Court allows agency breach claim for damages but dismisses claims for unproven expenses and remote customer goodwill loss.

[*443] 1982 March 18

(NIKITAS, P.D.C.)

IN THE DISTRICT COURT OF NICOSIA

G.G. Kazinos & Co.,

Plaintiffs,

v.

LETRASET (EXPORT) LTD., of London,

Defendants.

(Action No. 5689/81).

Contract - Agency agreement - No provision for termination - Terminable on reasonable notice - Length of notice -Sections 165 and 166 of the Contract Law, Cap.149.

Damages - Breach of contract - Agency agreement - Pecuniary loss caused to agent through loss of goodwill of a customer — Whether remote .- Section 73(1) of the Contract Law, Cap.149.

Damages - Breach of agency agreement - Loss suffered through failure of principals to deliver goods ordered Not part of the general damages.

Jurisdiction

- Territorial jurisdiction - Agency agreement entered into Cyprus - Dispute as to - Cognizable by Cyprus Courts - Section 21(1) of the Courts of Justice Law, 1960 (Law 14/60).

H. Stavrakis, for the Plaintiffs.

No appearance for the Defendants.

JUDGMENT

The following judgment was delivered by:-

NIKITAS, P.D.C.:- In this action the plaintiffs,[*444]

a general partnership registered in Cyprus, raise a claim for over £50,000.- against the defendants, a London based company, as damages for breach of an agency agreement. It must be said that the plaintiffs carry on business mainly as commission agents acting as representatives of foreign manufacturers, whereas the defendants are exporters of the graphic art products known as "Letraset".

The action was commenced by a generally endorsed writ on 24.11.81 and on the same day the Court gave leave for service of the writ outside the jurisdiction. Service was effected on 2.12.81, but the defendants failed to appear within the time limited by the order. In fact they refused to take part in the proceedings alleging that the Cyprus Courts have no jurisdiction to take cognizance of the dispute. This is what they say in their letter dated 7.12.81 addressed to the Registrar of this Court. In due course the plaintiffs applied for judgment and called their general manager, Mr. G. Kazinos, P.W.1 , and Mr.

L. Zavallis, P.W.2, a printer, to substantiate their claim.

There is ample evidence to support a finding, that in June 1977, during a short visit to Cyprus of the defendants' general manager, Mr. Escritt, he met P. w. 1 at Nicosia and orally agreed with him that the plaintiffs should act as the sales agents of the defendants in Cyprus. Mr. Zavallis, a prospective customer of Letraset products, was present at the meeting and his evidence lends full support to that of P.W.1. Moreover, there is overwhelming documentary evidence establishing the creation of a sole agency. We need only [*445]

make reference to the highlights of such evidence; On July 8, 1977 Mr. Escritt wrote a letter to the plaintiffs from England and referred to his visit to. Nicosia confirming the business arrangement of the parties and attaching, inter alia, a document headed "Letter of Appointment" which bore £ the same date and was signed by Mr. Escritt on behalf of the defendant company. This letter, which forms parts of exhibit . 1 before us, incorporated the terms of the oral agreement concluded at Nicosia. The material part of it reads as follows:-

"This letter is to confirm that from the above date Mr. George Kazinos is appointed Regional Sales Agent for Letraset Export Limited, in, Cyprus.

"DEFENITIONS "

1. Territory

",The territory of operation and responsibility " will be defined as Cyprus and. non other.

"2.Commission .A fixed commission of 17½% of the Invoice-value will be paid by Letraset on all third party or direct sale orders. In the case of goods purchased for stock by G. Kazinos and Co., then a gross profit margin of 17½% will be similarly be permitted.

"3. Objectives [*446]From the date of the agreement until November, 1981 , the business association of the parties was free of problems. The plaintiffs obtained and transmitted orders which were promptly executed by defendants. The plaintiffs also maintained an adequate stock of Letraset goods themselves. In either case they were remunerated on the terms stated in the letter of appointment.. In September, 1977, P.W.1 , paid a visit to his principals in England for acquainting himself with the full range of the defendants' products.

Meanwhile, the plaintiffs incurred expense in setting up the agency and now claim to be indemnified for their outlays and expenses. According to the evidence of P.W.1, which we accept, the plaintiffs spent the following sums:-

(a.)£2,000.-on special stands and other fittings for the display of Letraset goods in their showrooms;.

