Commercial Law Lecture Five - Duties of an Agent to his Principle PDF

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Duties of an Agent to his Principle ...

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BIL0082

Commercial Law The Duties of an Agent to his Principal

Learning Outcomes At the end of this topic you should be able to:

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Understand the different types of duty that an agent owes to his principal

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Understand the different types of duty that an A owes to his P at common law, equity and under statute.

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Understand the extent of A’s liability to P for a breach of these duties and the remedies available to P.

Unit Essential Reading:

Introduction An agents’ duties towards his principal arise through their fiduciary relationship and this includes those agencies that are non-contractually established. These duties include: (i) The duty of obedience. Not only is an agent bound to follow his principal’s instructions it would extend to prevent the agent from acting outside them. (ii) The duty to act using reasonable care and skill. These duties can be implied into a contract in addition to a general duty imposed by tort. Additionally, a statutory duty can be implied under section 13 of the Supply of Goods and Services Act 1982 where the agent in acting in the course of a business though this can be subject to limitation or exclusions clauses, notwithstanding the provisions of the Unfair Contract Terms Act 1977 or the Unfair Terms in Consumer Contract Regulations 1999. (iii) The duty not to have a conflict of interest. An agent should ensure that his interests will not conflict with those interests of his principal. This covers both contractual and noncontractual agency situations. However, it is becoming more common for an agent to act for more that one principal at the same time and situations can occur where the principal could have two principals where there maybe a conflicting interest. This type of situation can be overcome by expressly or implying a term into the contract. Where the agent knows of a

conflict of interest he should disclose it to his principal who can whether to continue or terminate the relationship. (iv) The duty not to make a secret profit or disclose of a profit to the principal. Where this occurs the principal will be able to recover the sums paid. (v) The duty not to take a bribe from a third party order to induce the agent to contract with them. Bribes taken without the knowledge of the principal will be recoverable. (vi) The agent had a duty to act personally unless it is agreed that the duty can be delegated to a sub-agent.

General Reading Sealy LS, Commercial Law: Text, Cases and Materials, chapter 6

Cases, Legislation and Journal Articles 1. Performance of Contractual Undertaking (a) The Duty to Obey Instructions 

An agent must follow the principal’s instructions.

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Failure to follow instructions will render the agent liable for any loss incurred by the principal due to the agent’s breach (subject to the normal rules – Hadley v Baxendale (1854) 9 Ex 341).

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There will usually be a difference between a gratuitous agency and an agency for reward. 1. In the case of an agent for reward, he or she will be liable for breach of contract in the event of a failure to act at all. 2. A gratuitous agent cannot be so liable for breach of contract, but he or she may be liable for any breach once he or she has started to perform the agency.

Turpin v Bilton (1843) 5 Man & G 455 Bertrom, Armstrong & Co v Godfray [1938] 1 Knapp 381

(b) To use reasonable care and skill  

An agent is under a duty to take due care and skill when undertaking work on behalf of the principal. Where the agency tasks involve no special skill, the standard of care required of the agent is that he or she should exercise the same degree of care and skill when acting on behalf of the principal as he or she would when attending to his or her own affairs. Where, however, the agent claims some special skill or knowledge, then the standard required will be judged by reference to that skill or knowledge.

It used to be considered that there would be a difference between the standard required of a contractual agent and that required of a gratuitous agent.

Keppell v Wheeler [1927] 1 KB 577 Supply of Goods and Services Act 1982 s. 13 provides that, where someone provides a service in the course of a business, this should be done with reasonable care and skill. This merely places the existing common law into a statute.

Chaudhry v Prabhakar [1988] 3 All ER 718

Berry v Laytons [2009] EWHC 1591

(c) Duty to Act Personally  This is often expressed in the Latin expression “Delegatus non potest delegare” – a person to whom some task has been delegated cannot delegate its performance to someone else. 

In De Bussche v Alt [1878] 8 ChD 286 Thesiger LJ stressed that a principal may have “confidence in a particular agent”.

There are three exceptions to this general rule. i. Where P expressly authorises A to delegate his powers. ii. Where a power to delegate can be implied from the circumstances of the case – “An authority [to delegate] may and should be implied where from the conduct of the parties to the original contract of agency, the usage of trade or the nature of the particular business which is the subject of the agency it may reasonably be presumed that the parties to the contract of agency originally intended that such authority should exist or where, in the course

of the employment, unforeseen emergencies arise which impose upon the agent the necessity of employing a substitute.” iii. Where the delegation is of purely ministerial acts.

2. Fiduciary Duties (a) Definition What is a fiduciary duty? Law Commission Report, Fiduciary Duties and Regulatory Rules (No 236, Nov 1995) “a fiduciary relationship is one in which a person undertakes to act on behalf or for the benefit of another.”

(b) Conflicts of Interest 

The agent should not permit his own interest to conflict with that of his principal.

Parker v McKenna (1874) LR 10 Ch 96 Lord Cairns “No man can… acting as an agent, be allowed to put himself into a position in which his interest and his duty will be in conflict”

Armstrong v Jackson [1917] 2 KB 822 McCardie J “The prohibition of the law is absolute. It will not allow an agent to place himself in a situation which, under ordinary circumstances, would tempt a man to do that which is no the best for his principal”

 A has a duty to inform P of any conflict of interest Fullwood v Hurley [1928] 1 KB 489 Scrutton LJ No agent… can… accept an engagement inconstant with his duty to the first principal from a second principal unless he makes the fullest disclosure to each principal of his interest, and obtains the consent of each principal” P’s options Upon disclosure P has the option of: 1. electing to continue with the contract dispite the conflict.

