Show Summary Details
Bradgate's Commercial Law

Bradgate's Commercial Law (4th edn)

Reza Beheshti, Séverine Saintier, and Sean Thomas
Page of

Printed from Oxford Law Trove. Under the terms of the licence agreement, an individual user may print out a single article for personal use (for details see Privacy Policy and Legal Notice).

date: 12 November 2024

p. 2107. Principal and agentfree

p. 2107. Principal and agentfree

  • Reza Beheshti, Reza BeheshtiAssistant Professor in International Commercial Law, University of Nottingham
  • Séverine SaintierSéverine SaintierProfessor of Commercial Law, Cardiff University
  • , and Sean ThomasSean ThomasReader, University of York

Abstract

This chapter highlights the relationship between principal and agent. It explains that the consent of the principal gives the agent their authority. Principals and agents have certain rights against each other which spring from their agency relationship, most of which may be contractual. The Commercial Agents (Council Directive) Regulations 1993 created rights and obligations for the parties involved in the commercial agency agreement. The chapter then looks at the rights and duties of the agent under general common law. It explains that the withdrawal of consent by either party effectively terminates their relationship and the agent's actual authority to bind the principal.

7 Consent and contract

The relationship of principal and agent can only be created by the consent of the parties: the agent must agree to act for the principal, and the principal must agree to the agent so acting. The principal’s consent gives the agent their authority. The principal may give their consent after the agent has acted, by ratifying acts done by the agent without prior authority.1 As seen previously, where the agent’s only authority is apparent, they have power to affect the principal’s position and the principal may thus be bound by the agent’s actions, but there is no agency relationship between them because the principal does not consent to the agent’s actions (A therefore has no right to claim commission for instance against P).2

Principal and agent have certain rights against each other which spring from their agency relationship, which may be contractual: it will be so where the principal agrees, expressly or impliedly, to pay the agent for their services, and that will generally be the case in relation to agents acting in a commercial context. If there is a contract it may be express or implied, oral or written, or contained in a power of attorney, and the terms of that contract will be the primary source of the mutual rights and obligations of the parties. However, many of the rights and liabilities of principal and agent do not depend on any contract between them but are imposed by law because of the relationship of principal and agent. That relationship is recognised as a fiduciary one, and the agent therefore owes to the principal fiduciary duties of loyalty, similar to those imposed on other fiduciaries, which arise as a matter of law and are imposed on gratuitous as well as contractual agents.3 Similarly, the agent enjoys certain rights even where they have no contractual right to payment.4 In addition, commercial agents involved in the sale and purchase of goods may enjoy extensive rights under the Commercial Agents (Council Directive) Regulations 1993 (hereafter 1993 Regulations),5 which cannot be abrogated by the contract.

Where there is a contract between principal and agent, many of the rights and duties of the parties will take effect as implied terms in that contract; and the contract may vary some of those rights and duties. A contract of agency is governed by the general law of contract and is subject to the same rules as other contracts. Terms may be implied into a contract of agency to give effect to the intentions of the parties to give business efficacy to the contract.6 However, unlike other types of contract, such as contracts of employment and contracts between landlords and tenants, there are relatively few implied terms p. 211recognised as general incidents of agency contracts (except in the context of the commercial agency relationship).7

A contract of agency may be unilateral or bilateral. The contract will be bilateral where the agent undertakes, expressly or impliedly, to perform some particular act: for instance, to use best endeavours to bring about a result (an example is the commercial agency relationship). The contract may, however, be unilateral, where the agent promises to do nothing, but the principal promises to pay the agent if the desired result is brought about. Estate agency contracts are unilateral in this way: the agent does not contract to do anything, but if the agent brings about a sale the principal is obliged to pay the agreed commission.8

7.1 The commercial agents (council directive) regulations 1993

The Commercial Agents (Council Directive) Regulations 1993 came into force on 1 January 1994.9 Broadly speaking, they give commercial agents, as defined, extensive rights against their principals, considerably greater than such agents would have enjoyed at common law. The 1993 Regulations were made to implement an EC Directive of 1986.10 It is not, at the time of writing, entirely clear what the impact of Brexit will be on the text. Until it is known for sure whether they will be part of what has been referred to in the press as ‘the Brexit bonfire’,11 they are still part of the commercial legal landscape and are therefore as such included in this book.12

The laws of many member states of the (then) European Community already gave extensive rights to commercial agents and it was thought that, without harmonisation, discrepancies between national laws might act as an obstacle to completion of the internal market.13 The Directive was to be implemented by 1 January 1990; however, the UK, the Republic of Ireland and Italy14 were given extra time to implement it because those states had to make ‘a particular effort to adapt their regulations’.15 The UK and Ireland had no existing legal regulation of the relationship between commercial agents and their principals; indeed, it was argued that ‘commercial agents’ were not recognised as a distinct category by UK law.16

The 1993 Regulations create both rights and obligations for both parties to the commercial agency agreement. In general, they require both principal and agent to ‘act dutifully p. 212and in good faith’ towards each other,17 and thus represent another example of the infiltration of civil law concepts of ‘good faith’ into UK commercial law. However, their impact on commercial agents’ rights is far greater than on their duties. The common law traditionally regarded agents involved in the marketing of goods as independent businesses and, in so far as either party to the agency relationship required protection from the other, took the view that the agent had a stronger position than the principal and that the principal therefore needed to be protected by the imposition on the agent of fiduciary duties.18 In contrast, the approach of many civil law countries, reflected in the attitude of the (then) European Community, is to regard the commercial agents as integrated to a large degree in the business of their principal.19 This is the approach taken by the Directive and, therefore, now by the 1993 Regulations hereby granting commercial agents extensive rights to commission and protection against termination in the form of a substantive payment.20

The wording of the 1993 Regulations largely mirrors that of the Directive, which is rather unfortunate, especially in the early years post implementation, for many of the expressions used are unfamiliar to a common lawyer. There was, in those early years post implementation, considerable uncertainty about the meaning or application of some of the provisions, and in several of the early cases the courts have been critical of the wording of the 1993 Regulations.21 There is however now a considerable body of case law applying the 1993 Regulations and, as will be seen, the application of the text has not been as difficult as was anticipated. On the whole, the courts have adopted a purposive approach, interpreting the 1993 Regulations so as to further the perceived objectives of the underlying Directive, that is, (a) harmonising the laws of member states and (b) protecting the interests of commercial agents.22 As Staughton LJ has put it, ‘the second objective … appears to be a motive of social policy, that commercial agents are a downtrodden race, and need and should be afforded protection against their principals’.23 The Directive was heavily influenced by the laws of Germany and France, especially on issues pertaining to termination payments. On those issues, although the courts had, earlier on, indicated that, when applying provisions pertaining to termination payments, it was appropriate for them to draw guidance as to their meaning and application by considering the established practice in those countries,24 the Supreme Court has however now firmly put an end to this.25

7.1.1 Scope of the 1993 regulations

The 1993 Regulations came into force on 1 January 1994 but they apply retrospectively to agency agreements already in force at that date.26 They do not apply to all agency agreements but only to the relationship between ‘commercial agents’, as defined, and their principals. A commercial agent is:

A self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person (‘the principal’) or to negotiate and conclude the sale or purchase of goods on behalf of and in the name of the principal.27

p. 213As explained above, prior to the implementation of this text, in the UK, commercial agents were not recognised as a separate category of agents. The definition is therefore particularly important to define the scope of the text. In light of the civilian origin of the definition, to understand who commercial agents are with precision was not easy. It is however an area where the English courts have risen to the challenge with, seemingly, some ease.

As remarked, the definition serves two purposes. First, it provides the necessary criteria for a commercial agent to be regarded as such; and second, it defines their role.28 The same classification is followed.

7.1.1.1 The necessary criteria to be classed as a commercial agent under the 1993 Regulations

First, the commercial agent must be an agent in law, acting ‘on behalf of a principal’. The text therefore does not protect a person who buys and resells goods in their own name, that is, a distributor.29 As the commercial agent must also act ‘in the name’ of the principal, neither undisclosed agents,30 or commission agents,31 are covered by the 1993 Regulations.

Second, the commercial agent must be ‘self-employed’. Thus employees (who enjoy considerable protection under other laws) are not protected by the 1993 Regulations. The distinction is important and goes to the core of the role of commercial agents therefore having the freedom to conduct the commercial agency business as they see fit and independently form the principal.32 However, the reference to a ‘self-employed intermediary’ does not require that the agent be a natural person. It has been held that ‘self-employed’ should be interpreted as requiring the agent to be an ‘independent contractor’.33 Thus a limited company can be a commercial agent protected by the 1993 Regulations.34

Third, the agent must have ‘continuing authority’ to negotiate, or to negotiate and conclude, contracts on behalf of another person. The term ‘continuing’ simply refers to the fact that the relation must last over a certain period of time ‘continuously’ rather than be of an unlimited duration. This is crucial to differentiate commercial agents from intermediaries such as brokers who act on a one-off basis.35 In W Nagel (A firm) v Pluczenik Diamond Company NV 36 it was held that whether there is ‘continuing authority’ is determined ‘by the terms of the contract with the principal and not by the extent or frequency of the p. 214existence of that authority’.37 However, in Light and Others v Ty Europe Ltd38 the Court of Appeal said that the 1993 Regulations does not cover sub-agents. Although they are agents with a continuing authority, the substantive protection of the 1993 Regulations (the termination payments) could only apply when there is a ‘contractual relationship’.39

7.1.1.2 The role of commercial agents

The main role of the commercial agent, under reg 2(1), is to either ‘negotiate’ or ‘negotiate and conclude the sale and purchase of goods on behalf of the principal’. Given the focus on the ‘negotiation’ the main role of the commercial agent is therefore a marketing one. What this entails, following Parkes v Esso Petroleum Co Ltd,40 is now clear. The claimant was the licensee of a tied self-service petrol station. The licence described him as an ‘agent’ for the purposes of selling motor fuel on behalf of the petrol company and provided for him to receive a commission on sales. He claimed to be a commercial agent protected by the 1993 Regulations. At first instance, Sir Richard Scott V-C held that he was not a commercial agent because fuel sales were not ‘negotiated’ giving that word ‘its ordinary English meaning’.41 The price at, and terms on, which fuel was sold were fixed by the petrol company. The Court of Appeal upheld the decision, but on slightly different grounds.42 The court recognised that there could be ‘negotiations’ without there necessarily being any haggling over price,43 but emphasised that the petrol sales in question were concluded on a self-service basis. The 1993 Regulations exclude from their protection agents whose activities as a commercial agent ‘are to be considered secondary’ (see below), and the Schedule contains provisions intended to determine when an agent’s activities are ‘secondary’. Referring to those provisions, the court concluded that a distinction should be drawn between ‘negotiated’ contracts and those concluded as a result of customer self-service,44 and concluded that, on the facts, the claimant did not ‘negotiate’ contracts.

It is submitted that the reasoning of the Court of Appeal is to be preferred. A commercial agent will only ‘negotiate’ if they play an active part in getting the customers to buy the goods of the principal. The ‘negotiating threshold’ is therefore quite low since ‘canvassing/introducing agents’ who merely promote the principal’s goods are covered by the 1993 Regulations.45 More recently, in Invicta UK v International Brands Ltd46 the court took a protective stance when deciding that whether the commercial agent has authority to p. 215negotiate is determined ‘at the time when the contract is made’. This means that ‘whether the authority comes to be exercised less frequently (or not even at all), as the agency continues and customer relationships are established and then cemented is neither here nor there, unless the continuing authority is withdrawn’.47

Although the commercial agent’s main function is to negotiate for the principal, they can also perform other tasks provided that such tasks do not threaten their role or independence.48

The 1993 Regulations only apply to agents involved in the sale or purchase of goods.49 Agents concerned solely with the marketing of services are therefore unprotected following the Scottish case of Lloyd Gailey v Environmental Waste Control.50 Where the agent is concerned with the sale or purchase of goods and services it seems that protection will depend on which is the more important element of the agency.51 On this question, the debate is now linked to the discussion over the Schedule following Lloyd Gailey v Environmental Waste Control52 and Crane v Sky-in-Home Services Ltd and Others.53

Specific classes of agents are also excluded from the 1993 Regulations. Company officers acting for their companies, partners acting on behalf of partnerships and insolvency practitioners are not commercial agents,54 and the activities of unpaid agents, agents acting on commodity exchanges and Crown agents are also excluded.55

7.1.1.3 The Schedule

The 1993 Regulations also exclude agents whose activities as commercial agents may be regarded as ‘secondary’.56 The Schedule to the 1993 Regulations contains guidelines to indicate whether the activities of an agent may be regarded as ‘secondary’,57 but the relevant provisions are complex and awkwardly drafted. Paragraph 1 provides that ‘the activities of a person as a commercial agent are to be considered secondary where it may reasonably p. 216be taken that the primary purpose of the arrangement with his principal is other than as set out in paragraph 2’. An arrangement falls within para 2 if:

(a)

the business of the principal is the sale or purchase of goods of a particular kind; and

(b)

the goods are such that:

(i)

transactions are normally individually negotiated and concluded on a commercial basis; and

(ii)

procuring a transaction on one occasion is likely to lead to further transactions in those goods with [the same] customer … or to transactions in those goods with other customers in the same geographical area or among the same group of customers

that accordingly it is in the commercial interests of the principal in developing the market in those goods to appoint a representative to such customers with a view to the representative devoting effort, skill and expenditure from his own resources to that end.

Paragraph 3 then lists a number of factors which are indicators that the arrangement falls within para 2 (so that activities under it are not ‘secondary’), and para 4 lists a number of factors which indicate that the arrangement falls outside para 2 (so that activities under it are ‘secondary’), including that promotional material is supplied direct to customers and that customers normally select goods for themselves and simply place orders through agents.

Finally, para 5 of the Schedule provides that the activities of consumer credit agents and mail order catalogue agents for consumer goods are generally to be regarded as ‘secondary’.

Pausing briefly, it is submitted that the result in Parkes v Esso might have been reached on the basis that, applying the test contained in the 1993 Regulations, the agency activities in that case were ‘secondary’. Procuring a sale of petrol on one occasion is not ‘likely to lead to further transactions in those goods with the same customer’ or other customers in the same area or group, and such transactions therefore fall outside para 2. In contrast, where an agent is appointed to sell (say) double glazing, their activities ought not to be regarded as secondary on this basis. Although a contract with an individual customer may not lead to ‘repeat orders’ from that customer, it often will lead to orders from other customers in the same area.58

The Schedule has been criticised both doctrinally59 and judicially.60 It is however beyond the scope of this work to explain the problems with it.61

7.1.1.4 Territorial scope

One objective of the Directive was to ensure that commercial agents were granted equal protection throughout the EU. Unfortunately, the 1993 Regulations contain provisions restricting their territorial scope, which give rise to a number of difficulties, and which may result in there being odd gaps in the protection of agents. As originally drafted, the text only applied (a) in relation to the agent’s acts in Great Britain, and (b) provided that the parties had not chosen to apply the law of another EU member state. A loophole was thus p. 217created whereby if the parties chose English law to apply to a contract where the agent acted outside Great Britain, the agent could be unprotected.62 An agent acting within Great Britain might also be unprotected if the parties chose to subject their contract to the law of another member state which had a similar territorial restriction. Following criticism by the European Commission, the 1993 Regulations were amended in 1998.63 However, the amended regulations only partially resolve the difficulty. They apply (a) where the contract is governed by the law of any part of the United Kingdom, to the agent’s activities in Great Britain and (b) where the agent acts in another member state and the parties have chosen to have their contract governed by the law of England and Wales or Scotland, provided that the law of that member state permits such a choice. The 1993 Regulations also provide that where the agent’s activities are in Great Britain and the contract provides for it to be governed by the law of another member state, the court shall apply the law of that member state. However, this may still leave the agent unprotected if the law of the relevant member state is limited to activities of agents within its territory. A simpler solution would have been to provide that the 1993 Regulations should apply regardless of the place of the agent’s activities, whenever the agency contract is governed by the law of part of Great Britain.64 The matter is further complicated by the fact that they ‘do not always fit neatly with the … Rome I Rules on the Law Applicable to Contractual Obligations’.65

Although the 1993 Regulations give significant rights to commercial agents, they do not prescribe the whole content of commercial agency agreements. In particular, the duties imposed on commercial agents by the general common law and equity continue to apply. Moreover, many important agency arrangements are not covered by the 1993 Regulations. It will therefore be necessary to consider the rights and duties of agents both at common law and under the 1993 Regulations.

7.2 Rights of the agent

The agency relationship is recognised as a fiduciary one. As a result, several duties are cast on the agent by the general law. In contrast, the general common law gave the agent relatively few rights. It may be that, in some cases, the principal could owe reciprocal fiduciary duties to their agent, in the same way that it has been tentatively recognised that an insurer may owe a duty of good faith to an insured, corresponding to the insured’s duty.66 However, such duties are not generally recognised at present and the agent’s rights p. 218must therefore generally depend on the contract, if any, between them and the principal. Commercial agents protected by the 1993 Regulations enjoy significantly greater rights.

7.2.1 Agent’s rights at common law

Apart from any particular rights conferred on the agent by the contract of agency, the common law recognises three general rights to remuneration, indemnity and a lien.