(b)£1,000.- on advertising defendants' products in the local press:

(c)£1,000.- for conducting a seminar at the Nicosia "Hilton" for the promotion of sales in which defendants participated through one of their high ranking officials;

(d)£1,000.- cost of the trip of P.W.1 to England;

(e)£400.- surplus packing materials which are no longer of any use to the plaintiffs; [*447]

(f)£200.- for specially painting one of the plaintiffs' Vans for advertising purpose 3 (see photograph exhibit 6); and

(g)£100.- for two signboards at the plaintiffs' showroom advertising Letraset goods.

P.W.1 stated that as a result of the plaintiffs' efforts the business prospered to such an extent that "Letraset" was ahead of all other competitors in the local market as regards volume of sales which was not the case when they took over the agency. The annual net profit of plaintiffs was in the region of £4,000.- which accounted for about a third of their total business activity, He stated further, and we believe him, that since November, 1980 the defendants declined to execute orders. In a telex dated. 20.3.81 - exhibit 13 -the plaintiffs complained of the defendants' behaviour informing them that one of their stockists had instituted an action against them because of their failure to meet his needs. There is no. evidence, however, as to the fate of those proceedings, except that the dispute alienated the. customer, who stopped dealing with them in other fields. P.W.1 stated that from their other transactions with that customer the plaintiffs made a profit of about £500.- a year. Learned counsel for the plaintiffs contended that they should be awarded compensation in respect of this loss.

Eventually the defendants purported to terminate the agreement by a letter dated 20.8.81 - exhibit 12.-giving 6 months' notice as from 1.9.81.[*448]The defendants proposed to continue supplying the plaintiffs with their products during the currency of the. notice provided that. the. latter were prepared to agree to a number of terms or conditions set out in a separate document attached to the notice exhibit 12. After their rejection by the plaintiffs the business relationship of the parties came to an , end.

It is relevant to mention that the defendant asked for an undertaking by the plaintiffs not to embark on any retail trade of Letraset products in Nicosia during the period of notice. In the light of the evidence we find that since the notice included terms which were not consistent with the. original agreement - exhibit 12. - it could not amount to a valid notice terminating the agreement and further., that it constituted a repudiation of it. This finding is reinforced by the intention of the defendants expressed in their letter exhibit 12, to appoint. other distributors of their products in Cyprus along with the plaintiffs. Indeed, as the evidence of P.W.I discloses, such an arrangement was subsequently made by the defendants. .

The first question emerging for determination by the Court is whether the agency agreement. could be terminated, and if so, what was the appropriate length of notice in the circumstances.

Primarily the matter is governed by sections 165 and 166 of the Contract Law, Cap.149. Section 165 provides that the principal is bound to compensate the agent where there is an express or implied contract that the agency [*449]should be continued, for any period of time and the agent's authority was previously revoked without sufficient cause. Section 166 provides that reasonable notice must be given of such revocation, otherwise the principal is liable to make good the damage suffered thereby by the agent. It is to be noted that both provisions are modelled on sections 205 and 206 of the Indian Contract and Specific Relief Acts of 1872 espectively.

In the present situation where the contract made no provision for termination, it was conceded, and rightly so in our opinion, that the agreement was terminable on reasonable notice. For a discussion of the" principles involved in the termination of contracts of indefinite duration see Stafford-shire Area Health Authority v. South Staffordshine Area Waterworks Co., (1978) 3 All.E.R. 769, in which the Authorities area reviewed. For a fuller exposition of the law see Halsbury's Laws of England, 3rd Ed. Vol. 8, para 267 at p. 156.

Learned counsel for the plaintiffs argued that in the present case twelve months' notice would have been reasonable and rested his submission on Martin-Baker Aircraft Co. Ltd. v. Canadian Flight Equipment Ltd. , (1955) 2 All E.E.722 and Decro-Wall International S.A. v. Practitioners in Marketing Ltd. ,(-1971) 2 All E.R.216. In both cases twelve months was held to be adeauate notice. The principle to be deduced from the authorities is that the Question of length of notice depends on the facts existing at the date notice is given. A weighty factor to be considered is the [*450]expense incurred in establishing and running an agency. The headnote in Decro-Wall International ,S.A. (supra) at p.217 para. (iii) reads:-

"In view of the expenditure and work which the defendants had put into carrying out the agreement, the judge was entitled to find, that 12 months' notice was reasonable to terminate the agreement; no concessionaire would have proceeded with such an agreement unless he knew that it could not be determined Toy shorter notice".