2. Termination of P’s agency and finding a new agent.

Clark Boyce v Mouat [1994] 1 AC 428 “There is no rule that a solicitor should never act for both parties in a transaction where their interests may conflict. Rather it is the position that he may act provided that he has obtained the informed consent of both to his acting”

Nitedals Taendstikfabrik v Bruster [1906] 2 Ch 671

Industrial Development Consultants v Cooley [1972] 1WLR 443 Allwood v Clifford [2002] EMLR 3 Bristol and West Building Society v Mothew [1998] Ch 1 “First, an agent who properly acts for two principals with potentially conflicting interests is bound to serve each principal as faithfully and loyally as if he were his only principal ("the no inhibition principle"); and secondly an agent cannot act where there is an actual conflict of duty so that he cannot fulfil his obligations to one principal without failing in his obligations to the other ("the actual conflict principle")” Millet LJ at 19 F-H.

(c) Secret Profits 

A secret profit is any financial advantage which A receives in the execution of the agency relationship which is over and above the amount to which A is lawfully entitled. (Dobson v Stokes)

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Secret profits can arise with or without a bribe.

(d) The Duty Not to Take a Bribe  Receiving a bribe is grounds for dismissal.  A is liable in equity to repay the bribe to P Boston Deep Sea Fishing v Ansell (1888) 39 Ch D 339 Industries & General Mortgage Corporation v Lewis [1949] 2 All ER 573, Slade J stated that a bribe occurs where three requirements are satisfied: 1. T makes a payment to P’s agent; 2. T know P is T’s agent; 3. T does not disclose this to P.

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If A discloses the payment then this will not amount to a breach of good faith.

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Bribes can extend to other benefits and not just money. E.g. A free holiday.

Salford Corporation v Lever [1891] 1 QB 168 Mahesan v Malaysia Government Officers Co-operative Housing Society Ltd [1979] AC 374; [1978] 2 All ER 40

(e) Duty to Account  This duty is to pay over all sums (or hand over property) to P that A has received for P, Blaustein v Maltz, Mitchell & Co [1937] 2 KB 142

This duty to pay over all sums applies even if the transaction was illegal or void. E.g. De Mattos v Benjamin [1894] 63 LJ QB 248 (an action by a ‘turf commission agent),

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This duty applies but not if the agency itself was illegal, e.g. Harry Parker Ltd v Mason [1940] 2 KB 590 conspiracy to commit offences and fraudulent betting).

The position was well summarised in Dadswell v Jacobs [1887] 34 ChD 278 as: 1. To keep P’s property distinct from A’s; 2. To keep proper accounts of transactions made on behalf of P; 3. To produce accounts to P or someone appointed by P on request; NB also specific controls through legislation. (In particular the rules relating to solicitors’ accounts).

(f) Not to misuse confidential information 

If A acquires confidential information about P’s business, it must not be used for his own purposes or that of another principal. Such information might be about processes, products, clients or customers.

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This duty may even be enforced after the agency has been terminated.

Robb v Green [1895] 2 QB 315

Faccenda Chicken Ltd v Fowler [1986] 3 WLR 288; Neill LJ considered the following issues to be of importance: 1. The nature of the employment; was such information handled by the agent habitually, normally or only occasionally? 2. The nature of the information; 3. Whether or not the principal had emphasised the fact that the information was confidential; 4. Whether or not the information could easily be isolated. Thomas Marshall v Guinle [1978] 3 All ER 193 (at page 209) Sir Robert Megarry considered that: 1. P must believe that the release of the information would be harmful to his interests or would be of benefit to business rivals; 2. P must believe the information is secret; 3. P’s belief must be reasonable; 4. the issues should be judged by the usages and practices of the particular trade or industry involved. It should be noted that, in many cases, a specific restraint of trade clause will be included in the agency agreement. However, the fiduciary duty will still be implied.

IDC v Cooley [1972] (supra)

3. P’s remedies against A 1. Agent may be dismissed - Boston etc v Ansell (supra) 2. Agent forfeits right to remuneration if breach is a bribe - Andrews v Ramsay [1903] 2 KB 635. 3. Principal can recover bribe from agent as money had and received; third party liable on restitutionary basis. Can principal claim property acquired with bribe? - Attorney-General for Hong Kong v Reid [1994] 1 All ER 1 per Lord Templeman, who stated that the acting DPP for Hong Kong who used money from bribes to

purchase property in New Zealand held this property on constructive trust for the Crown, referring to him as a “debtor in equity” to the principal. 4. Principal can sue agent and third party for fraud (deceit). Old rule from Salford v Lever (supra) affected by Mahesan (supra per Lord Diplock @ 383 in AC) 5. Principal can rescind contract and recover bribe - Logicrose Ltd v Southend United Football Club Ltd [1988] 1 WLR 1256 6. Principal can obtain an injunction to prevent the misuse of confidential information or trade secrets....