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. 214↵existence 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. 215↵negotiate 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. 216↵be 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. 217↵created 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.

7.2.1.1 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. 219↵whether 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. 220↵French & 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. 221↵may 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

7.2.2.1 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. 223↵which 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

7.3.1.1 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. 226↵assumption 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. 227↵by 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. 228↵In 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. 229↵authorised 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. 230↵exercise 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. 231↵the 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. 232↵caution, 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:

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. 233↵There 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. 234↵Two 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. 235↵that 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. 237↵A 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:

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. 239↵loss 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. 240↵account 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.

7.4.1.1 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. 243↵promoting 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. 244↵by 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

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

7.4.2.1p. 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

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