Fabled diamonds company De Beers sells rough diamonds into the jewellery trade at so called ‘sights’ that were once held 10 times annually in London. However, in a guideline case of interest to anyone engaged in commerce, the Court of Appeal has ruled that its activities do not amount to a ‘commodity exchange’ within the meaning of the Commercial Agents (Council Directive) Regulations 1993.
The case concerned a long-established diamond dealing firm which for more than 50 years had acted as agent for a jewellery company in negotiating the purchase of rough diamonds from De Beers. After De Beers’ historic, near-total, control of the diamond market came to an end and the sights were moved to Botswana in 2013, the company terminated its relationship with the firm.
After the firm launched proceedings, it successfully argued that the termination amounted to a breach of an oral contract whereby it had agreed to halve the commission it charged the company. That was in return for a commitment that the firm’s services as broker would be retained for as long as the company remained a sight-holder with De Beers. A judge awarded the firm $3,326,555 in damages.
The firm’s alternative plea that the termination also breached its rights under the Regulations fell on fallow ground, however. Whilst accepting that the firm operated as a commercial agent, the judge found that De Beers’ sights were commodity exchanges and that the exception contained within Regulation 2(2)(b) of the Regulations therefore applied. Before the Court of Appeal, the company and the firm each challenged those parts of the judge’s decision that went against them.
In dismissing the company’s appeal, the Court confirmed the judge’s ruling that it had breached the oral contract. The terms of the agreement were as claimed by the firm and, although the judge had employed a flawed method in assessing the amount of the firm’s damages, the end result was generous to the company.
Turning to the firm’s cross-appeal, the Court found that the sale of boxes of rough diamonds at De Beers’ sights cannot be viewed as a commodity exchange. Sights involve sales made by a single seller to selected buyers, for the most part at fixed prices set in advance by the seller. They resemble a shop where goods are sold on a wholesale basis and customers are restricted to trade buyers.
In those circumstances, the commodity exchange exception did not apply to the case and the firm’s claim under the Regulations should also have succeeded. The Court’s ruling on that issue did not change the amount of compensation payable to the firm.