7.2.1.1 Remuneration

An agent is only entitled to remuneration if that has been agreed with the principal.67 However, even if there is no express agreement that the agent should be paid for their services, the court may imply a term giving them a right to remuneration. Such a right will be implied where the agent is acting in the course of a profession or business and will be more readily implied where the agent has performed their services.68 It will be rare that an agent acting in a commercial context will agree to act gratuitously.69

A right to payment will be implied on the same basis on which terms are generally implied into contracts. Thus, no term can be implied where that would contradict the express terms of the contract and it will only be done if absolutely necessary.70 Where a right to payment is implied, the agent will be entitled to receive a reasonable sum for their services.71 If the agency agreement provides for the agent to be paid a sum to be fixed at the principal’s discretion, the court cannot imply a right to be paid a reasonable sum,72 unless the principal is trying to play a ‘dirty trick’ on the agent.73

The agent is only entitled to receive remuneration in accordance with the terms of the agency contract. The contract may entitle the agent to receive a retainer. Alternatively, the agent may be employed to achieve a specified task, for instance, to sell a particular item of property. In that case the agent only becomes entitled to remuneration when the specified event occurs.74 Moreover, in such a case the agent is only entitled to remuneration if they have been the ‘effective cause’ of the event they were employed to bring about, unless the contract provides otherwise. Although there are a number of cases in which the question whether the agent has been the ‘effective cause’ of an event has been considered, there is no judicial definition of ‘effective cause’, and it will be a question of fact in each case p. 219whether the agent has earned their commission.75 In Coles v Enoch76 A was employed to find a tenant for P’s property. While he was describing the premises to an interested party, T overheard him and enquired about the premises. A gave T only a general description of their location, but T found the premises himself and made an offer direct to P which P accepted. A’s claim for commission failed as he had not been the direct cause of T taking a lease of the premises. In general, it seems that the agent will lose their right to commission if some event breaks the chain of causation between their actions and the event on which payment of commission depends. In Coles v Enoch the agent’s withholding of the full address broke that chain.77 In estate agency contracts, the effective cause is usually the sale of the property.78

In several cases the question has arisen whether the principal may prevent the agent from earning the agreed commission. The agent may be able to claim damages if there is an express or implied term of the contract that the principal may not prevent or hinder them earning their commission, but it seems that the courts will generally be reluctant to imply such a term, particularly where its effect would be to restrict the principal’s right to deal with their property, or where the contract is unilateral.79 Thus, in Rhodes v Forwood80 an agent failed in a claim for damages where the principal closed down his business before the expiry of the term of the agency contract.81

In the leading case of Luxor (Eastbourne) Ltd v Cooper,82 estate agents were instructed to sell two cinemas. Commission of £10,000 was payable on a sale and the agents introduced a buyer, but the owners decided not to proceed. The agents claimed damages for breach of an implied term that the owners should not refuse to sell to a buyer introduced by the agents. The House of Lords refused to imply such a term. A term can only be implied to give business efficacy to the contract; here no such term was necessary. The House seems to have been influenced by the scale of the commission payable on a sale: ‘A sum of £10,000 (the equivalent of the remuneration of a year’s work by the Lord Chancellor) for work done in a period of eight or nine days is no mean reward and is one well worth a risk.’83 The agents were therefore held to have assumed the risk that the sale would not be completed.

However, a term was implied in Alpha Trading Ltd v Dunnshaw-Patten.84 The agents there were employed to arrange a contract for the sale of a quantity of cement. A contract was concluded, and the principals deliberately broke it to take advantage of a rising market. The Court of Appeal felt that this was a risk which the agents had not agreed to bear. The implication of a term was commercially necessary to prevent the principal ‘playing a dirty trick on the agent’.85 Without such a term, the court felt, commercial agency arrangements would be unworkable. The court distinguished the earlier case of p. 220French & Co v Leeston Shipping Co Ltd,86 where the House of Lords had refused to imply a term which would have prevented a shipowner selling the ship during a charterparty: such a term would have restricted the principal’s right to deal freely with its property. The sole restriction on the principal on the basis of preventing them from playing ‘a dirty trick on the agent’ was recently confirmed in Barton v Morris.87

The agent is only entitled to remuneration if they act within the scope of their authority. If they act outside their authority, or without authority, for instance by selling property at a lower price than instructed, they are not entitled to commission, even though the principal may be bound by the transaction. It also seems that an agent who has performed their authorised task will nevertheless lose their right to commission if they commit a serious breach of any of their duties as agent.

7.2.1.2 Indemnity

All agents, whether acting under an agency contract or not, are entitled to be reimbursed expenses and indemnified against expenses incurred in the course of performing their duties.88 Where the agency is contractual the indemnity will be an implied (or express) term of the contract; where there is no contract, the agent will still be entitled to an indemnity, but the basis will be restitutionary. As a result, a non-contractual agent is only entitled to be indemnified against expenditure necessarily incurred on the principal’s behalf and cannot claim reimbursement for payments the principal would not have been obliged to make.89 In general, the indemnity only covers expenses and liabilities incurred whilst the agent is acting within the scope of their actual authority;90 but an unauthorised agent is entitled to an indemnity if their actions are ratified, and an agent of necessity may also claim indemnity where the requirements for agency of necessity are fulfilled.91

Where the agency is contractual, the contract may extend or restrict the agent’s right to indemnity. Alternatively, the agent’s right to indemnity may be restricted by customary implied term. Thus, for instance, in the absence of an express right in the agency contract, an estate agent is not entitled to reimbursement of any advertising costs.92

The right to indemnity covers all expenses and liabilities necessarily incurred by the agent whilst acting within their actual authority, including contractual and tortious liabilities, but does not cover any liabilities incurred due to the agent’s own fault, nor any liabilities in respect of acts which the agent knew to be unlawful or illegal.93 So, for instance, an auctioneer who sold goods on P’s instructions, ignorant of the fact that P had no right to dispose of them, was entitled to an indemnity against liability to the true owner.94

In certain circumstances the indemnity may extend to cover payments made by the agent even though there was no legal obligation to pay. In one case a firm of London solicitors acted as agents for a provincial firm and instructed counsel on behalf of their principals. Contrary to their principals’ instructions, they paid counsel’s fees. A barrister p. 221may not sue for their fees. However, it was held that the agents were entitled to be reimbursed the fees paid to counsel: there was strong moral and professional pressure to pay, even though there was no enforceable legal obligation.95 In this case the indemnity was contractual; a restitutionary indemnity might not cover such expenditure.

7.2.1.3 Lien

To protect their rights to remuneration or indemnity, an agent may be entitled to a lien over property belonging to the principal which is in their possession.96 A lien is a right to retain property by way of security until some debt is paid.97 The law recognises two types of liens: the general lien and the particular lien. A person entitled to a general lien is entitled to retain any property belonging to the debtor until the debt is discharged; a particular lien only entitles the beneficiary to retain an item of property until debts relating to that property or a related transaction are discharged. The law is reluctant to recognise rights to general liens and most agents are entitled only to a particular lien, but bankers, factors, solicitors and stockbrokers are amongst the agents entitled to a general lien.98 A commission agent, who buys on behalf of a principal but does not create privity between the principal and the seller, is entitled to a lien over the goods purchased by virtue of the Sale of Goods Act 1979, s 38(2).

The agent may exercise a lien over property belonging to their principal which comes into their possession in their capacity as agent by lawful means so long as it remains in their lawful possession. Generally, the right to a lien depends on possession so that it is lost if the agent voluntarily parts with the property.99 However, constructive possession will suffice, so that the agent may exercise a lien over goods covered by a bill of lading in their possession, or goods held by a bailee if the bailee attorns to the agent.100 The lien is not lost if the principal recovers the goods by a trick, and if the agent releases the goods subject to an agreement that they are held for their benefit, the lien is preserved. This commonly happens when banks acting in documentary credit operations release goods to their clients under a trust receipt.101 The agent will also lose their lien if their conduct indicates an intention to waive it,102 and it may also be excluded by an express term in an agency contract.103

If the agent is entitled to a lien, they take the property subject to any existing interests in it, but the lien is good against the principal and all persons claiming an interest in the property through the principal. The lien gives an immediate right to possession, so that the agent can sue the principal, or anyone else, for wrongfully removing the property, and the right to possession will allow the agent to sue a third party for negligent damage to the property.104

7.2.2p. 222 Agent’s rights under the Commercial Agents (Council Directive) Regulations 1993

Where the 1993 Regulations apply, they modify the agent’s right to commission and give them certain other rights including, in particular, rights to be supplied with information. But more significantly they impose a duty of good faith on the principal to which we turn.

7.2.2.1 Good faith of the principal

The 1993 Regulations require the principal in their dealings with the agent to act ‘dutifully and in good faith’.105 Given the aforementioned position at common law that the principal is the weaker party, in requiring such a duty of the principal, the 1993 Regulations have been said to ‘break a certain amount of new ground in English law’.106 The introduction predates the revival of the discussion in general contract law following Yam Seng v ITC Ltd.107 The content of this duty has been developed by case law, first timidly, by analogy to employment law, it nevertheless shows a purposive understanding of good faith,108 and has been held to involve a general duty to cooperate with the agent.109

The 1993 Regulations state that it requires ‘in particular’ that the principal provide the agent with ‘the necessary documentation relating to the goods concerned’ and obtain for the commercial agent ‘the information necessary for the performance of the agency contract’.110 This requires the principal to supply the commercial agent with information relating to their business, and to transactions, which principals might otherwise regard as confidential. For instance, the principal must notify the commercial agent within a reasonable time if they anticipate that the volume of transactions will be significantly lower than the agent could normally have expected,111 and notify the commercial agent within a reasonable time of their acceptance, refusal or non-performance of any transaction introduced by the agent.112 The parties cannot derogate from the duty of good faith.113 Professor Watts correctly remarks that the obligation was certainly more than what principals had been used to.114

7.2.2.2 Remuneration

In the absence of agreement as to their remuneration, the commercial agent is entitled to whatever remuneration is customary for agents dealing in the goods the subject of their commercial agency in the place in which they carry on their activities and, in the absence of any custom, to reasonable remuneration ‘taking into account all aspects of the transaction’.115 This seems to add little to the common law rules.

Further, detailed provisions apply where the commercial agent is remunerated wholly or partly by commission, defined as ‘any part of the remuneration of a commercial agent p. 223which varies with the number or value of business transactions’.116 The 1993 Regulations only provide rules for commissions but do not prevent the parties from agreeing other forms of payments.117

The commercial agent is entitled to receive commission on transactions concluded during the period of the agency ‘as a result of his action’.118 This is effectively the same as the common law rule. However, the commercial agent is also entitled to commission on ‘repeat orders’ from third parties they have introduced as customers ‘for transactions of the same kind’.119 In addition, an agent who has exclusive rights to a specific area or group of customers is entitled under the regulations to commission on any transaction entered into with a customer from that group or area during the agency.120 At common law an agent with exclusive rights would be entitled to damages for breach of contract in such a case; the measure of damages would prima facie be the amount of commission lost.121 Whether the agent does have such exclusive rights will depend on the construction of the agreement. Further provisions entitle the commercial agent to commission on transactions entered into after termination of the commercial agency; these are considered below.

We have seen that, at common law, difficult questions of construction may arise where there is a dispute as to whether commission has become due to the agent or where the principal seeks to deny payment of commission following a breach of the contract with the third party.

The 1993 Regulations fix the point at which commission becomes due to the commercial agent. The parties cannot derogate from these provisions to the prejudice of the commercial agent. They are free to agree that commission becomes due when:

(a)

the principal has executed the transaction;

(b)

the principal should, according to his agreement with the third party, have executed the transaction; or

(c)

the third party has executed the transaction.122

but commission becomes due at the latest ‘when the third party has executed his part of the transaction or should have done so if the principal had executed his part … as he should have’.123 It seems clear that ‘execute’ here means ‘perform’.124 Thus, the principal cannot deprive the commercial agent of commission by defaulting on their contract with the third party.125 However, no commission is payable where the contract between principal and third party is not performed ‘due to a reason for which the principal is not to blame’.126 Any commission already paid in such a case is refundable. This is a difficult provision. p. 224‘Blame’, in the sense of ‘fault’, is not normally relevant to liability for breach of contract in English law.127 A contract may be terminated without ‘fault’ on the principal’s part in a number of ways. It seems clear that the principal should not be liable for commission where the contract with the third party is frustrated. What, however, if the contract is lawfully terminated by the principal due to the third party’s breach, or in circumstances permitted by the contract with the third party but not amounting to breach? It seems that, although in such cases they are responsible for termination, and therefore for non-performance, the principal could be said not to be to ‘blame’ so that no commission would be payable. It might also be argued that the principal is ‘not to blame’ where non-performance results from circumstances which amount to a breach by the principal but without fault on their part; however, it seems more likely that the intention is that commission is payable wherever non-performance is a result of the principal’s breach.128

Further provisions fix the date when commission due to the commercial agent should be paid,129 require the principal to provide the commercial agent with a statement of commission due and allow the commercial agent to demand information and have access to the principal’s books to check the amount.130

7.2.2.3 Commissions after termination of the commercial agency relationship

The commercial agent is also entitled to be paid on commissions concluded after termination,131 but the language is somewhat nebulous. The text provides that the commercial agent is entitled to commission if either the transaction is ‘mainly attributable to the commercial agent’s efforts’ and was entered into ‘within a reasonable period’ after it was terminated132 or the customer’s order has reached the commercial agent or the principal before the commercial agency agreement was terminated, but the order was accepted and the contract made after the commercial agency agreement had been terminated.133 It has been clarified in Tigana Ltd v Decoro Ltd134 that the requirements in reg 8a are cumulative and that such payments do not overlap with either of the two termination payments.

The right to commission can only be extinguished in precise circumstances set out in reg 11: if and to the extent that it is established that the transaction between the principal and the third party will not be ‘executed’135 and that the principal is ‘not to blame’ for the lack of performance.136

7.3 Duties of the agent

Any contract between principal and agent may expressly or impliedly impose specific duties on the agent. However, even in the absence of a contract, the agent will be subject as a matter of law to several duties which arise either under the general law or under the 1993 Regulations, where they apply. Many professionals, including solicitors, estate agents p. 225and agents operating in the financial services industry are also required to comply with codes of conduct promulgated by professional and/or self-regulatory bodies. The duties imposed on all agents by the general law overlap to a considerable extent with the duties imposed on commercial agents by the 1993 Regulations on the one hand, and some of the self-regulatory rules applicable to professionals on the other. The precise relationship between them has been clarified on most issues.

7.3.1 Duties under the general common law

An agent is subject to several duties imposed by the general law as legal incidents of the agency relationship. Where the agency is contractual, some of the duties may take effect as implied terms in the contract or be modified by its express terms. However, certain duties are imposed on the agent automatically; in particular:

The position of principal and agent gives rise to particular and onerous duties on the part of the agent, and the high standard required from him springs from the fiduciary relationship between his employer and himself. His position is confidential. It readily lends itself to abuse. A strict and salutary rule is required to meet the special situation. The rules of English law as they now exist spring from the strictness originally required by Courts of Equity in cases where the fiduciary relationship exists.137

Although the fiduciary duties imposed on agents arise in equity it seems that their scope may be determined by reference to the terms of any underlying contract between principal and agent138 and the surrounding circumstances.

7.3.1.1 The duty to obey instructions

An agent is under a general duty to obey the instructions of their principal and must do so with care and diligence.139 However, a distinction must be drawn between contractual and gratuitous agencies. An agent acting under a contract is contractually obliged to perform the duties undertaken under that contract and is liable for breach of contract if they fail to perform.140 Of course, where the contract is unilateral, it may be that the agent has not undertaken to do anything. However, if the agency is non-contractual, the agent is generally under no duty to act, so that they cannot be liable if they simply do nothing, unless their failure to act gives rise to liability in tort.141 There is generally no liability in tort for negligent omissions, but it has been suggested that liability might arise in certain situations. For instance, suppose that A agrees to insure property on P’s behalf, but then decides not to do so. If they fail to inform P and P, believing that A has arranged insurance, also fails to insure, can A be held liable to P in negligence if the property is damaged or destroyed? P’s loss is purely economic. It appears that liability may be imposed on the basis of Hedley Byrne & Co Ltd v Heller & Partners Ltd,142 for loss caused by a failure to warn, where the defendant has voluntarily assumed a responsibility to warn, and that such an p. 226assumption may be found in cases where there is a particularly close relationship between defendant and plaintiff.143 This is the case for the relationship between the agent and their principal.144

A contractual agent is under a duty to obey the instructions of their principal given during the course of the agency as to the performance of their tasks, although a professional agent may be under a duty to warn the principal of any risks or dangers inherent in those instructions. However, an agent is not obliged to obey instructions which require them to act illegally,145 and the duty of a professional agent to obey instructions may also be limited by rules of professional conduct.

If the agent’s instructions are ambiguous, they will not be liable if they act on a reasonable, that is, a bona fide interpretation of them.146 More recently, the ability for the agent to bind the principal on reasonable interpretation has been somewhat reduced. In Patel v Standard Chartered Bank147 Toulson J stated that ‘the critical question is not whether the interpretation is reasonable but whether he behaved reasonably in acting upon that interpretation’.148 The existing duty to seek clarification of the instructions is therefore crucial.149

The duty of obedience means that the agent must not exceed their authority.150 This applies equally to contractual and gratuitous agency.

7.3.1.2 The agent must exercise reasonable care

All agents owe a duty of care to their principals which requires them to exercise reasonable care in the execution of their authority. Where the agency is non-contractual, this duty of care arises only in tort. However, where the agency is contractual, a term will normally be implied into the contract requiring the agent to act with reasonable skill and care. Such a term is implied by statute where the agent performs a service and acts in the course of a business,151 but a similar term is implied at common law. A contractual agent is therefore subject to concurrent duties in contract and tort,152 unless either is modified or excluded p. 227by the express terms of the contract, and the principal may choose to sue in contract or tort in order to benefit from the procedural advantages of either form of action.153 It is not clear whether there is a separate third duty of care imposed as a result of the agent’s fiduciary position.154

The agent’s contractual and tortious duties of care may be limited or excluded by a term in a contract of agency. However, clear words are needed to exclude liability for negligence. In Henderson v Merrett Syndicates Ltd155 the contracts between names at Lloyd’s and the agents who managed underwriting business on their behalf contained a term giving the agents ‘absolute discretion’ in respect of underwriting business. It was argued that this excluded both contractual and tortious duties of care. However, the House of Lords held that it merely defined the agents’ authority but did not exclude their duties to act with reasonable care in exercising that authority. Any term which does purport to exclude either the duty of care or to exclude or limit liability for its breach is in any case subject to the Unfair Contract Terms Act 1977 (UCTA).156

The standard of care required is what is reasonable in all the circumstances of the case. This will vary according to the facts of the particular case. For instance, if an agent holds themselves out as a member of a profession, they will be expected to show the standard of skill and care reasonably to be expected of a reasonably competent member of that profession.157 Following Chaudhry v Prabhakar,158 even a gratuitous agent owes a duty to their principal to act with reasonable skill and care. In this instance, P, who had recently passed her driving test, wished to buy a car. Being inexperienced, she asked A, a friend, to find her a suitable car, specifying that it must be one which had not been in an accident. A, who was not a mechanic and acted purely gratuitously, found and recommended a one-year-old Volkswagen Golf which was being sold by a firm of panel-beaters and paint sprayers. P bought the car and only later found it had been badly damaged in an accident. She sued A, who sought to rely on the old cases as to the standard of care required of a gratuitous agent. The Court of Appeal held that the standard required of any agent is such as is reasonable in all the circumstances. In deciding what care is reasonable, the court would take into account the fact that the agent was paid or unpaid, the degree of skill possessed or claimed by the agent, and the degree of reliance placed on the agent by the principal. On the facts of this case A had failed to exercise reasonable skill and was liable to P.