Another case illustrating the principle is Sohrabji Dhunjibhoy Medora v. Oriental Government Security Life Assurance Co. Ltd. , (1946) A.P.C.6, "where an insurance agenthad acted as agent for a long period of time and had to maintain a large staff of canvassers, it was held "by the Privy Council that three and a half months notice was not reasonable; their Lordships expressed the opinion that in the circumstances two years' notice would not have been unreasonable". (See Pollock & Mulla 9th Ed. p.746).

We must point out that the facts relating to notice, in the cases just quoted, differ in some respects from those in the present case. In Decro-Wall (supra), for example, the agents spent more than £30,000,- on advertising, employed six extra salesmen and. moved into new premises in order to cope with the work; at the time notice was given practically the whole of their business emanated from the agency agreement, [*451]"Taking into account every relevant factor including the expenditure incurred, we find that reasonable notice in the circumstances ought to be nine months. In view of the finding of the Court that the defendants were guilty of a clear breach of contract in giving the notice of August 20, the defendants are entitled to damages on the basis of the amount they would have earned if reasonable notice had been given. In the light of the material before us and making some allowance for the vicissitudes of trade we award the plaintiffs £2,500.-. However, in the absence of any agreement or undertaking by the defendants to reimburse the plaintiffs for their expenses (analysed in detail earlier) this part of the claim cannot succeed. As has already been indicated this was one of the circumstances considered by the Court in fixing the length of notice.

The plaintiffs were left with stocks of "Letraset" products which cost them £6,000-, but a substantial part of it could not be sold because it had to be supplemented or renewed. As it appears from exhibit 12 the defendants refused to accept the return of the stock unless the plaintiffs agreed to their terms. The plaintiffs took no steps as yet to dispose of their surplus stock,

but it is the testimony of P.W.1 that it might fetch up to £1,000-£1 ,500 - Doing the best we can on the available evidence we

award the plaintiffs £3,500.-.

We come now to consider the question of remoteness in connection with the pecuniary loss caused to the plaintiffs through the loss of the goodwill of a customer.[*452]Section 73(1) of the Contract Law regulates the measure of damages in Cases of breach of contract. The section embodies the common law principles formulated in Hadley v. Baxendale, (1854) 9 EXCh. 341 as explained in the judgment of Asquith L.J. in Victoria Laundry (windson) Ltd. v. Newman Industries Ltd. (1949) 1 . All E.-R.997, C.A. Considering the circumstances as a whole we cannot infer as against -the defendants that when the contract was made that particulars loss was within their contemplation. This is an example of the doctrine of remoteness and we hold that the loss is irrecoverable.

It will be remembered that some 9 months before termination the defendants in effect stopped supplying the plaintiffs with their products. Counsel for the plaintiffs submits that they are entitled to damages to be estimated on the basis of the plaintiffs' net annual earnings. We take the view that such damage should be explicitly claimed in the pleading and proved strictly at the trial. Any loss suffered through the failure of the defendants to deliver goods ordered by or through the plaintiffs is not part of the general damages and it must be proved by evidence that the loss was in fact incurred so as to enable the Court to make a precise calculation. There is in the instant case complete lack of such evidence and we accordingly dismiss this part of the claim.

Before concluding we shall refer briefly to the question of jurisdiction. Territorial jurisdiction of District [*453]Courts is governed by section 21(1) of the Courts of Justice Law (Law 14/60) which must he read in conjunction with the definition of the words "cause of action" in the same law: see Kyriacos Theophanous v. Artemis Georghiou (1969) 1 C.L.R. 203.

In the light of the relevant statutory provisions and our findings relating to the making of the contract there can be no doubt that this Court has jurisdiction to try the case and we rule accordingly.

In the result we give judgment for the plaintiffs against the defendants for £6,000.- with costs to be assessed by the Registrar and approved by the Court.

Judgment for plaintiff

for £6.000.- with costs.