, then the Agent will not be entitled to compensation. If the Principal is unable to demonstrate that the Agent has defaulted, then the Agency Agreement will have been unlawfully terminated and the Agent will have a valid claim against the Principal. In this case, given the protection afforded to agents is akin to that afforded to employees, the court made reference to employment law and it was held that, as a matter of law, abusive language by an employee towards his or her employer may amount to a fundamental breach of contract. The Court acknowledged that words can be uttered in the heat of the moment and therefore may not always  amount to a fundamental breach of contract and that each case should be assessed on its own facts and with reference to the context in which the words were said.

Furthermore, the Court held that an apology may be able to rectify the situation. Pursuant to the Regulations, the Agent is under a duty to act towards the Principal conscientiously and in good faith and any serious breach of this requirement would entitle the Principal to terminate the Agreement with immediate effect and avoid paying compensation.

The Court held that Stephen Gledhill’s conduct was likely to destroy or seriously damage the relationship of confidence and trust between Bentley and Stephen Gledhill. Therefore, it was held that in terminating the agency relationship, Bentley was able to rely on Stephen Gledhill’s behaviour as justification for not paying compensation.

This case provides useful guidance as to the circumstances in which a court will hold an agent’s poor behaviour as justification for the principal avoiding compensation and it highlights the weight a court will apply to an agent’s duty to act in good faith.

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