7.3.1.3 Personal performance

A principal chooses an agent to carry out some tasks on their behalf. The personal characteristics of the agent may well be a reason for being chosen; furthermore, in every case the principal places trust in the agent: ‘confidence in the particular person employed is at the root of agency’.159 The agency relationship is therefore a personal one and the law requires that the agent perform personally so that, generally, the agent may not delegate performance of their duties to someone else. This is often expressed in the Latin maxim delegatus non potest delegare. However, a more accurate statement of the law would be that an agent is not permitted to delegate performance of their duties unless delegation is authorised by the principal.

p. 228In fact, delegation is quite common. In particular, in corporate business structures, where authority to act on behalf of the company is vested in the board of directors, the directors will generally have authority to appoint sub-agents, such as senior executives, who in turn will generally have authority to appoint sub-sub-agents as employees of the business with some agency function. As a result, a long chain of representation may be built up. To take a simple example, a check-out operator working in a supermarket may be regarded as an agent of the company when concluding contracts with customers. They will probably be appointed by the branch manager, who in turn will be an agent of the company appointed by an area manager. The area manager will be an agent of the company appointed by a more senior employee, say the retail sales director, who will, in turn, be an agent appointed, let us say for the sake of argument, by the board of directors who themselves are agents of the principal, the company.

In the example just given, there is little difficulty in concluding that: (a) each act of delegation was authorised; (b) each agent in the chain is an agent of the company; and (c) the company is therefore bound by the acts of each agent in the chain insofar as they are covered by actual or apparent authority. In other situations, the analysis may be less straightforward, and in cases of delegation it will be necessary to consider (i) the consequences of delegation for the relationship between principal and agent, (ii) whether the principal is bound by the actions of the sub-agent and, (iii) what, if any, relationship is created between the principal and sub-agent. The answers to these questions will depend on whether the agent’s delegation was authorised. Delegation will be a breach of the agent’s duty to their principal unless covered by actual authority. Moreover, unless the agent had actual or apparent authority to delegate, the principal will not be bound by the acts of the sub-agent.

As usual, as between principal and agent, actual authority is paramount. The principal may authorise delegation expressly or impliedly; and authority may be implied on the basis of necessity on the facts of a particular case, as a result of the conduct of the parties, the nature of the transaction to be carried out or on the basis of a custom in a particular trade.160 Thus, for instance, it is customary for provincial solicitors to appoint London agents to represent them in High Court litigation in London.161 An agent also generally has authority to delegate the performance of purely ministerial acts which require no exercise of discretion, such as the service of notices to quit.162 Where a company is appointed agent, it must act through human agents and so may delegate performance to its employees.

A much more difficult question, even where delegation is authorised, is: what relationship is created between principal and sub-agent? To put it another way, if P appoints A to act as their agent and A, with authority, delegates performance of some or all of their tasks to S, is S the agent of P, or the agent of A, or the agent of both P and A? The answer to this question will be crucial for determining the rights and liabilities of the parties against each other. The question has arisen in a series of recent cases concerned with the operation of the Lloyd’s insurance market, where it is normal for agents to act through sub-agents for certain purposes.163 The key question is whether A is authorised to create privity between P and S. It does not follow that because P has authorised A to appoint a sub-agent, S, with power to create privity between P and third parties with whom S deals, that P has also p. 229authorised A to create privity between P and S.164 In de Bussche v Alt165 P employed A to sell a ship in India, China or Japan. A had no offices in Japan and, being unable to sell the ship, obtained P’s authority to appoint S, who did have a presence in Japan, to sell the ship. The Court of Appeal held that the delegation was authorised and that it had the effect of creating privity between P and S with the result that S owed the duties of an agent to P.

Certain dicta of Thesiger LJ in de Bussche v Alt166 appear to suggest that wherever delegation is authorised the agent creates privity of contract between principal and sub-agent. However, it was found in de Bussche that A was given express authority to create privity between P and S. Subsequent cases indicate that de Bussche should be regarded as an exceptional case, dependent on its special facts, and that in the absence of clear evidence, the courts will generally be slow to find that A was authorised to create privity between P and S. The more common interpretation will be that A is authorised to appoint an agent to act on A’s behalf.167 There will then be no privity of contract between P and S, nor will there be a principal–agent relationship between them. Instead, A will remain liable as agent, including for the acts of S, their own agent and will be liable to account to P for money received by S.168 S will not be entitled to the rights of an agent against P, and will look to A for payment. Thus, in Prentis Donegan & Partners Ltd v Leeds & Leeds Co Inc169 the shipowners P instructed A, a firm of New York insurance brokers, to obtain a quotation for renewal of insurance. A in turn instructed S, a firm of Lloyd’s brokers, to obtain a quotation and, in due course, instructed S to obtain cover. Rix J held that although delegation was authorised, A had no authority to create privity between P and S, with the result that A was liable to pay S commission. It made no difference that S was a Lloyd’s broker and only a Lloyd’s broker could do business at Lloyd’s, so that P and A must have known that delegation would be necessary. Rix J emphasised that privity between P and S would arise only in an exceptional case and that:

There are good commercial reasons for such a rule. It emphasises the importance of the contractual chain. It is natural for each agent in the chain to give credit to the party known to him, rather than to someone perhaps unknown. It reflects an agent’s general desire to keep his client to himself. It reflects the professional or semi-professional relationships of agents and sub-agents.170

The absence of a direct agency relationship between S and P does not mean that S owes no duties to P. S may still owe a duty of care to P in tort in accordance with general principles of the law of negligence. Thus, in Henderson v Merrett Syndicates Ltd171 Lloyd’s ‘names’ sued the agents who managed the syndicates of which the names were members. In some cases, the names were represented by ‘members’ agents’ who placed business, on behalf of the names, with syndicates managed by separate ‘managing agents’. The terms of the relevant contracts made it clear that the managing agents were the agents of the members’ agents who appointed them. There was thus no direct relationship between the names and the managing agents. Nevertheless, it was held that the managing agents performed a professional service on behalf of the names who, to their knowledge, relied on them to p. 230exercise skill and care, and that they therefore owed a duty of care to the names in accordance with the principle in Hedley Byrne & Co Ltd v Heller & Partners Ltd.172 This is striking because the names’ losses in this case were purely economic. However, the House of Lords emphasised that there is no absolute rule that a sub-agent will always owe a duty of care to the principal.173 It may be easier to find a duty of care where the sub-agent’s activities cause injury to P or damage to their property.

In addition, even if there is no direct agency relationship between P and S, it may still be that S owes fiduciary duties to P so that, for instance, S will be liable to account to P if they make a secret profit from their position.174 Moreover, as Rix J recognised in Prentis Donegan v Leeds & Leeds,175 even if privity is established between P and S, that does not exclude the possibility that there may also be a contractual relationship between A and S.176

One final point remains to be considered. Even if an authorised delegation by A to S does not create privity between P and S, the contract between A and S would appear to be one whose object is to confer a benefit on P. It may therefore be arguable that P can enforce performance of S’s undertaking by virtue of the Contracts (Rights of Third Parties) Act 1999. However, where the contract does not expressly provide that it is to be enforceable by a third party beneficiary, the beneficiary is not entitled to enforce ‘if on a proper construction of the contract it appears that the [contracting] parties did not intend the term to be enforceable by the third party’.177 The Law Commission took the view that, applying this test, a third party beneficiary would not be entitled to enforce a contract term where the contracting parties had deliberately arranged their relationships by means of a chain of contracts, where direct enforcement would subvert that chain.178 This appears to be much the same reasoning used by Rix J in Prentis Donegan v Leeds & Leeds in the passage quoted above, suggesting that, in the absence of special circumstances, the position will continue to be that even in cases of authorised delegation there is no direct contractual relationship between principal and sub-agent.

7.3.1.4 The agent’s fiduciary duties

The relationship between principal and agent has traditionally been regarded as being a fiduciary one, under which the agent owes to their principal fiduciary duties, similar to those owed by a trustee to the beneficiaries of the trust. These duties apply to both contractual and gratuitous agents.179 The concepts of fiduciary relationships and fiduciary duties were developed by the courts of equity and originally applied to trustees. They were subsequently extended, and similar duties were applied to other, analogous relationships including those involving agents and company directors.180 In the past, there has been a tendency to treat all fiduciaries of all types as being subject to similar duties. This approach has now been reconsidered. The duties of a fiduciary may depend on the circumstances of p. 231the individual case.181 In particular, it is now recognised that the imposition of fiduciary duties may not always be appropriate where the parties are in a commercial relationship.182

In general, fiduciary duties of loyalty are imposed wherever the relationship between X and Y is such that X has a legitimate expectation that Y will act in X’s interests and not use their position in a way which is adverse to X’s interests.183 This was explained by Millett LJ in Bristol and South West Building Society v Mothew in a passage subsequently approved by the Privy Council:184

A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. They are the defining characteristics of the fiduciary.185

Fiduciary duties arise independently of any contract. They are imposed on the fiduciary as a matter of law by virtue of the position of trust that they hold.186 Traditionally, they have been applied strictly—partly, at least, as a deterrent, to prevent fiduciaries being tempted to seek to profit from their position.187

The same approach has tended to be applied to agents. An agent is entrusted by their principal with considerable power to affect their principal’s legal position and has therefore been regarded as owing their principal fiduciary duties of loyalty. These duties are imposed on the agent as an incident of their position as a matter of law.188 According to Lord Cottenham, in 1848, the agent was regarded as occupying a position ‘quasi a trustee for [the] particular transaction in which he is engaged’,189 and, indeed, many of the rules concerning the duties of the agent as fiduciary have been developed in cases concerned with other fiduciaries, such as trustees and company directors. The duties have therefore been applied strictly so that an agent may be liable for breach of duty even though they acted in good faith and produced a benefit for their principal.190

However, ‘the law concerning an agent as fiduciary … has developed considerably since the time of Lord Cottenham’.191 Some of the older cases are however now to be treated with p. 232caution, as imposing liabilities stricter than may be necessary in some cases of principal and agent. Agency itself is a broad and flexible concept, and it may well be that the circumstances of individual cases justify the imposition of obligations of differing degrees of strictness, according to the particular relationship between the parties. Thus it seems that the fiduciary duties imposed on an agent may be less stringent where the agency is primarily a commercial relationship.192 It has been said that not all agents are fiduciaries,193 and that even where an agent is a fiduciary the scope and extent of the duties owed by the agent to the principal may be defined or modified by any contract between the parties: ‘agency is a contract made between principal and agent … like every other contract, the rights and duties of the principal and agent are dependent upon the terms of the agreement between them, whether express or implied’.194 It must also be emphasised that, even where the agency is fiduciary, it does not follow that all of the agent’s duties are fiduciary duties, and the agent may be subject to duties which arise in contract and/or tort.195

It therefore now seems that there may be considerably more flexibility in the application of fiduciary duties to agents than was thought in the past. Conversely, fiduciary duties may be imposed in the context of relationships other than agency in an appropriate case. Distribution and franchising agreements do not ordinarily give rise to fiduciary relationships but may expressly impose similar duties on persons who are not agents or fiduciaries in the strict legal sense. Finally, as fiduciary duties are imposed by law, this means that when they start and end ‘may or may not coincide with any contract between the parties’.196

Notwithstanding what has been said above, as a general rule an agent will owe certain, fairly well defined, duties of loyalty to his principal, as indicated in the statement of Millett LJ quoted above. Different writers classify the agent’s duties in different ways but we will examine the agent’s duties under four headings:

1.

the duty to avoid conflicts of interest;

2.

the duty not to make a secret profit;

3.

the duty not to take a bribe; and

4.

the duty to account.

These are not water-tight classifications: the first three headings overlap to a considerable degree and some cases may be regarded as falling under more than one heading. Thus, for instance, the duty not to make a secret profit may be seen as an aspect of the more general duty to avoid conflicts of interest, whilst a bribe is merely a particular form of secret profit.

p. 233There is further flexibility in the remedies which may be awarded in the event of a breach of the agent’s duties. Where the agent is in breach of their duty, the principal may have a choice of a wide range of remedies—proprietary or personal, at common law or in equity. Thus, in particular cases, it may be possible to obtain damages in tort or for breach of contract; an account of profits; rescission of a contract; an injunction; a charge over property; an order for transfer of property; a declaration that property is held on constructive trust; or other orders. The availability of a range of remedies offers flexibility, which may well be desirable given the wide range of fiduciary relationships which may exist, both in general and within the scope of agency, and the range of possible situations which may amount to a breach of duty. However, flexibility in the law is always achieved at the cost of certainty, and in a commercial context such uncertainty is never satisfactory.

One particular question which is particularly difficult is that of the nature of the principal’s remedy, whether it is personal or proprietary. The question whether the remedy is proprietary becomes crucial if the agent has become insolvent, for then a proprietary remedy will give the principal priority over other creditors in the insolvency, whereas a purely personal remedy will place their claim on the same footing as those of other creditors, and it can be argued that the nature of the remedy ought therefore to take account of the policy question whether the principal should gain priority over other creditors. Although in the context of a bribe it is now clear that the remedy is proprietary,197 for the duty to account, the English courts have been reluctant to develop a remedial constructive trust, which might be applied flexibly, taking account of such factors. It does seem, however, that the availability of a proprietary remedy may depend on the facts of the case.198 The courts may be reluctant to impose a trust on the agent where that would be incompatible with the commercial relationship between the parties, whereas it may be easier to establish that property is held on trust when it is transferred to the agent by the principal or a third party to be used for a particular specified purpose. In general, however, it seems that where the agent is guilty of breach of fiduciary duty, the principal is entitled to a proprietary remedy.

7.3.1.5 No conflict of interest (or duty of fidelity)

It is a rule of universal application, that no one, having [fiduciary] duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect.199

This rule can be seen as the basis of the agent’s other fiduciary duties, which are really only particular applications of this general rule.200 A breach may arise even if there is in fact no conflict: it is enough that ‘the possibility of conflict’ is present.201 The law requires the agent to avoid ‘a temptation to not faithfully perform his duty to his employer’,202 and with ‘strict honesty’.203

p. 234Two particularly important aspects of this rule occur in a commercial context where the agent is instructed to buy or sell property on behalf of the principal. There will be a breach if an agent, instructed to buy a property for the principal, then sells their own property to the principal,204 or if an agent instructed to sell then buys the principal’s property.205 In such a case there is clear potential for conflict, since a seller’s interest is to get the best possible price, whilst a buyer’s is to pay as little as possible. It is irrelevant that the agent in fact acted fairly and paid a fair price: they will be in breach of duty unless there is full disclosure to the principal of all relevant facts, and the principal consents to the transaction.206 The duty may continue even after the termination of the agency if the confidential relationship created by the agency continues, or if it gives the agent a special position of dominance over the principal and the transaction is connected to that relationship.207

The agent may not evade the rule by dealing with the principal through a third party. In McPherson v Watt208 an agent was instructed to sell property. He arranged for his brother to buy it for him. When the facts were discovered, the principal refused to complete the sale and the court refused to order specific performance on the grounds of the agent’s breach of duty. An agent will normally be unable to rely on an alleged custom sanctioning such deals, because the custom itself would be repugnant to the fiduciary nature of agency and so not be recognised by the court.209

Where the agent deals with the principal in breach of this duty, the principal may rescind the contract. Although delay will normally bar rescission, in this case time does not run against the principal until the breach is discovered, so that in Oliver v Court210 the principal was able to rescind 13 years after the transaction was concluded. Alternatively, the principal may affirm the contract. In that case, where A has bought property from P, A must account for any profit made on the deal, for instance where A has resold the property, on the basis that that profit should have gone to P. If A has sold property to P, P’s remedy depends on whether A already owned the property, or bought it specifically to sell to P. In the latter case, A must account for any profit. However, where the property is not bought specifically for resale, P may not seek an account but may claim damages for any loss they have suffered.211

The relationship between principal and agent may also give rise to a presumption of undue influence, so that if P makes a gift to A, the gift may be set aside unless A can show that no undue influence was exercised.212

A slightly different question arises where an agent acts for two principals whose interests conflict. This problem, which is increasingly common, was considered by the Privy Council in Kelly v Cooper.213 P and X, owners of two adjacent properties, instructed the same estate agent, A, to sell them. A showed both properties to a potential buyer, T, who agreed to buy X’s property. T then made an offer to P to buy his property. P was unaware that T had already agreed to buy X’s property and accepted the offer. When he discovered p. 235that T had already bought the adjacent property, P argued that had he known of that fact he would have been able to negotiate a higher price for the sale of his property since it was clear that T wanted to buy both. P therefore argued that A was in breach of duty (a) in failing to disclose to him the fact that T had already agreed to buy X’s property, and (b) in putting himself in a position where his duties to his two principals, P and X, could conflict, and claimed damages for the loss of the chance to negotiate a higher price. Clearly, A was in a difficult position since disclosing to P T’s purchase of X’s property would have been a breach of A’s duties to X. The Privy Council held that where an agent acts in pursuance of a contract the scope of the agent’s fiduciary duties is determined by the terms of the contract. Since it was well known that estate agents might act for more than one principal the agency contract here contained an implied term that the agent would be permitted to act for more than one principal, whose interests might compete, and to keep confidential information received whilst acting for other principals.214 On the facts the contract could not include an implied term precluding the agent’s power to act for other principals.

Kelly v Cooper is an important decision because such situations are common and are not restricted to estate agency. Such situations of conflict between the interests of different client-principals are likely to become increasingly common as professional firms become larger. For instance, it is well known that large accountancy firms may carry out audit work for clients who are in competition with one another. Since this is common knowledge it will readily be inferred that clients consent to them doing so, provided only that they keep confidential information received from each client in the course of their activities.215 Similar problems arise in the financial services industry, where an agent such as a stockbroker will often act for more than one principal, as the Privy Council expressly recognised. It may be argued that the decision in Kelly recognises the commercial reality of the situation. However, it comes close to denying the fiduciary nature of the agency relationship. The result could perhaps be explained on the basis that the claim for damages did depend on the terms of the contract, rather than the agent’s fiduciary duties; the result might have been different had the agent made a profit, for which he could be required to account, by virtue of any breach of duty. However, here the agent’s profit was the commission he received, and the Privy Council held that the agent would only be denied his commission if he acted dishonestly or in bad faith.216

7.3.1.6 The agent must not make a secret profit

It is ‘a broad principle of equity … that trustees or agents shall not retain a profit made in the course of or by means of their office’.217 The rule is strictly applied. It applies even to unpaid agents.218 It is irrelevant that the agent acted in complete good faith, that the principal suffered no loss, that the agent made a profit which the principal could not have made or that the principal actually benefited from the agent’s actions. ‘The liability arises from the mere fact of a profit having, in the stated circumstances, been made.’219 The stringency of the rule is illustrated by Boardman v Phipps220 where two representatives (described as p. 236‘self-appointed agents’) of a trust fund entered into negotiations, with the concurrence of the trustees, with a company in which the trust held shares. Using information acquired during those negotiations, and at considerable expense, they eventually acquired the majority of the shares in the company. The trust fund made a considerable profit on its shares as a result of their efforts; it had already turned down the suggestion that it should acquire the shares itself. Nevertheless, the representatives were held to be in breach of duty and were required to hand over their profits to the trust fund. The duty may be breached where the agent uses the principal’s property in order to make a profit. Similarly, there is a breach if A uses confidential information which they acquire in the course of their agency duties in order to make a profit for themselves.221 Some decisions seem to regard such confidential information as property belonging to the principal, although it is not clear if this is correct. In Boardman v Phipps the members of the House of Lords disagreed on this point, and the better view now is that confidential information is not property. Nor is it clear if the duty not to use confidential information should be regarded as an incident of agency or as arising separately. A similar duty is imposed on other persons who acquire information in confidence, and the better explanation seems to be that the imparting of information in confidence itself gives rise to a fiduciary duty of loyalty on the confidee not to use the information for his own benefit. If the confidee does use the information they are treated as using it properly, for the benefit of the confider.222 However, a duty to respect confidentiality will only be imposed where (a) the information has the ‘necessary quality of confidence’223 and (b) the information is imparted in circumstances importing an obligation of confidence.224 Where the recipient of the information is an agent, the very existence of the agency relationship will satisfy the second requirement so that, provided that the information is itself of a confidential nature, the duty to respect the confidence will be imposed. The agent must therefore treat as confidential information relating to their principal received during the course of their agency even if it is not imparted in circumstances which would otherwise give rise to a duty of confidence.

The duty to respect the confidentiality of information received during agency can continue beyond the termination of the agency.225 Thus, where an agent has acquired confidential information relating to their principal they may not subsequently use that information for their own benefit or for the benefit of other clients. However, the duty only restricts the use of information which is properly regarded as confidential, and not in the ‘public domain’. In an employment case, it was held that employees could not be prevented from using for their own benefit information which was readily available from public sources such as maps and telephone directories.226 The duty ceases if information which was originally confidential comes into the public domain.227

It seems that the agent’s duty not to make a secret profit is not limited to cases where the profit is made by use of the principal’s property or confidential information. The agent will be in breach if they make a secret profit out of their position, even though no property or information is used. In Hippisley v Knee Bros228 A was instructed to sell property for P. p. 237A placed advertisements on P’s behalf, and received a discount on the price, but charged P with the full cost. A was in breach of duty in keeping the discounts.229

An agent who makes a profit will be in breach of duty unless all the circumstances are revealed to the principal, and the principal consents to the agent retaining the profit.230 Where the agent breaches the duty, the principal may require them to account for the profit. The duty to account is personal. Where the profit is made by using the principal’s property, it seems that the principal’s rights are proprietary, so that the agent must hold the profit on constructive trust for the principal. The position in relation to profits made with information, or from use of position, is less clear. In Boardman v Phipps it was held that the agents held their profits on constructive trust. The principal may also obtain an injunction to restrain their agent making further use of confidential information. However, the agent’s duties arise in equity, and equity is sufficiently flexible to distinguish between agents acting fraudulently and those acting in good faith. In Hippisley v Knee Bros231 the court found that the agent had acted in good faith and so, although he was in breach of duty, he was allowed to keep his commission on the transaction. Similarly, in Boardman v Phipps232 the agents were allowed some payment for their expenditure.

7.3.1.7 The agent must not take a bribe

A bribe is a particular form of secret profit.233 It is defined as ‘a commission or other inducement which is given by a third party to an agent as such, and which is secret from his principal’.234 In this context, ‘bribe’ may not necessarily indicate corruption.235 Where A deals with T on P’s behalf, a bribe is therefore any kind of payment made by T to A, where T knows that A is P’s agent and the payment is kept secret from P.236 The law takes a particularly dim view of such payments:237 ‘Bribery is an evil practice which threatens the foundations of any civilised society’,238 and therefore gives P a wide range of rights against both T and A:

1.

P may dismiss A without notice.

2.

P may refuse to pay any commission due to A, or recover commission paid before discovering the bribe.

3.

P may rescind the contract with T.

4.

p. 238 P may claim damages in the tort of deceit for any loss caused by the bribe. T and A are jointly and severally liable for such damages.

5.

P may claim the amount of the bribe as money had and received from either T or A.239

In Lister v Stubbs240 it was held that the principal’s claim to recover the amount of the bribe was a purely personal, not a proprietary, claim, so that the bribe was not held on trust.241 As noted above, an agent who makes a secret profit from their position or by using their principal’s property generally holds the profit on constructive trust for their principal. The rule in Lister was therefore often criticised as allowing the agent to retain any profits made with the bribe and thus treating a dishonest agent more leniently than an honest one.242 In A-G for Hong Kong v Reid243 the Privy Council, having reconsidered the position, held that Lister was wrongly decided and should no longer be followed. Instead, it should be recognised that the agent holds the amount of any bribe paid to them on constructive trust for the principal so that the principal is entitled to claim the proceeds of the bribe and any profits made with it. The constructive trust arises automatically, by operation of law, as soon as the bribe is received by the agent. This approach was justified on the grounds that the agent should not be entitled to profit from their position, the bribe was money which should have been paid to the principal immediately on its receipt and, since equity looks on as done that which ought to be done, the bribe should therefore be regarded as the principal’s property in equity from the time of its receipt. However, whilst the decision in Reid may be applauded as providing a powerful remedy against corruption, the reasoning in the case is open to question.244 Moreover, one effect of the decision is that where the agent is insolvent the principal’s claim to the proceeds of the bribe will take priority over those of other creditors. According to the Privy Council, the agent’s creditors can be in no better position than the agent. However, this fails to address the difficult policy question of who should have priority in such a case.245 It has been suggested that the result could be avoided: a personal duty to account could extend to the proceeds of the bribe246 leaving a constructive trust to be imposed by the court as a remedy when it is just to do so.247

The distinction between the two is very important in terms of remedies. Where the principal makes a restitutionary claim for the amount of the bribe, there is no need to prove it caused them any loss. Where the agent who is bribed buys property on behalf of the principal, it is presumed that the price charged to the principal is increased by the amount of the bribe.248 Where the agent sells the principal’s property, the bribe can be regarded as money which ought to have been paid to the principal as part of the price.249 In contrast, a claim for damages in deceit depends on P proving that they have suffered a p. 239loss as a result of the bribe. In Salford Corpn v Lever250 the Court of Appeal held that the principal of a bribed agent could claim damages and the amount of the bribe. However, in Mahesan v Malaysian Government Officers’ Co-operative Housing Society Ltd251 the Privy Council doubted Lever and held that the principal must elect between the two remedies. Whilst double recovery might have the desirable effect of discouraging corruption, it would allow the principal a windfall profit. However, it is clear that the other remedies are cumulative: P may therefore, for instance, rescind the contract with T and keep the amount of the bribe.252

The confusion is therefore very damaging. Professor Bradgate rightly stated in the previous edition of this book that since Reid is a decision of the Privy Council, the matter could not be taken as finally settled. After a few more judicial twists and turns253 it fell to the Supreme Court to settle the issue once and for all in FHR European Ventures LLP v Cedar Capital Partners LLC.254 Lord Neuberger for the court held that ‘a bribe is held on trust for his principal’.255

In addition, the payment of a bribe may give rise to criminal liability. If it can be shown that the bribe was paid or received with a corrupt motive, the briber or agent will be guilty of an offence under the Bribery Act 2010.256

7.3.1.8 The duty to account

As a fiduciary, an agent257 has a duty to account to their principal for all property of the principal in their possession, whether received from the principal or from a third party for the principal’s account. Although the agent is under such a duty because they are in a fiduciary position, the duty is not necessarily fiduciary in nature. The nature of the duty will therefore depend on the construction of the contract.258

Linked to the nature of the duty is the question whether the duty is a personal one or whether the agent is a trustee of the principal’s property. The question is particularly important should the agent become insolvent, but raises difficult questions over the introduction of ‘the intricacies and doctrine connected with trust into commercial transactions’.259 In such a case the principal may try to establish that the agent holds the property in question on trust for them to secure priority over other creditors of the agent. The existence of a trust will depend on the intention of the parties. In assessing the parties’ intentions the court will take account of the terms of any agreement between them and all the circumstances of the case, and in a commercial context, especially where the agent is appointed to act on a continuing basis over a period of time, the facts may show that the parties anticipated that the agent should be free to use money received in their own business and p. 240account to the principal from time to time as a debtor.260 So, no trust was created where the parties’ agreement expressly disclaimed any intention to create a trust.261 Similarly, where an agent sold goods on behalf of several principals on terms which permitted them to mix their goods prior to sale so that it was impossible to connect any particular sale with any particular principal, the agent received payments for the goods on their own account, not as trustee for their principals, with whom it had merely a debtor–creditor relationship.262

As part of the duty to account, the agent must keep full and accurate records of all transactions entered into for the principal’s benefit and make them available for inspection by their principal. If they fail to do so, a court may feel ‘compelled to … presume everything most unfavourable to him’.263 This duty:

arises by reason of the fact that the agent has been entrusted with the authority to bind the principal to transactions with third parties and the principal is entitled to know what his personal contractual rights and duties are in relation to those third parties as well as what he is entitled to receive by way of payment from the agent. He is entitled to be provided with those records because they have been created for preserving information as to the very transactions which the agent was authorised by him to enter into. Being the participant in the transactions, the principal is entitled to the records of them.264

The duty arises independently of any contract between principal and agent. If there is such a contract, it may modify the duty, but clear words are needed. Moreover, since the duty arises independently of contract it may, in the absence of any contrary stipulation in the contract, survive termination of both the agency and any contract between principal and agent so that the principal may continue to be entitled to inspect the agent’s records even after such termination.265 On termination of the agency, the agent must also deliver up to the principal all books, accounts, documents and papers given to them by the principal, or prepared for use in the course of the agency relationship, unless they are entitled to exercise a lien over them.

7.3.2 Agent’s duties under the Commercial Agents (Council Directive) Regulations 1993

The 1993 Regulations impose a general duty on commercial agents to look after the interests of their principals and act dutifully and in good faith.266 In particular, they require the agent to ‘make proper efforts’ to negotiate or conclude, as appropriate, transactions they are instructed to handle, to communicate to the principal ‘all the necessary information available to him’ and to comply with the principal’s reasonable instructions.267

p. 241The lack of definition over the meaning of good faith and the traditional antipathy towards good faith at the time of the implementation of the 1993 Regulations raises the question what, if anything, do these obligations add to the duties imposed on the commercial agent by the fiduciary nature of the relationship.268

As seen earlier, the commercial agent is first and foremost an ‘agent’ in law since they act on behalf of and in the name of the principal. As such, they are fiduciary and the question of the relation between good faith and their fiduciary duties is paramount. As it was made clear in Roy v MR Pearlman,269 as long as they are not inconsistent with the agency regulations, the ‘traditional’ implied obligations of principal and agent still apply. In Simpson v Grant and Bowman270 Judge Alton held that it was ‘neither necessary nor appropriate for this court to attempt some broad definition of the meaning or scope of the obligation to act dutifully and in good faith’.271 Her Honour nevertheless added that the obligation could not be assessed ‘in a vacuum’272 and had to be ‘construed in context’.273 Good faith as an obligation is independent from, and therefore not curtailed, by the ‘in particular’ obligations of regs 3(2) and 4(2), which are mere examples. Such an interpretation is, for the authors, welcome.

Indeed, those obligations cannot be derogated from.274 This is important because, as previously mentioned, the decision in Kelly v Cooper 275 seems to permit contractual restriction of the agent’s fiduciary duties at common law. Following Rossetti Marketing Ltd v Diamond Sofa Co Ltd 276 it is however clear that this exception cannot be extended to commercial agents.

The relationship between common law and the 1993 Regulations was also clarified in relation to the consequences of a breach of good faith. Due to the silence of the 1993 Regulations on the matter, it was not clear whether the duties were contractual in nature or statutory.277 The matter was clarified in Simpson v Grant and Bowman278 where the court held that they were contractual. In the same case, Judge Alton held that a breach of the duty to act good faith ‘does not necessarily amount to a repudiatory breach as a matter of domestic law’.279

7.4 Termination of agency

Since the relationship between principal and agent depends on consent, withdrawal of consent by either party will terminate the relationship and, with it, the agent’s actual authority to bind the principal. In certain circumstances the agent’s authority may also be p. 242terminated automatically by operation of law. However, termination of the relationship may give rise to secondary liabilities or obligations. Furthermore, the agent may still have power to affect the principal’s position vis-à-vis third parties even after termination of their actual authority. In certain situations, the right to terminate the relationship is itself restricted. We must therefore consider the ways in which the relationship may be terminated, and the effects of termination on both the relationship between principal and agent and on their relationships with third parties.

7.4.1 Termination of the relationship between principal and agent

At common law an agency may be terminated by mutual consent, by operation of law or by the unilateral act of either party. However, certain agencies are irrevocable at common law.

7.4.1.1 Termination by the parties

As with any contract, the parties can agree to terminate the relationship at any time. Such an agreement is effective to terminate the agent’s authority and, if the agency is contractual, will discharge the contract by agreement so that there can be no question of liability for breach of contract. Where the agent is appointed for a fixed period of time, or to perform a specified task—for example to sell a named ship or to make arrangements for the loading of a consignment of goods for export—the relationship, and the agent’s authority, are determined at the expiry of the stated period or on completion of the allotted task. If the agency is contractual, the agent will be entitled to commission in accordance with the terms of the contract.

The position is more difficult where one party seeks to terminate the relationship unilaterally. A distinction must be drawn between the effect of such termination on the agency and the effect on any contract between the parties. It is clear that the principal may revoke, or the agent renounce, the agent’s authority at any time and such revocation/renunciation will be effective to terminate the agent’s authority and the agency relationship, even if it is in breach of contract. The effect on the contract will depend on general contractual principles. It may, therefore, result in liability for breach of contract, at common law. Termination by the principal may also result in liability to pay the agent compensation or indemnity if the 1993 Regulations apply. Where the agent is an employee, unilateral termination by the employer may also give rise to a claim for compensation for unfair dismissal or for a redundancy payment.

Where A is appointed for a fixed term, for example ‘to sell P’s products in the UK for six years’, termination by either party before expiry of the term will be a repudiatory breach of the contract, unless justified by a prior breach by the other party.280 Where A is appointed for an indefinite term, the right to terminate depends on the terms of the contract. If the contract provides for termination by notice, either party may terminate by giving notice in accordance with the contract. In the absence of an express provision for termination by notice, the court may imply a term allowing the contract to be terminated by reasonable notice. What is reasonable will depend on the facts of the individual case. In Martin Baker Aircraft Co Ltd v Canadian Flight Equipment Ltd281 A agreed to act as sole agent for the sale of P’s products, to be paid by commission. In return he agreed to spend time and money p. 243promoting P’s products and not to sell competing products. It was held that the contract was terminable on 12 months’ notice.

Where the 1993 Regulations apply, they stipulate minimum periods of notice which must be given to terminate the commercial agency. At least one month’s notice is required during the first year, two months’ notice in the second and three months’ thereafter.282 The agreement may provide for longer notice provided that the length of notice to be given by the commercial agent may not exceed that to be given by the principal. Presumably, where the contract does not expressly fix a notice period a court could still find an implied term requiring reasonable notice, exceeding the minimum periods prescribed by the 1993 Regulations. Termination by either party without giving the notice required by the contract will be a repudiatory breach of contract at common law, unless justified by a prior breach of contract by the other party.

The general rule at common law is that repudiation of a contract by one party has no effect unless accepted by the other. As Viscount Simon LC put it: ‘repudiation by one party standing alone does not terminate the contract. It takes two to end it, by repudiation, on the one side, and acceptance of the repudiation, on the other’.283 The same applies to agency,284 with the result that a repudiation of the contract by one party will only end the contract, as a matter of law, if accepted by the other. Suppose, therefore, that P appoints A to act as their agent for a period of three years but then purports to dismiss them after six months. Unless A has been guilty of a repudiatory breach of contract justifying their dismissal, P’s act amounts to a repudiation of contract. As a matter of law A may therefore choose whether or not to accept the repudiation. If they do so, the contract is terminated. If not, it remains in force and binding on both parties. However, it is submitted that the agent will have no practical alternative than to accept the principal’s repudiation because the agent cannot really perform their contract without P’s cooperation. Moreover, the court will generally not order specific performance of a contract for personal services, such as agency. And finally, since dismissal terminates A’s authority to act for P, if they continue to act they would be in breach of their warranty of authority. Their only claim against P will therefore be one for damages for breach of contract, in which they will be required to mitigate their loss.

Where the contract is covered by the 1993 Regulations, the parties may not agree on shorter periods of notice than those prescribed.285 It might be argued that, since the objective of the 1993 Regulations and Directive is the protection of the agent, dismissal with less than the required minimum period of notice should be ineffective. If accepted, this would mean that where the principal gives less than the minimum period of notice the agency would continue in force at least for that period and the commercial agent would therefore be entitled to commission for that period. However, that argument was rejected in the Scottish case of Roy v MR Pearlman.286 The contract in that case provided for either party to terminate by giving six months’ notice. P purported to terminate the contract summarily. It was held that, on the facts of the case, A had accepted P’s repudiation, bringing the contract to an end. Neither the 1993 Regulations nor the Directive prescribe any remedy for failure to give the required minimum notice and Lord Hamilton, the Lord Ordinary, concluded that the consequences of failure to give proper notice depended on domestic law. Failure to give the notice required therefore gave rise to a claim for damages for breach of contract, but since A had accepted the repudiation the contract was terminated. This appears to be correct. The minimum periods prescribed also apply to the notice to be given p. 244by the commercial agent. It would be surprising if the commercial agent could purport to resign without proper notice but then argue that their resignation was ineffective and claim commission for the period of notice they should have given.

Where an agent is appointed on a commission basis to perform a single task, the contract may be interpreted as a unilateral one. In that case the principal may be entitled to withdraw the offer of commission and terminate the agency at any stage before the agent has performed the specified task. This is the normal interpretation of estate agency contracts, in the absence of express provisions to the contrary.287 However, in certain cases a term, or a collateral contract, may be implied to restrict the principal’s freedom to revoke the offer.288 If the contract is unilateral, the agent is under no commitment to act and can withdraw at any stage.

Where one party makes it impossible for themselves to perform their obligations under the contract, they will normally be treated as repudiating the contract. This gives rise to difficult questions where P ceases business, wholly or in part, before expiry of the agency, or without giving notice to terminate it. Such cessation will amount to a repudiation of the contract unless permitted by the agency agreement. Each case will therefore depend on the proper construction of the agency agreement. In Rhodes v Forwood,289 P owned a colliery and appointed A to act as agent to sell coal from the colliery in Liverpool for seven years or so long as A carried on business in Liverpool. After four years P sold the colliery and A’s authority therefore terminated. A claimed damages for breach of contract but failed. The court refused to imply a term that P would stay in business for the full period of the agreement. In general, the courts are reluctant to imply terms into agency agreements which would restrict a principal’s freedom to deal as they please with their property. In contrast, in Turner v Goldsmith290 P appointed A for five years to sell shirts or other goods manufactured or sold by P. P’s shirt factory burned down and P terminated the agency. A’s claim for damages for breach of contract succeeded: P could manufacture other goods, or could send A shirts manufactured by someone else.

7.4.1.2 Termination by operation of law

Certain events terminate an agent’s authority automatically. In general they will also operate to terminate any contract of agency.

7.4.1.2.1 Frustration

An agency agreement may be frustrated in any of the ways in which contracts generally may be frustrated. Frustration is a very narrow doctrine. The agency contract is effectively discharged by frustration where, after the formation of the contract, an event occurs which renders performance of the agency impossible, illegal or radically different from what the parties contemplated when they entered into the contract. Both the agent’s authority and the contract of agency will be terminated automatically. Frustration is a residual doctrine and will not apply if the parties have made express provisions to allocate risk through the use of a force majeure clause.

7.4.1.2.2 Death

The agency contract is of a personal nature and is therefore terminated automatically by the death of either party.291 If the principal dies, the agent does not even have apparent authority to bind the principal’s estate; and the same rule applies if the principal is a p. 245company which is wound up since the dissolution of a limited company is generally regarded as equivalent to the death of an individual entity.292

7.4.1.2.3 Insanity

If either party becomes insane, the relationship is terminated. However, there is now provision for an agent to be appointed under an enduring power of attorney which may remain effective despite the insanity of the principal.293 Similarly, the principal will be bound under the rules of apparent authority if the third party was not notified.294

7.4.1.2.4 Bankruptcy

Bankruptcy of the principal determines their capacity to deal with any property affected by the bankruptcy and so terminates the authority of any agent to deal with such property. The appointment of a provisional liquidator of a company has been held to determine the authority of agents appointed by the directors to act for the company on the grounds that it determines the authority of the directors to act on behalf of the company.295 In contrast, a cessation of business by the principal does not of itself bring the agency to an end, although it may amount to a repudiation of the agency if it makes it impossible for the principal to perform.296 The bankruptcy of the agent will also terminate the agency if it makes them unfit to continue to act.

7.4.1.3 Irrevocable agencies

Although at common law unilateral revocation of authority by the principal is effective to terminate A’s authority, in two situations the agent’s authority may be irrevocable.297 In these cases, A’s authority cannot be revoked by unilateral act of P or by P’s insanity, death or bankruptcy.

First, the agent’s authority is irrevocable where the agent has authority coupled with an interest, as for instance where P owes A money, and appoints A to act as their agent to sell property and realise funds to pay the debt. However, this rule only applies where A had an interest at the time the authority was granted: an interest which arises after the grant of authority does not make the authority irrevocable.

Secondly, if a power of attorney is expressed to be irrevocable and is given to secure a proprietary interest of, or some obligation owed to, the donee, it may not be revoked without the consent of the donee.298

7.4.2 Rights of the parties on termination

On termination of the agency relationship it may be necessary to consider the rights of principal and agent against each other. At common law their rights depend on the construction of the contract and application of general rules of contract law. A commercial agent is however entitled to considerably enhanced rights when the 1993 Regulations apply.

7.4.2.1p. 246 Rights at common law

Termination of agency does not affect accrued rights and obligations. Thus, the agent is entitled to be paid any commission earned prior to termination; this may include commission on transactions negotiated before but entered into after termination of the agency.

In cases of contractual agency, renunciation of authority by the agent, or revocation by the principal, in breach of contract will be a repudiation of the contract, unless justified by a prior repudiation by the other party. The party in breach will then be liable for damages. Where P dismisses A in breach of contract, A may claim damages representing the commission they would have earned had the contract been performed, for instance by P giving proper notice. Following normal rules of contract, repudiation will only terminate the contract of agency if accepted by the other party. However, since the agency contract is personal, the court will normally not order specific performance, nor grant an injunction which would force the parties to continue their relationship,299 and although there are signs in recent cases concerned with contracts of employment that this rule is less strictly applied than formerly, in most cases the only practical course open to a dismissed agent will be to claim damages.300

7.4.2.2 Rights under the 1993 Regulations

Where the 1993 Regulations apply, the commercial agent is in certain circumstances entitled to commission on transactions entered into after termination of the agency.301 Where an agency is terminated and a new commercial agent is appointed, this could result in commission being payable to the two commercial agents; however, the 1993 Regulations provide for commission to be payable to the first commercial agent in preference to the second ‘unless it is equitable because of the circumstances for the commission to be shared’ between them.302

At common law an agent will be entitled to damages if the agency is terminated following a breach by the principal, including where the principal repudiates the contract by dismissing the agent in breach of contract and the agent accepts that repudiation. Under the 1993 Regulations however, the commercial agent is entitled to termination payments as of right, in the event of termination of the agency when the principal terminates with no just cause to do so.303 Termination is therefore the event that triggers the commercial agent’s claim for termination payments.

The Commercial Agents Directive304 requires that on termination of an agency contract the agent should be entitled to either an ‘indemnity’ or ‘compensation’. The payment referred to as ‘indemnity’ is based on German law. ‘Compensation’ is based on French law. Although the systems differ somewhat in their application, they share a common basis in that both recognise that the commercial agent has a quasi-property interest in their commercial agency, for loss of which they should be compensated on its termination.305

The intention was for member states, when implementing the Directive, to opt for either ‘indemnity’ or ‘compensation’. We may note, in passing, that by providing this choice the Directive undermines its own objective of harmonisation.306 Most member states have opted for the ‘indemnity’ system. The 1993 Regulations, however, provide for both and effectively leave the choice to the parties. Regulation 17 provides for the commercial p. 247agent to be paid compensation unless the contract expressly provides for payment of an indemnity.307

The choice of ‘indemnity’ and ‘compensation’ as names for the two systems is perhaps misleading. Both differ significantly from common law damages and may be payable where damages would not be. First, it is expressly stated that both indemnity and compensation are payable where the agency is terminated by the agent’s death.308 Regulation 18 then states that neither indemnity nor compensation is to be payable (i) where the contract is terminated by the principal because of default by the commercial agent which would justify immediate termination, (ii) in any case where the commercial agent terminates the agreement, unless termination is justified by ‘circumstances attributable to the principal’ or where on grounds of age, infirmity or illness the commercial agent cannot reasonably be required to continue their activities, or (iii) where, with the principal’s consent, the agent assigns their rights and obligations under the contract.309 It is expressly stated that nothing in the 1993 Regulations or the Directive310 affects any rule of domestic law which provides for immediate termination of an agency contract because of the failure of either party to perform their obligations thereunder. It follows, therefore, that the right of either party to end the contract without notice in response to a repudiation by the other depends on ordinary common law principles. Thus if P dismisses A on grounds of a serious or repudiatory breach by A, no compensation or indemnity is payable. This is the only exception to the right to claim termination payments and is strictly interpreted.311 Conversely, if A resigns, they lose their right to compensation or indemnity unless the resignation is justified on one of the grounds listed in reg 18. It is now clear that the reference to ‘circumstances attributable to the principal’ only refers to the principal’s repudiatory breach of contract.312 It should be noted that, unlike common law damages, compensation or indemnity may be payable where the contract is terminated by the principal giving proper notice, unless the principal would have been justified in dismissing without notice because of the commercial agent’s repudiatory breach. It is also now clear that payment is due where the contract is for a fixed term which expires even if renewal was not expected.313

The parties may not derogate from the indemnity and compensation provisions to the detriment of the agent before the contract expires.314 There is nothing to prevent them doing so after termination of the contract, so that agreements to settle claims for compensation or indemnity will be valid. However, the agent will lose their right to compensation or indemnity under the 1993 Regulations unless they notify the principal of their intention to pursue a claim within a year of termination of the agency.315

7.4.2.2.1p. 248 The indemnity option

Where the agency contract provides for payment of an indemnity, the 1993 Regulations provide that the commercial agent shall be entitled to an indemnity

if and to the extent that—

(a)

he has brought the principal new customers or has significantly increased the volume of business with existing customers and the principal continues to derive substantial benefits from the business with such customers; and

(b)

the payment of this indemnity is equitable having regard to all the circumstances, and, in particular, the commission lost by the … agent on … business … with such customers.316

The maximum amount of any indemnity payable is an amount equivalent to one year’s commission based on the agent’s average commission over the last five years.317 The application of these provisions was considered in Moore v Piretta.318 The judge, having considered the operation of the rules of German law on which the Directive was based, concluded that calculation of the indemnity involved a three-stage process. It should be noted that no payment is due at all unless the commercial agent has brought in new business. The first stage is therefore to calculate the value to the principal of the business from customers introduced by the commercial agent during the agency. The judge held that he was entitled to take into account business introduced by the commercial agent during the whole period of the agency relationship, and not merely under the contract which had been terminated. That sum was then to be reduced by such sum as was equitable in all the circumstances of the case. On this basis the judge took into account the net amount of commission the commercial agent would have earned, after deduction of the expenses of earning it, and made a deduction on account of accelerated receipt. He held, however, that there is no duty on the agent to mitigate their loss when claiming indemnity. No account is taken of any earnings of the commercial agent from any new position. The third and final stage is to apply the one year maximum. On the facts of Moore the amount payable was in excess of £64,000.

The principal in Moore had terminated the contract by giving notice and was therefore not in breach of contract. However, if the principal is in breach a greater sum may be recoverable. Regulation 17(5) expressly provides that payment of an indemnity shall not prevent the commercial agent from claiming damages. Since indemnity and damages compensate different types of loss, there is no overlap between the two, so that where the commercial agent is dismissed without notice they may claim for both damages and indemnity.

Although no other case has been heard by English courts, the CJEU has had the opportunity to clarify several points on the indemnity option and provide guidelines on the application of the discretion left to member states. In Honyvem Informazioni Commerciali Srl v De Zotti319 the court held that it is possible to calculate indemnity by a different method than that defined by the Directive provided that it will only be accepted if it ‘guarantees the commercial agent in every case an indemnity equal or greater than that which results from article 17’,320 and that can only be established ‘ex ante’.321 The court added that member states themselves also have some discretion as to the applicability of the equity requirements. In Turgay Semen v Deutsche Tamoil GmbH,322 consequently, the practice by the German courts to automatically exclude ‘the possibility of any increase in that p. 249indemnity up to the maximum of the ceiling laid down in article 17(2)(b) of the Directive is not permissible’.323 On a second question raised, the CJEU stated that given that where the principal belongs to a group of companies, ‘it is still always the principal—and only the principal—who will pay the remuneration, not the other companies in the group’.324 Consequently, benefits accruing to other companies ‘do not necessarily have to be taken into account for the purpose of calculating the indemnity’.325 This case is of utmost importance as it really is possible to say that the CJEU provides some clear guidelines limiting member states’ discretion to the bare minimum. The German practices were further scrutinised in Marchon Germany GmbH v Karaszkiewicz326 where the court held that ‘the concept of “new customers” may not be construed restrictively’.327

7.4.2.2.2 The compensation option

Where the contract does not expressly provide for payment of an indemnity the 1993 Regulations provide that the commercial agent is to be entitled to compensation for ‘the damage he suffers as a result of termination’, and state that they are deemed to suffer such damage ‘particularly’ where termination takes place in circumstances which either:

(i)

deprive him of commission ‘which proper performance of the agency contract would have procured for him’, while providing the principal with substantial benefits linked to the agent’s activities; or

(ii)

prevent the agent recouping the costs and expenses incurred in performing his duties.328

The use of ‘compensation’ and ‘damage’ may suggest that this is similar to common law damages. This is misleading. The concept of ‘compensation’ in the Directive is based on a French law concept which is quite unlike damages for breach of contract and the courts have now clearly accepted their specificity.329 This has been remarkably quick for the courts to do, in fact only just a few years after the 1993 Regulations came into effect, in Page v Combined Shipping & Trading Co Ltd.330 In this case, the parties had entered into a four-year contract the terms of which effectively allowed P to control the amount of business handled by A and therefore the amount of commission A would earn. After six months P closed down part of its business and A terminated the contract and claimed compensation. P argued that since the contract allowed it to control the amount of commission A could earn, A had not been deprived of commission which ‘proper performance’ of the contract would have produced. The Court of Appeal rejected this interpretation. Taking account of the Directive’s objective of protecting agents, and the different language texts of the Directive, they concluded that ‘proper’ should be read as indicating ‘normal’, or the type of performance the parties might have expected. Significantly, Millett LJ also referred to the principal’s obligation under the 1993 Regulations to act in good faith as a factor relevant to the construction of what would be ‘proper performance’ of the contract.331

Neither the 1993 Regulations nor the Directive offer any guidance as to how compensation is to be calculated. For a while, the courts, in the absence of any other guidance, looked at the practice of the French courts which treat the commercial agency as p. 250being a ‘quasi partnership’ for the common interest of principal and agent.332 Both benefit from their joint efforts, so that on termination the agent, who ceases to benefit from the trade connection they have established, is entitled to be compensated for the loss of their share of the business. In effect, they are paid a sum as if for the purchase of their share of the commercial agency. There is no need for the commercial agent to mitigate their loss. The practice of the French courts is to award a sum equal to two years’ average commission.333 For a while, the English and Scottish courts tended to follow the French practice.334 This has now ended following Lonsdale (t/a Lonsdale Agencies) v Hallam Ltd335 where Lord Hoffmann confirmed the distinct nature of the loss suffered by the commercial agent on termination. Then, noting the French origin of that part of the Directive text, his Lordship considered that it was appropriate to look at ‘French law for guidance’ in order to understand what the loss is.336 In doing so, he noted the quasi-proprietary aspect of the commercial agency relationship stating that the agent was regarded as having had a ‘share in the goodwill of the principal’s business which he has helped to create’,337 and that consequently the loss the commercial agent suffers is that of ‘being deprived of the benefit of the agency relationship’.338 In doing so, the House confirms the method of valuing it as a business. By focusing on the loss of the value of the agency, Lord Hoffmann appears to have been motivated by the fact that this would simplify matters so that ‘very few cases will go to court’,339 and it would be possible to refer to ‘a standard case’.340

All cases heard since Lonsdale341 have endorsed the valuation of the loss based on what a ‘hypothetical purchaser’ would pay ‘in the real world’. That is of course welcome for consistency, which is present regardless of the type of goods involved in the commercial agencies (which ranged from jewellery, to packaging, to tea and other consumer goods). Looking at the cases heard since Lonsdale, Lord Hoffmann’s wish for simplicity has not really come to pass. The standard procedure is for each party to appoint a valuer who assesses the value of the agency as a business, and the situation is best described, in the words of Randolph and Davey, as the ‘battle of expert valuers’.342 Indeed, all the cases heard except McQuillan v McCormick have involved wide discrepancies between the valuation proposed by the principal’s valuer and that of the commercial agent’s. The cases therefore highlight that the issue has become highly technical.

It is nearly 20 years since Lonsdale and it is possible to say that there is more clarity in the manner in which the courts have calculated the loss. Given the focus of a pragmatic approach, it is undeniable that the method of valuation is only advantageous to p. 251the commercial agent when the relationship ends when the business is on the up. When the business is in decline, such as in McCormick, the award is decidedly in favour of the principal. This is one area of uncertainty as whether that would be regarded as in line with the Directive is not clear. This is regrettable especially compared to indemnity where, as we will see shortly, the CJEU has defined some clear guidelines over the discretion left to member states, that is, that their discretion is assessed strictly and is only permissible as long as it guarantees the commercial agent what they would have got under the calculation as defined in the Directive. This has not been tested in relation to compensation. Therefore, for the time being, some uncertainty remains.

The relationship between compensation and common law damages is not dealt with in the 1993 Regulations. In the previous edition of this book, Professor Bradgate submitted that compensation, like indemnity, represents a payment for loss of the agent’s interest so that there is no overlap between the two. He then concluded that where A is dismissed in breach of contract both damages and compensation may be recoverable. He has once more been proved correct.343

7.4.2.3 Restraint of trade

A principal may wish to restrain the activities of their former agent after termination of the agency, for instance to prevent them from using information or customer contacts acquired during the agency to compete with the principal. At common law any clause in the agency contract which seeks to restrict the agent’s activities after termination would be valid only if it could be shown not to be an unreasonable restraint of trade. In particular, it would be invalid unless reasonable in duration and extent. Where the 1993 Regulations apply, they impose similar restrictions but provide that a restraint shall be valid for no more than two years after termination.344

7.4.3 Effect of termination on relations with third parties

Even where the agency is terminated, the agent may continue to have power to bind the principal. First, where the agency is irrevocable, any purported revocation of authority will be ineffective.345 Secondly, an agent may continue to have apparent authority even though their actual authority has been terminated, if the principal holds out the agent as continuing to have authority by not having told the third party that the authority was terminated. Where the principal has previously held out the agent as having authority, for instance to enter into a class of transactions, or to act for a specified period, the agent may continue to have apparent authority on the strength of that representation, until the principal brings the termination of authority to the notice of third parties dealing with the agent.346 The same result may follow where A’s authority is terminated automatically. In Drew v Nunn347 P became insane but A, his wife, continued to act in his name. When P recovered, he p. 252disclaimed liability for acts done by A during his incapacity, but it was held that A had apparent authority and P was bound. However, where A’s actual authority is terminated by P’s death or bankruptcy, A also ceases to have apparent authority.

Where A is appointed by power of attorney, a transaction executed in pursuance of the power of attorney is valid, notwithstanding revocation of the power, in favour of a person who did not know of the revocation.348

If A continues to act after termination of authority, they may incur personal liability for breach of the implied warranty of authority. There is an obvious potential risk for an agent whose authority may be determined automatically without their knowledge. In Yonge v Toynbee349 solicitors acted for P in litigation. Unknown to them, P became mentally incapacitated so that their authority was terminated. However, they continued the litigation and were held liable for breach of their warranty of authority and were ordered personally to pay costs to the other litigant. This seems odd, because P could have been held liable for the actions taken on his behalf on the basis of Drew v Nunn so that any damages for breach of the warranty should have been nominal.350 It may be that the case is limited to cases of solicitors conducting litigation, where the court has an inherent jurisdiction to order payment of costs. If it applies more generally, it would seem that it allows T to choose whether to sue P or A.

Notes

  • 1 See 5.6 for ratification.

  • 2 See 5.2.

  • 3 Chaudry v Prabhakar [1989] 1 WLR 23.

  • 4 See generally F E Dowrick, ‘The Relationship of Principal and Agent’ (1954) 17 MLR 24.

  • 5 SI 1993/3053 was amended by SI 1998/2868. The text implemented Council Directive 86/653/EEC on the Coordination of the Laws of the Member States relating to Self-Employed Commercial Agents, OJ L382/17 of 31 December 1986.

  • 6 Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72, [2016] AC 742.

  • 7 See 7.1.

  • 8 Luxor (Eastbourne) Ltd v Cooper [1941] AC 108. See too Wells v Devani [2019] UKSC 4, [2019] 2 WLR 617.

  • 9 See generally Peter G Watts, Bowstead & Reynolds on Agency (22nd edn, Sweet & Maxwell 2022) ch 11; Fergus Randolph and Jonathan Davey, The European Law of Commercial Agency (3rd edn, Hart Publishing 2010); Séverine Saintier and Jeremy Scholes, Commercial Agency and the Law (Taylor and Francis 2005).

  • 10 Council Directive 86/653/EEC, OJ L382/17, 31 December 1986.

  • 11 See <https://www.politico.eu/article/uk-pushes-back-timetable-for-brexit-bonfire-of-eu-laws/>, accessed 11 January 2024. The regulations are ‘open to be abolished or modified’: Peter G Watts, Bowstead & Reynolds on Agency (22nd edn, Sweet & Maxwell 2022) [11.004].

  • 12 The question of interpretation will however raise questions: Peter G Watts, Bowstead & Reynolds on Agency (22nd edn, Sweet & Maxwell 2022) [11.004].

  • 13 Preamble to the Directive.

  • 14 The UK and Ireland until 1 January 1994; Italy until 1 January 1993: Art 22(3) of the Directive.

  • 15 Preamble to the Directive.

  • 16 Law Commission Report No 84 (1977) 6. The Law Commission (ibid, 32) commenting on the original proposal for the Directive suggested that it ‘in many respects offends against the basic principles of the English law of agency’. The editor of Bowstead & Reynolds describes this comment as ‘rather hysterical’: Peter G Watts, Bowstead & Reynolds on Agency (22nd edn, Sweet & Maxwell 2022) [11.001].

  • 17 Regulations 3(1), 4(1).

  • 18 Armstrong v Jackson [1917] 2 KB 822, 826 (McCardie J).

  • 19 See the Commission Notice of 24 December 1962; OJ 1962 139 2921.

  • 20 See 7.2.2.

  • 21 See eg AMB Imballaggi Plastici SRL v Pacflex Ltd [1999] 2 All ER (Comm) 249; Moore v Piretta PTA Ltd [1999] 1 All ER 174; King v Tunnock Ltd [2000] IRLR 569 (Ct of Sess).

  • 22 See Barbara Bellone v Yokohama SpA [1998] ECR 1-2191.

  • 23 Page v Combined Shipping and Trading Co Ltd [1997] 3 All ER 656, 660; Séverine Saintier ‘New Developments in Agency Law’ [1997] JBL 77.

  • 24 See eg Moore v Piretta PTA Ltd; Roy v M R Pearlman [1999] CLR 36, King v Tunnock [2000] IRLR 569.

  • 25 Lonsdale v Howard & Hallam Ltd [2007] UKHL 32, [2007] 1 WLR 2055.

  • 26 Regulation 23

  • 27 Regulation 2(1).

  • 28 This is following the categorisation in Séverine Saintier and Jeremy Scholes, Commercial Agents and the Law (Taylor and Francis 2005) [2.4.2.1].

  • 29 AMB Imballaggi Plastici SRL v Pacflex Ltd (1998) Tr LR 557; aff’d [1999] 2 All ER (Comm) 249. The difference can be very slight. cf Mercantile International Group v Chuan Soon Huat Industrial Group Ltd [2002] 1 All ER (Comm) 788 where the agent was protected.

  • 30 Sagal (t/a Bunz) v Atelier Bunz GmBH [2009] EWCA Civ 700, [2009] Bus LR 1527.

  • 31 Case C-85/03 Mavrona & Sia OE v Delta Etairia Symmetochon AE [2004] ECR I-1573. See too Sagal v Atelier Bunz GmbH [2009] EWCA Civ 700, [2009] 2 Lloyd’s Rep 303.

  • 32 Séverine Saintier and Jeremy Scholes, Commercial Agents and the Law (Taylor and Francis 2005) 29. That much has been accepted by the courts, which, following the silence of the 1993 Regulations, have resorted to common law criteria to evaluate whether someone is an ‘independent contractor’ or an employee. See eg Smith v Reliance Water Controls Ltd [2003] EWCA Civ 1153, [2003] Eu LR 874: the main issue is one of control. Scott Baker LJ considered (at [26]) the control that P exercises over the commercial agent, but also other factors, such as whether the commercial agent was allowed to take up non-competing agencies, whether the agent was remunerated through commission and whether the agent was responsible for the main tools for carrying out his tasks, such as mobile phone and a car.

  • 33 AMB Imballagi Plastici SRL v Pacflex [1999] 17 TrLR 557 (Raymond Jack QC).

  • 34 AMB Imballagi was confirmed in Bell Electric Ltd v Aweco Appliance System GmbH & Co [2002] EWHC 872, [2002] Eu LR 443 [50] (Elias J).

  • 35 Case C-3/04 Chartering BV v Marianne Zeeschip VOF and others [2007] Bus LR 447.

  • 36 [2017] EWHC, [2017] 2 Lloyd’s Rep 215.

  • 37 ibid, [44] (Popplewell J). This case concerned the status of a broker in the diamond industry. Looking at how the industry worked, diamonds were only sold to wholesalers by De Beers if accredited as ‘sightholders’. Each sightholder was required to have an accredited broker. The claimant acted as such for the defendant. The diamonds were sold during such sights and there were about 10 sights per year. Looking at the manner in which the parties behaved towards each other, Popplewell J stated that there was continuous authority since ‘there was no separate instructions or appointments sight by sight’ (at [55]). The claim nevertheless failed since the diamond industry was a ‘commodity market’ excluded by reg 2(2), a point overturned on appeal by Leggatt LJ ([2018] EWCA Civ 2640).

  • 38 [2003] EWCA Civ 1238, [2004] 1 Lloyd’s Rep 693.

  • 39 ibid, [21], [23] and [26] (Tuckey LJ). Tuckey LJ was adamant (at [23]) that this was clear and there was therefore no need to refer the matter to the European Court of Justice (ECJ).

  • 40 [2000] Tr LR 232.

  • 41 ibid.

  • 42 (1999) Tr LR 232.

  • 43 ibid, 238 (Morritt LJ).

  • 44 Para 4c of the Schedule.

  • 45 Tamarind International Ltd and Others v Eastern Natural Gas (Retail) Ltd & Another [2000] Eu LR 708. See too Nigel Fryer Joinery S Ltd v Ian Firth Hardware [2008] EWHC 767 and PJ Pipe & Valve Co Ltd v Audco India Ltd [2005] EWHC 1904 (QB). Confirmed in Green Deal Marketing Southern Ltd v Economy Energy Trading Ltd [2019] EWHC 507, [2019] 2 All ER (Comm) 19 (was held to be a commercial agent a professional whose main task was to convince consumers to switch suppliers).

  • 46 [2013] EWHC 1564 (QB), [2013] ECC 30.

  • 47 ibid, [34]. See too for a similar comment by Popplewell J in W Nagel v Pluczenik Diamond Co BV [2017] EWHC 1750 (Comm) [44], [54]. In this case, Popplewell J emphasised the link between continuing authority and the role of the commercial agent in generating and maintaining the goodwill for the principal. That is thought to be correct.

  • 48 Case C-452/17 Zako SPRL v Sanidel SA [2019] Bus LR 343.

  • 49 The 1993 Regulations apply to agents negotiating the sale of gas: Scottish Power Electricity Retail Ltd v Taskforce Contract Ltd [2008] CSOH 110; and electricity: Tamarind International Ltd v Eastern Natural Gas (Retail) Ltd [2000] 26 LS Gaz R 35 and confirmed in Green Deal Marketing Southern Ltd v Economy Energy Trading Ltd [2019] EWHC 507, [2019] 2 All ER (Comm). Difficult questions may arise in relation to agents concerned with the marketing of computer software. It is not clear whether software is properly regarded as ‘goods’ in English law. Professor Bradgate, in the previous edition of this book, submitted that, applying a purposive approach to the regulations such agents should be protected. This is now the case, following Case C-410/19 The Software Incubator Ltd v Computer Associates UK Ltd. This raises a problem in relation to the Sale of Goods Act 1979 (SGA) where the situation is still based on whether the software has hardware support: see further 9.2.3.

  • 50 [2004] Eu LR 423.

  • 51 Peter G Watts, Bowstead & Reynolds on Agency (22nd edn, Sweet & Maxwell 2022) [11.016]. It is not clear what happens if the parties expressly stipulate that for a contract dealing with goods, services are also covered. It has been suggested that in light of the protective stance of the 1993 Regulations, they should: Séverine Saintier and Jeremy Scholes, Commercial Agents and the Law (Taylor and Francis 2005).

  • 52 [2004] Eu LR 423.

  • 53 [2007] EWHC 66, [2007] 1 CLC 389.

  • 54 Regulation 2(1).

  • 55 Regulation 2(2). On a narrow interpretation of the exception for the commodity exchange, see W Nagel v Pluczenik Diamond BV [2018] EWCA Civ 2640, [2019] Bus LR 692, [77], [81], [84–85] (Leggatt LJ).

  • 56 Regulation 2(3).

  • 57 The exclusion is permitted but not mandatory under the Directive. There is therefore no equivalent to the Schedule in the Directive.

  • 58 But see Hunter v Zenith Windows (13 June 1997, unreported), where the County Court reached the opposite conclusion (the appeal is reported at [1998] Lexis Citation 3059).

  • 59 Séverine Saintier ‘The Interpretation of Directives to Suit Commercial Needs: A Further Threat to Coherence’ [2012] JBL 128.

  • 60 Waller LJ said that he was ‘quite bewildered as to what is the proper construction’ of the Schedule and Peter Gibson LJ described it as ‘unhappily worded’: see [1999] 2 All ER (Comm) 249 (CA) 253, 256. See also Tamarind International Ltd v Eastern Natural Gas (Retail) Ltd [2000] 26 LS Gaz R 35 (Morison J).

  • 61 For a good summary, see Peter G Watts, Bowstead & Reynolds on Agency (22nd edn, Sweet & Maxwell 2022) ch 11.

  • 62 Regulation 1.

  • 63 Commercial Agents (Council Directive) Amendment Regulations 1998, SI 1998/2868.

  • 64 The question whether the 1993 Regulations properly implement the Directive has been referred to the ECJ: Pace Airline Services Ltd v Eurotrans Luftfahrtagentur GmbH (2000, unreported). The agent also seems to be unprotected if the parties choose the law of a non-EU member state, unless it can be argued that the Directive, or some of its provisions, are to be regarded as ‘mandatory rules of law’ for the purposes of the Hague Convention 1977 and the Rome Convention 1980 on the law applicable to contractual obligations. This question was referred to the ECJ by the Court of Appeal in Ingmar GB Ltd v Eaton Leonard Technologies Inc [1999] Eu LR 88, where an English agent acted as UK representative for a Californian principal under a contract governed by Californian law. The ECJ held that the Directive cannot be evaded by means of a choice-of-law clause: see [2001] CLC 1825.

  • 65 Peter G Watts, Bowstead & Reynolds on Agency (22nd edn, Sweet & Maxwell 2022) [11.006]. It is beyond the scope of this book to delve into the matter. For a very good explanation of the rules, see Peter G Watts, Bowstead & Reynolds on Agency (22nd edn, Sweet & Maxwell 2022) [11.006]–[11.011].

  • 66 See Banque Financière de la Cité v Westgate Insurance Co Ltd [1990] 1 QB 665 (CA); aff’d [1991] 2 AC 249. See further John Birds and Katie Richards, Birds’ Modern Insurance Law (12th edn, Sweet & Maxwell 2022) [8.02]; Andrea Tosato, ‘Commercial Agency and the Duty to Act in Good Faith’ (2016) 36 OJLS 661; Howard N Bennett, ‘Mapping the Doctrine of Utmost Good Faith in Insurance Contract Law’ [1999] LMCLQ 165.

  • 67 The most common form of remuneration of an agent is commission, but remuneration can also be in the form of a retainer.

  • 68 Wells v Devani [2019] UKSC 4, [2019] 2 WLR 617. In this case, the parties had agreed, orally, the rate of the commission but not when the commission was payable. Although it was not necessary to imply the term on the facts, the Supreme Court unanimously stated that this was possible in principle to do so. For estate agency cases, the usual method of payment of the commission is on completion out of the proceeds of the sale.

  • 69 Wells v Devani [2019] UKSC 4, [2019] 2 WLR 617 [29] (Lord Kitchin): ‘to leave Mr Wells without any obligation to pay Mr Devani would be completely inconsistent with the nature of the relationship’.

  • 70 Marks & Spencer v BNP Paribas [2015] UKSC 72, [2016] AC 742.

  • 71 Way v Latilla [1937] 3 All ER 759 (HL). See too now Wells v Devani [2019] UKSC 4, [2019] 2 WLR 617 and Barton v Morris [2023] UKSC 3 where the court reasserted that reasonable compensation is usually implied by law for estate agents (but not on the facts here as the intermediary was not an estate agent).

  • 72 To do so would usurp the principal’s rights under the contract and would substitute the court’s discretion for the agreed term Kofi Sunkersette Obu v Strauss & Co Ltd [1951] AC 243 (PC); Re Richmond Gate Property Co Ltd [1964] 3 All ER 936, [1965] 1 WLR 335 and more recently, Barton v Morris [2023] UKSC 3.

  • 73 This principle was established in Alpha Trading Ltd v Dunnshaw-Patten Ltd [1981] QB 290 (CA).

  • 74 Wells v Devani [2019] UKSC 4, [2019] 2 WLR 617 which reiterates that for estate agency cases, the usual method of payment of the commission is on completion out of the proceeds of the sale. Also reiterated in Barton v Morris [2023] UKSC 3.

  • 75 Difficult questions may arise where there is a chain of agents and sub-agents, all of whom may legitimately claim to be ‘the effective cause’ of a transaction: see Harding Maughan Hambly Ltd v Cie Européenne de Courtage D’assurances et de Réassurances SA [2000] 1 All ER (Comm) 225.

  • 76 [1939] 3 All ER 327 (CA).

  • 77 See also Toulmin v Millar (1887) 12 App Cas 746, 58 LT 96.

  • 78 Wells v Devani [2019] UKSC 4, [2019] 2 WLR 617, [62] (Lord Briggs). For a longer discussion over the meaning of effective cause, see Roderick Munday, Agency: Law and Principles (4th edn, OUP 2022) ch 9, especially [9.13]–[9.20].

  • 79 It may be that where the agency contract is a unilateral contract it is more correct to speak of the court implying a collateral contract rather than implying a term: see Peter G Watts, Bowstead & Reynolds on Agency (22nd edn, Sweet & Maxwell 2022) [7.036].

  • 80 (1876) 1 App Cas 256.

  • 81 The agent’s claim for damages succeeded in Turner v Goldsmith [1891] 1 QB 544, where only part of the business was closed down.

  • 82 [1941] AC 108.

  • 83 ibid, 120.

  • 84 [1981] QB 290.

  • 85 ibid, 306 (Templeman LJ).

  • 86 [1922] 1 AC 451.

  • 87 [2023] UKSC 3. In this case, it was agreed between the parties that the intermediary (not an estate agent) would be paid a commission of £1.2 million if he introduced the seller to a purchaser willing to pay £6.5 million for the property in question. The property was sold for £6 million. The contract was silent as to what happened to the payment of £1.2 million in that event. The claimant argued that he was entitled to a reasonable fee based either on an implied term or by way of unjust enrichment. The court disagreed.

  • 88 Re Famatina Development Corpn Ltd [1914] 2 Ch 271. Approved since: Benyatov v Crédit Suisse Securities (Europe) Ltd [2020] IRLR 299.

  • 89 See Roderick Munday, Agency: Law and Principles (4th edn, OUP 2022) 235–236.

  • 90 Barron v Fitzgerald [1940] 6 BSNC 201, Islamic Republic of Iran Shipping Lines v Zannis Compania Naviera SA (The Zzlepi) [1991] 2 Lloyd’s Rep 265.

  • 91 See 5.5.

  • 92 Morris v Cleasby (1816) 4 M & S 566, 105 ER 943.

  • 93 Re Parker (1882) 21 Ch D 408 (CA).

  • 94 Adamson v Jarvis (1827) 4 Bing 66, 130 ER 693.

  • 95 Rhodes v Fielder, Jones and Harrison (1919) 89 LJKB 15. And more recently, see Candey v Bosheh [2022] EWCA Civ 1103, involving a solicitor on a retainer, the Court of Appeal rejected the claim that there was a need to insert a duty of good faith on the client to act in good faith to ensure that the solicitor would be paid.

  • 96 This only includes tangible property. For a discussion of intangible property, see Your Response v Databeam v Media Business Ltd [2014] 3 WLR 887, mentioned in Roderick Munday, Agency: Law and Principles (4th edn, OUP 2022) [9.54]–[9.66]. With the evolution of the way we consume, the Law Commission has however made recommendations about recognising a third category of property: <https://www.lawcom.gov.uk/new-recommendations-for-reform-and-development-of-the-law-on-digital-assets-to-secure-uks-position-as-global-crypto-hub/>, accessed 11 January 2024, discussed below at 24.2.

  • 97 See generally 22.5.2.

  • 98 For bankers, see Re Spectrum Plus Ltd (In Liquidation) [2005] 2 AC 680.

  • 99 Taylor v Robinson (1818) 8 Taunt 648, 129 ER 536. Constructive notice will suffice: Bryans v Nix (1839) 4 M & W 775, 150 ER 1634.

  • 100 Bryans v Nix (1839) 4 M & W 775, 150 ER 1634.

  • 101 See 29.2.7.

  • 102 Weeks v Goode (1859) 6 CBNS 367, 141 ER 499.

  • 103 Re Bowes (1886) 33 Ch D 586.

  • 104 The Aliakmon [1986] AC 785.

  • 105 Regulation 4.

  • 106 Peter G Watts, Bowstead & Reynolds on Agency (22nd edn, Sweet & Maxwell 2022) [11.025].

  • 107 See 1.6.

  • 108 Séverine Saintier, ‘Good Faith as an Overriding Requirement in Commercial Agency Contracts: “Legal Irritant” or Successful “Transformation”?’ (2014) ZvertriebsR 166–173. cf Andrea Tosato, ‘Commercial Agency and the Duty to Act in Good Faith’ (2016) OJLS 1.

  • 109 See Vick v Vogle-Gapes Ltd [2006] EWHC 1665.

  • 110 Regulation 4(2). Bowstead & Reynolds states that those obligations are not thought to be exhaustive: Peter G Watts, Bowstead & Reynolds on Agency (22nd edn, Sweet & Maxwell 2022) [11.025]. We agree.

  • 111 Regulation 4(2).

  • 112 Regulation 4(3).

  • 113 Regulation 5.

  • 114 Peter G Watts, Bowstead & Reynolds on Agency (22nd edn, Sweet & Maxwell 2022) [11.025]. For the link with the application of termination payments, see Séverine Saintier, ‘Good Faith as an Overriding Requirement in Commercial Agency Contracts: “Legal Irritant” or Successful “Transformation?” ’ (2014) ZvertriebsR 166–173.

  • 115 Regulation 6(1).

  • 116 Regulation 2(1).

  • 117 Regulation 6(3). Case law shows that other forms of payment include a mark-up: Mercantile International Group Plc v Chuan Soon Huat Industrial Group plc [2002] EWCA Civ 288; [2002] 1 Lloyd’s Rep 788 confirming AMB ImballagiPlastici SRL v Pacflex Ltd [1999] 2 All ER 249. Other possibilities include a retainer: Duffen v FraBo SpA (No 1) [1999] ECC 58.

  • 118 Regulation 7(1)(a).

  • 119 Regulation 7(1)(b).

  • 120 Regulation 7(2). In Kontogeorgas v Kartonpack [1996] ECR I 6643, it was held that the commercial agent was entitled to commission on sales made directly by the principal. Case C-19/07 Chevassus-Marche v Groupe Danone [2008] 1 Lloyd’s Rep 475 raises the issue whether a commercial agent is entitled to commission on sales done through parallel import. The Court of Justice of the European Union (CJEU) said no since there is a need for the principal to be involved. Munday states that the reasoning is also applicable to the agency regulations: Roderick Munday, Agency: Law and Principles (4th edn, OUP 2022) [9.34].

  • 121 See above 7.2.1.1

  • 122 Regulation 10(1).

  • 123 Regulation 10(2).

  • 124 See too Séverine Saintier and Jeremy Scholes, Commercial Agents and the Law (Taylor and Francis 2005) 123 and Peter G Watts, Bowstead & Reynolds on Agency (22nd edn, Sweet & Maxwell 2022) [11.033].

  • 125 Nor can the principal stop paying the commission for no valid reason: Bell Electric v Aweco Ltd [2002] EWHC 872, [2002] Eu LR 443.

  • 126 Regulation 11.

  • 127 Séverine Saintier and Jeremy Scholes, Commercial Agents and the Law (Taylor and Francis 2005) 125.

  • 128 Saintier and Scholes suggest that as long as the principal acts as a reasonable business person, they will not be ‘to blame’ for the non-performance: Séverine Saintier and Jeremy Scholes, Commercial Agents and the Law (Taylor and Francis 2005) 125. See too Peter G Watts, Bowstead & Reynolds on Agency (22nd edn, Sweet & Maxwell 2022) [11.031]: other language texts of the directive use expressions which indicate that commission is not payable when the contract is not performed for reasons which are not ‘attributable’ to the principal.

  • 129 Regulation 10(3).

  • 130 Regulation 12.

  • 131 Regulation 8.

  • 132 Regulation 8(a). Tigana Ltd v Decoro Ltd [2003] EWHC 23, [2003] Eu LR 189 where the reasonable period was said to be nine months. See too Monk v Largo Foods Ltd [2016] EWHC 1837 (Comm).

  • 133 Regulation 8(b).

  • 134 [2003] EWHC 28, [2003] Eu LR 189.

  • 135 Regulation 11(1)(a).

  • 136 Regulation 11(1)(b). For the meaning of ‘not to blame’, see n 128 above.

  • 137 Armstrong v Jackson [1917] 2 KB 822, 826 (McCardie J).

  • 138 See Kelly v Cooper [1993] AC 205; Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, 206 (Lord Browne-Wilkinson).

  • 139 Dunlop Haywards (DHL) Ltd v Barbon Insurance Group Ltd [2010] Lloyd’s Rep IR 149 [156] (Hamblen J).

  • 140 See Turpin v Bilton (1843) 5 Man & G 455, 134 ER 641 for failing to provide insurance.

  • 141 As Munday points out, there is a distinction between non-feasance and malfeasance: Roderick Munday, Agency: Law and Principles (4th edn, OUP 2022) [8.13].

  • 142 [1964] AC 465. Liability under the Hedley Byrne principle is now regarded as depending on a ‘voluntary assumption of responsibility’: see White v Jones [1995] 2 AC 207; Henderson v Merrett Syndicates Ltd [1995] 2 AC 145; Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 (HL).

  • 143 Banque Financière de la Cité SA v Westgate Insurance Co Ltd [1990] 1 QB 665 (CA) (no duty was found on the facts). See also Reid v Rush & Tompkins Group plc [1989] 3 All ER 228, [1990] 1 WLR 212 (CA) (no duty between employer and employee); Van Oppen v Clerk to the Bedford Charity Trustees [1990] 1 WLR 235 (CA) (no duty owed by school to pupil).

  • 144 Bowstead & Reynolds gives the example of an insurance broker instructed to provide full coverage. Failing to do so means that they are under a duty to warn: Peter G Watts, Bowstead & Reynolds on Agency (22nd edn, Sweet & Maxwell 2022) [6.016].

  • 145 Cohen v Kittel (1889) 22 QBD 680: the agent did not perform instructions which would have been illegal under the Gaming Act 1845 and was not found liable for breach of his duties.

  • 146 Ireland v Livingstone (1872) LR 5 HL 395, 416 (Lord Chelmsford): ‘if a P gives an order in such uncertain terms as to be susceptible of 2 different meanings, and the A bona fide adopts one of them and acts upon it, it is not competent to the P to repudiate the act as unauthorised because he meant the order to be read in the other sense which is equally capable’.

  • 147 [2001] Lloyd’s Rep Bank 229.

  • 148 ibid, [36].

  • 149 Woodhouse AC Israel Cocoa Ltd. SA v Nigerian Produce Marketing Co Ltd [1972] AC 741, 772 (Lord Salmon); European Asian Bank AG v Punjab and Sind Bank [1983] 2 All ER 508 (CA) 517 (Robert Goff LJ) who emphasised that this is so, when time allows. Goff LJ made reference to the fact that such a duty is particularly important when ‘modern communications facilities allow’. Given the time of the decision and the current modes of communication, this is therefore even more crucial.

  • 150 This is so even though this is done with the best intention and for the client’s interests. See eg Fray v Voules (1859) 1 E & F 839, 847; 120 ER 1125, 1128–1129 (Lord Campbell CJ): where a solicitor, in breach of instructions by a client, compromises an action as it is in the best interest of the client, the solicitor is in breach of their authority.

  • 151 Supply of Goods and Services Act 1982 (SGSA), s 13. See 19.2.

  • 152 See Iron Trade Mutual Insurance Co Ltd v J K Buckenham Ltd [1990] 1 All ER 808; Henderson v Merrett Syndicates Ltd [1995] 2 AC 145.

  • 153 Henderson v Merrett Syndicates Ltd [1995] 2 AC 145; Midland Bank Trust Co Ltd v Hett Stubbs & Kemp [1979] Ch 384: see further 19.2.1.

  • 154 The point was left undecided by the majority in Henderson v Merrett, but Lord Browne-Wilkinson expressed the view that there was no separate fiduciary duty of care: [1995] 2 AC 145, 205.

  • 155 [1995] 2 AC 145.

  • 156 Section 2. See 2.7.4.1; 19.2.2.

  • 157 For specific examples, see Roderick Munday, Agency: Law and Principles (4th edn, OUP 2022) [8.11]–[8.12].

  • 158 [1989] 1 WLR 29.

  • 159 de Bussche v Alt (1878) 8 Ch D 286 (CA) 310 (Thesiger LJ).

  • 160 Munday classifies the exception in seven categories: Roderick Munday, Agency: Law and Principles (4th edn, OUP 2022) [8.55]–[8.63].

  • 161 Solley v Wood (1852) 16 Beav 370, 51 ER 821.

  • 162 Allam & Co v Europa Poster Services Ltd [1968] 1 WLR 638.

  • 163 See Henderson v Merrett Syndicates Ltd [1995] 2 AC 145; Aiken v Stewart Wrightson Members’ Agency Ltd [1995] 3 All ER 449; Velos Group Ltd v Harbour Insurance Services Ltd [1997] 2 Lloyd’s Rep 461; Prentis Donegan & Partners Ltd v Leeds & Leeds Co Inc [1998] 2 Lloyd’s Rep 326; Pangood Ltd v Barclay Brown & Co Ltd [1999] 1 All ER (Comm) 460.

  • 164 New Zealand and Australian Land Co Ltd v Watson (1881) 7 QBD 374 (CA) 381–382 (Bramwell LJ).

  • 165 de Bussche v Alt (1878) 8 Ch D 286.

  • 166 ibid, 310–311.

  • 167 Calico Printers’ Association v Barclays Bank Ltd (1931) 145 LT 51 (CA).

  • 168 Lockwood v Abdy (1845) 14 Sim 437, 60 ER 428.

  • 169 [1998] 2 Lloyd’s Rep 326. cf Velos Group Ltd v Harbour Insurance Services Ltd [1997] 2 Lloyd’s Rep 461, described by Rix J in Prentis as involving ‘special facts’.

  • 170 [1998] 2 Lloyd’s Rep 326, 334. Compare Powell & Thomas v Evan Jones & Co [1905] 1 KB 11 (CA) 22 (Matthew LJ).

  • 171 [1995] 2 AC 145.

  • 172 [1964] AC 465.

  • 173 Contrast Balsamo v Medici [1984] 1 WLR 951, where it was held that a sub-agent was not liable in negligence for economic loss caused to the ultimate principal; see Simon Whittaker, ‘Remedies for Economic Loss against a Sub-Agent’ (1985) 48 MLR 86.

  • 174 Powell & Thomas v Evan Jones & Co [1905] 1 KB 11. See Andrew Tettenborn, ‘Principals, Sub-Agents and Accountability’ (1999) 115 LQR 655.

  • 175 [1998] 2 Lloyd’s Rep 326.

  • 176 ibid, 334.

  • 177 Section 1(2).

  • 178 Law Commission, Privity of Contract: Contracts for the Benefit of Third Parties (Law Com No 242, 1996) [7.18]. The Commission’s comments referred specifically construction contracts.

  • 179 A Scott ‘The Fiduciary Principle’ (1949) 37 California L Rev 539, 544.

  • 180 For a recent example of a discussion of the distinction between good faith and fiduciary duty, see In the matter of Compound Photonics Group Ltd and in the matter of Compound Photonics UK and the Companies Act 2006 [2022] EWCA Civ 1371.

  • 181 See especially Kelly v Cooper [1993] AC 205, 214 (Lord Browne-Wilkinson) and Henderson v Merrett Syndicates [1995] 2 AC 145, 206. For a detailed academic discussion, which goes beyond the scope of this book, see Peter G Watts, Bowstead & Reynolds on Agency (22nd edn, Sweet & Maxwell 2022) ch 6, especially [6.036]–[6.038].

  • 182 See P J Millett, ‘Equity’s Place in the Law of Commerce’ (1998) 114 LQR 214, 215.

  • 183 See ibid; Arklow Developments v Maclean [2000] 1 WLR 594.

  • 184 Arklow Developments v Maclean [2000] 1 WLR 594.

  • 185 [1996] 4 All ER 698, 711–712.

  • 186 See Leggatt J in Al Nehayan v Kent [2018] 1 CLC 216, [163] when he said that the enquiry as to whether there is a fiduciary relation was ‘an objective one involving the normative question whether the nature of the relation is such that one party is entitled to repose trust and confidence in the other’.

  • 187 See eg Boardman v Phipps [1967] 2 AC 46.

  • 188 See Peter G Watts, Bowstead & Reynolds on Agency (22nd edn, Sweet & Maxwell 2022) [6.034] et seq. The previous edition of this book (Robert Bradgate, Commercial Law (Butterworths 2000) 195, cited the 16th edition (1996) of Bowstead on Agency which stated at [6.034]: ‘the matter is too important to be left to the agreement of the parties’. This phrase is no longer present in the current edition.

  • 189 Foley v Hill (1848) 2 HL Cas 28, 36; 9 ER 1002, 1005 (Lord Cottenham LC).

  • 190 As in Boardman v Phipps [1967] 2 AC 46.

  • 191 Triffit Nurseries v Salads Etc Ltd [1999] 1 All ER (Comm) 110, 116 (Longmore J).

  • 192 See eg Kelly v Cooper [1993] AC 205; Neste Oy v Lloyds Bank plc [1983] 2 Lloyd’s Rep 658; Kingscroft Insurance Co Ltd v H S Weavers (Underwriting) Agencies Ltd [1993] 1 Lloyd’s Rep 187, below 7.3.1.8.

  • 193 Whether the agent is a fiduciary will depend on what they are authorised to do. On this, see Peter G Watts, Bowstead & Reynolds on Agency (22nd edn, Sweet & Maxwell 2022) [6.037]. See too F E Dowrick, ‘The Relationship of Principal and Agent’ (1954) 17 MLR 24. See also the retention of title cases such as Clough Mill Ltd v Martin [1985] 1 WLR 111, below 22.7.

  • 194 Kelly v Cooper [1993] AC 205, 213 (Lord Browne-Wilkinson). Certain of his Lordship’s comments in Kelly suggest that where there is a contractual relationship between principal and agent the contract is the source of the agent’s duties. However, in Henderson v Merrett Syndicates [1995] 2 AC 145 his Lordship made clear that the agent’s fiduciary duties arise independently of, but are capable of being modified by, the express and implied terms of the contract and the surrounding circumstances.

  • 195 See Henderson v Merrett Syndicates [1995] 2 AC 145, 205; Bristol and South West Building Society v Mothew [1996] 4 All ER 698, 710.

  • 196 Peter G Watts, Bowstead & Reynolds on Agency (22nd edn, Sweet & Maxwell 2022) [6.038]. An agent may therefore continue to owe certain fiduciary duties to their former principal even after termination of the agency relationship. For illustrations, see Yasuda Fire and Marine Insurance Co of Europe Ltd v Orion Marine Insurance Underwriting Agency Ltd [1995] QB 174, below 7.3.1.8 (duty to provide accounts); A-G v Blake [1998] Ch 439 (CA), below 7.3.1.6 (duty of confidentiality).

  • 197 FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45, [2014] 3 WLR 535.

  • 198 See 7.3.1.7.

  • 199 Aberdeen Rly Co v Blaikie Bros (1854) 1 Macq 461 (HL) 471 (Lord Cranworth LC).

  • 200 Munday reflects that at its core, fiduciary duties require ‘loyalty and fidelity’: Roderick Munday, Agency: Law and Principles (4th edn, OUP 2022) [8.18].

  • 201 Boardman v Phipps [1967] 2 AC 46, 111 (Lord Hodson); see further 7.3.1.6. This is so even if the agent does not realise they are doing something wrong: Imageview Management Ltd v Jack [2009] 1 Lloyd’s Rep 436. This latter case is criticised as being too harsh: Peter Watts, ‘Forfeiture of Agents’ Remuneration’ in P Devonshire and R Havelock (eds), The Impact of Equity and Restitution in Commerce (Hart Publishing 2018), 203.

  • 202 Boston Deep Sea Fishing v Ansell (1888) 39 Ch D 339 (CA) 357 (Cotton LJ).

  • 203 Rhodes v Macalister (1923) 29 Com Cas 19 (CA) 28 (Scrutton LJ). See also Andrews v Ramsay [1903]2 KB 635 (CA) 642 (Lord Alverston CJ): the principal was entitled to have ‘an honest agent’.

  • 204 Lucifero v Castell (1887) 3 TLR 371; Kimber v Barber (1872) 8 Ch App 56 (CA); Armstrong v Jackson [1917] 2 KB 822.

  • 205 de Bussche v Alt (1878) 8 Ch D 286.

  • 206 Rhodes v Macalister (1923) 29 Com Cas 19 (CA) 29 (Atkins LJ). See too more recent cases on the emphasis of consent: Hopkins v TL Dallas Group Ltd [2005] 1 BCLC 543 and Hurstanger Ltd v Wilson [2007] 1 WLR 2351.

  • 207 McMaster v Byrne [1952] 1 All ER 1362 (PC).

  • 208 (1877) 3 App Cas 254.

  • 209 Robinson v Mollett (1875) LR 7 HL 802.

  • 210 (1820) 8 Price 127, 146 ER 1152.

  • 211 Burland v Earle [1902] AC 83.

  • 212 For rules on undue influence, see Robert Merkin and Séverine Saintier, Poole’s Textbook on Contract Law (16th edn, OUP 2023) 428–447.

  • 213 [1993] AC 205.

  • 214 ibid; see Ian Brown, ‘Divided Loyalties in the Law of Agency (Case Comment)’ (1993) 109 LQR 206; F M B Reynolds, ‘Fiduciary Duties of Estate Agents (Case Comment)’ [1994] JBL 147; see also Clark Boyce v Mouat [1994] 1 AC 428, [1993] 4 All ER 268. In Rossetti Marketing Ltd v Diamond Sofa Co Ltd [2013] 1 All ER (Comm) 388, the argument that Kelly v Cooper should apply to commercial agency agreements was rejected.

  • 215 See Prince Jefri Bolkiah v KPMG [1999] 2 AC 222, 235 (Lord Millett).

  • 216 See Hippisley v Knee Bros [1905] 1 KB 1, below 7.3.1.6.

  • 217 Phipps v Boardman [1964] 1 WLR 993, 1010 (Wilberforce J).

  • 218 Turnbull v Garden (1869) 38 LJ Ch 331.

  • 219 Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378, 386, [1976] 2 AC 134, 145 (Lord Russell).

  • 220 [1967] 2 AC 46.

  • 221 Peter Pan Manufacturing Corpn v Corsets Silhouette Ltd [1964] 1 WLR 96.

  • 222 Peter J Millett, ‘Equity’s Place in the Law of Commerce’ (1998) 114 LQR 214; Arklow Investments Ltd v Maclean [2000] 1 WLR 594.

  • 223 Saltman v Campbell (1948) 65 RPC 203 (CA) 215 (Lord Greene MR).

  • 224 Coco v Clark [1969] RPC 41, 47 (Megarry J).

  • 225 Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443; A-G v Blake [1998] Ch 439 (CA); Prince Jefri Bolkiah v KPMG [1999] 2 AC 222.

  • 226 Faccenda Chicken Ltd v Fowler [1985] 1 All ER 724; aff’d [1987] Ch 117.

  • 227 A-G v Blake [1998] Ch 439 (CA).

  • 228 [1905] 1 KB 1.

  • 229 See also Stewart Chartering Ltd v Owners of the Ship Peppy [1997] 2 Lloyd’s Rep 722.

  • 230 Rhodes v Macalister (1923) 29 Com Cas 19 (CA) 29 (Atkins LJ).

  • 231 [1905] 1 KB 1.

  • 232 [1967] 2 AC 46.

  • 233 The fact that it is secret is particularly important to render it illegitimate. As soon as the principal knows (or should know), the payment loses its illegitimate character and the principal cannot recover it: Roderick Munday, Agency Law and Principles (4th edn, OUP 2022) [8.43].

  • 234 Anangel Atlas Compania Naviera SA v Ishikawajima Harima Heavy Industries Co (No 1) [1990] 1 Lloyd’s Rep 167, 171 (Leggatt J).

  • 235 In Industries and General Mortgage Co Ltd v Lewis [1949] 2 All ER 573, 575 Slade J stated that ‘proof of corruptness or corrupt motive is unnecessary’. Munday nevertheless states that there is a distinction in the vocabulary used in the courts: ‘bribe’ indicates corruption contrary to ‘secret commission’ when that is not the case. See Roderick Munday, Agency: Law and Principles (4th edn, OUP 2022) [8.42].

  • 236 Industries and General Mortgage Co Ltd v Lewis [1949] 2 All ER 573, 575 (Slade J); Stewart Chartering Ltd v Owners of the Ship Peppy [1997] 2 Lloyd’s Rep 722. Contrast Guinness plc v Saunders [1990] 2 AC 663; Estate Realties Ltd v Wignall (No 2) [1992] 2 NZLR 615.

  • 237 And the law is particularly strict since once the bribe is established, it is presumed that it was given with an intention to induce: see Roderick Munday, Agency: Law and Principles (4th edn, OUP 2022) [8.41].

  • 238 A-G for Hong Kong v Reid [1994] 1 AC 324 (PC) 330 (Lord Templeman).

  • 239 See Arab Monetary Fund v Hashim [1993] 1 Lloyd’s Rep 543, 564.

  • 240 [1890] 45 Ch D 1 (CA).

  • 241 See A-G’s Reference (No 1 of 1985) [1986] QB 491.

  • 242 Sir Peter Millett, ‘Bribes and Secret Commissions’ [1993] RLR 7. Contrast Roy Goode, ‘Property and Unjust Enrichment’ in Andrew Burrows (ed), Essays on the Law of Restitution (Clarendon Press 1991) 215; Roy Goode, ‘Recovery of a Director’s Improper Gains’ in Ewan McKendrick (ed), Commercial Aspects of Trusts and Fiduciary Obligations (OUP 1992) 137.

  • 243 [1994] 1 AC 324.

  • 244 See Robert A Pearce, ‘Personal and Proprietary Claims against Bribees’ [1994] LMCLQ 189; A J Oakley, ‘The Bribed Fiduciary as Constructive Trustee’ (1994) 53 CLJ 31.

  • 245 See Thomas Allen, ‘Bribes and Constructive Trusts: A-G of Hong Kong v Reid’ (1995) 58 MLR 87.

  • 246 Roy Goode, ‘Ownership and Obligation in Commercial Transactions’ (1987) 103 LQR 433, 441–445.

  • 247 See Thomas Allen, ‘Bribes and Constructive Trusts: A-G of Hong Kong v Reid’ (1995) 58 MLR 87.

  • 248 Industries and General Mortgage Co Ltd v Lewis [1949] 2 All ER 573.

  • 249 But the principal is not obliged to treat it as part of the price: Logicrose Ltd v Southend Utd Football Club Ltd [1988] 1 WLR 1256.

  • 250 [1891] 1 QB 168.

  • 251 [1979] AC 374; see A Tettenborn (1978) 94 LQR 344.

  • 252 Logicrose Ltd v Southend Utd Football Club Ltd [1988] 1 WLR 1256.

  • 253 In Sinclair Investments (UK) Ltd v Versailles Trade Fiannce Ltd [2012] Ch 453, the Court of Appeal held that Lister was in fact correctly decided. The case was however heavily criticised by Lord Millett in ‘Bribes and Secret Commissions Again’ [2012] CLJ 583.

  • 254 [2014] UKSC 45, [2014] 3 WLR 535.

  • 255 ibid, [46]. Lord Neuberger was very much aware of the numerous academic commentaries against such a position, (at [29]), but held that such a position was in line with policy considerations and necessary as held by other common law jurisdictions (at [45]).

  • 256 See s 2(2), s 2(4) and s 2(5).

  • 257 In McGann v Bisping [2017] EWHC 2951 (Comm), [297] Richard Salter QC made clear that this was only due by the agent to their principal and not the other way around.

  • 258 Roderick Munday, Agency: Law and Principles (4th edn, OUP 2022) [8.70].

  • 259 ibid, [8.72].

  • 260 See Neste Oy v Lloyds Bank plc [1983] 2 Lloyd’s Rep 658; Kingscroft Insurance Co Ltd v H S Weavers (Underwriting) Agencies Ltd [1993] 1 Lloyd’s Rep 187, 191; Triffit Nurseries v Salads Etc Ltd [2000] 1 All ER (Comm) 737.

  • 261 Re Japan Leasing (Europe) plc [1999] BPIR 911. For certain commercial agreements, such as shipping agents, it is clear that no trust could arise: Henry v Hammond [1913] 2 KB 515.

  • 262 Triffit Nurseries v Salads Etc Ltd [2000] 1 All ER (Comm) 737. The question is also closely related to the discussion surrounding retention of title clauses, on which see 22.7.5.

  • 263 Gray v Haig (1855) 20 Beav 219, 226; 52 ER 587, 590 (Romilly MR).

  • 264 Yasuda Fire and Marine Insurance Company of Europe Ltd v Orion Marine Insurance Underwriting Agency Ltd [1995] 3 All ER 211, 219 (Colman J).

  • 265 ibid.

  • 266 Regulation 3(1).

  • 267 Regulation 3(2).

  • 268 In Npower Direct Ltd v South of Scotland Power Ltd [2005] EWHC 2123, [2005] All ER(D) 73, Cresswell J held that the duty of good faith added nothing to common law. In Rossetti Marketing Ltd v Diamond Sofa Co Ltd [2012] 1 All ER (Comm) 18, [41] Cranston J stated that the obligation to act ‘dutifully’ resembled the fiduciary duty of loyalty. For a similar doctrinal position, see Roderick Munday, Agency: Law and Principles (4th edn, OUP 2022) [8.79]. For a contrary view, see Andrea Tosato, ‘Commercial Agency and the Duty to Act in Good Faith’ (2016) OJLS 1.

  • 269 (2000) SLT 27.

  • 270 [2006] Eu LR 933.

  • 271 ibid, 940 G [14].

  • 272 ibid.

  • 273 ibid, 941 B [15].

  • 274 Regulation 5.

  • 275 [1993] AC 205, above 7.3.1.5.

  • 276 [2012] 1 All ER (Comm) 18. The Court of Appeal reversed the first instance decision. For a commentary welcoming such a decision, see Séverine Saintier, ‘Good Faith as an Overriding Requirement in Commercial Agency Contracts: “Legal Irritant” or Successful “Transformation”?’ (2014) ZvertriebsR 166–173.

  • 277 For Saintier and Scholes, such obligations were more likely to be contractual in nature as it fitted more with the preservation of the commercial agent’s right to a termination payment if they terminate the contract where such termination is ‘justified by circumstances attributable to the principal’ as per regulation 18(b): Séverine Saintier and Jeremy Scholes, Commercial Agents and the Law (Taylor and Francis 2005) 107.

  • 278 [2006] Eu LR 933.

  • 279 ibid, 943c [20]. This was upheld in Crocs Europe BV v Craig Lee Anderson, t/a Spectrum Agencies(a partnership) [2012] EWCA Civ 1400, [2013] 1 Lloyd’s Rep 1.

  • 280 It is not necessary that the party terminating the contract should be aware of the breach at the time of termination: Boston Deep Sea Fishing and Ice Co v Ansell (1888) 39 Ch D 339 (CA).

  • 281 [1955] 2 QB 556.

  • 282 Regulation 15.

  • 283 Heyman v Darwins Ltd [1942] AC 356, 361. See generally 2.10.3.

  • 284 Atlantic Underwriting Agencies Ltd v Compagnia di Assicurazione di Milano SpA [1979] 2 Lloyd’s Rep 240.

  • 285 Regulation 15(2).

  • 286 [1999] CLR 36.

  • 287 See 7.1.1.1.

  • 288 See Alpha Trading Ltd v Dunnshaw-Patten [1981] QB 290 (CA), above 7.2.1.1.

  • 289 (1876) 1 App Cas 256 (HL).

  • 290 [1891] 1 QB 544 (CA).

  • 291 This is so even if the other party has no knowledge of the death: Campanari v Woodburn (1854) 15 CB 400, 139 ER 480.

  • 292 Salton v New Beeston Cycle Co [1900] 1 Ch 43. See too Triffit Nurseries v Salads Etcetera Ltd [1999]1 Lloyd’s Rep 697, aff’d [2000] 1 All ER (Comm) 737 (CA).

  • 293 Enduring Powers of Attorney Act 1985.

  • 294 Drew v Nunn (1879) 4 QBD 661.

  • 295 Pacific and General Insurance Co Ltd v Hazell [1997] BCC 400.

  • 296 Triffit Nurseries v Salads Etc Ltd [1999] 1 All ER (Comm) 110; aff’d [2000] 1 All ER (Comm) 737 (CA).

  • 297 See F M B Reynolds, ‘When Is an Agent’s Authority Irrevocable?’ in Ross Cranston (ed), Making Commercial Law: Essays in Honour of Roy Goode (Clarendon Press 1977).

  • 298 Powers of Attorney Act 1971, s 4.

  • 299 Warren v Mendy [1989] 1 WLR 853 (CA).

  • 300 See above 7.4.1.1, text following n 284.

  • 301 Regulation 8.

  • 302 Regulation 9.

  • 303 Regulation 17.

  • 304 86/653/EEC, Art 17.

  • 305 For a longer explanation of the basis, see Séverine Saintier and Jeremy Scholes, Commercial Agents and the Law (Taylor and Francis 2005) 156–158.

  • 306 The operation of the compensation/indemnity provisions was reviewed by the Law Commission, Privity of Contract: Contracts for the Benefit of Third Parties (Law Com 242, 1996).

  • 307 Regulation 17(2).

  • 308 Regulation 17(8).

  • 309 Regulation 18.

  • 310 Regulation 16 and 86/653/EEC, Art 16 respectively.

  • 311 Cooper, Watkins, Bartley v Pure Fishing (UK) Ltd [2004] EWCA Civ 375.

  • 312 Bell Electric Ltd v Aweco Appliance Systems GmbH & Co KG [2002] EWHC 872.

  • 313 Moore v Piretta Ltd [1999] 1 All ER 174 was the first case where the issue was touched upon. The matter was expressly dealt with in Whitehead v Jenks and Cattell [1999] Eu LR 827 where Deputy Judge Alton took a purposive interpretation. In this case, which involved a contract for a fixed period of five years, six months prior to the contract ending, the principal wrote to the commercial agent indicating that the contract would not be renewed on similar terms and offered terms that he knew would not be agreed to by the commercial agent. The commercial agent refused and claimed compensation. The court agreed. See too Frape v Emreco [2002] SLT 371 and Tigana Ltd v Decoro Ltd [2003] EWHC 23, [2003] Eu LR 189.

  • 314 Regulation 19.

  • 315 Regulation 17(9). Notification need not be in any particular form, so long as it clearly indicates the agent’s intention to pursue a claim under the regulations: Hackett v Advanced Medical Computer Systems Ltd [1999] CLC 160.

  • 316 Regulation 17(3).

  • 317 Regulation 17(4).

  • 318 [1999] 1 All ER 174.

  • 319 Case C-465/04 [2006] ECR I-02879.

  • 320 ibid, [32].

  • 321 ibid, [27].

  • 322 Case C-348/07 [2009] 3 CMLR 12.

  • 323 ibid, [25].

  • 324 ibid, [30].

  • 325 ibid, [32].

  • 326 Case C-315/14, EU:C:2016:211, [2016] Bus LR 694.

  • 327 ibid, [33].

  • 328 Regulation 17(7).

  • 329 Lonsdale (t/a Lonsdale Agencies) v Hallam Ltd [2007] UKHL 32, [2007] 1 WLR 2055.

  • 330 [1997] 3 All ER 656.

  • 331 On the closeness with the French system, see Séverine Saintier ‘New Developments in Agency Law’ [1997] JBL 77; Séverine Saintier ‘Good Faith and the Commercial Agents’ Regulations 1993’ (1998) Company Lawyer 248.

  • 332 For an in-depth account, see Séverine Saintier and Jeremy Scholes, Commercial Agents and the Law (Taylor and Francis 2005).

  • 333 See ibid.

  • 334 In King v Tunnock [2000] IRLR 569, the court awarded the commercial agent a sum equal to two years’ commission. For a contrary position, see Duffen v FRABo SpA (No 2) [2000] 1 Lloyd’s Rep 180 where Judge Hallgarten refused to follow the French practice and awarded the agent no compensation. On the facts the agent had brought the principal no new business. The agent was entitled to substantial sums under the terms of the agency agreement which enabled him to recoup his costs and expenses connected with the commercial agency.

  • 335 [2007] UKHL 32, [2007] 1 WLR 2055. See Séverine Saintier ‘Final Guidelines on Compensation on Commercial Agents’ (2008) 124 LQR 31 and Laura Macgregor, ‘Compensation for Commercial Agents: An End to Plucking Figures from the Air? (Case Comment)’ (2008) 12 Edin LR 86.

  • 336 [2007] UKHL 32, [2007] 1 WLR 2055, [9].

  • 337 ibid, [9].

  • 338 ibid, [11].

  • 339 ibid, [35] (Lord Hoffmann).

  • 340 ibid.

  • 341 McQuillan v McCormick [2010] EWHC 1112, [2011] ECC 18; Invicta UK Ltd v International Brands Ltd [2013] EWHC 1564, [2013] ECC 30; Alan Ramsay Sales and Marketing Ltd v Typhoo Tea Ltd [2016] EWHC 486; Monk v Largo Foods Ltd [2016] EWHC 1387 (Comm); Nigel (A Firm) v Pluczenic Diamond Co NV [2017] EWHC 1750 (Comm), [2017] 2 Lloyd’s Rep (obiter).

  • 342 F Randolph and J Davey, The European Law of Commercial Agency (3rd edn, Hart Publishing 2010) 123.

  • 343 See King v Tunnock [2000] Eu LR 531. In Roy v MR Pearlman Ltd [1999] 2 CMLR 1155, the court held that wrongful termination is nevertheless valid. In such a situation the commercial agent is therefore entitled to claim compensation and damages. For indemnity, clarification comes through the CJEU decision of Case C-338/14 Quenon K SPRL v Beobank SA (formerly Citibank Belgium SA) and another [2016] Bus LR 264 [33] where it was held that to award damages in addition to indemnity was therefore entirely to member states’ discretion.

  • 344 Regulation 20.

  • 345 Above 7.4.1.3.

  • 346 See Summers v Solomon (1857) 7 E & B 879, 119 ER 1474; see also Rockland Industries Inc v Amerada Minerals Corpn of Canada Ltd (1980) 108 DLR (3d) 513, where A’s authority was not terminated but limited.

  • 347 (1879) 4 QBD 661 (CA).

  • 348 Powers of Attorney Act 1971, s 5.

  • 349 [1910] 1 KB 215 (CA).

  • 350 See 5.2.

© Oxford University Press 2024