Law of Agency: Commercial Agents

Introduction to Commercial Agents

A particular type of agent - a market maker. If they are successful then they are extremely key in a business's development. They create an ongoing asset of enhanced goodwill. EU law sees it as unfair that the principal should keep all the benefit for an asset whose value is ongoing. As civil law jurisdictions didn't agree on what rules were correct for commercial agents, the law was harmonised.

As this is a piece of EU law, interpreting EU law is necessary rather than using domestic law concepts: De Danske Bilimpotorer. Lord Templeman stressed that the UK courts are under a positive duty to take a purposive construction to the regulations and directives, and to make sure they follow the practices of the EUCJ: Lister v Forth Dry Dock. The purpose of the Directive (in light of which cases must be interpreted) was made clear by Morison J in Tamarind v Eastern Gas - the Directive is specifically aimed at protecting agents by giving them the benefit of the goodwill the principal will benefit from. The question is therefore, whether the agent develops the principal's interest market and expends their own time and resources.

Basic Definition

A commercial agent is defined in Part 1 s2(1) of the Commercial Agents Regulations (CAR):

'In these regulations -
"commercial agent" means 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 that principal...'

It is questionable whether English principles of agency law are supposed to have the same meaning under the regulations, specifically 'conclude the sale or purchase of goods on behalf of...[the] principal'. Lord Hoffmann in Lonsdale v Howard & Hallam justified different member states having different interpretations on the commercial agency Directive's rules on compensation. It is not self-evident that the Directive was intended to have a diverse meaning with member states.

Again, how the parties define the relationship can be pretty irrelevant: 'Evidence from parties or from witnesses of what they understand the words to mean and how they characterise a particular commercial relationship will rarely assist': Sagal v Atelier Bunz per HHJ Mackie.

The components of the definition shall now be considered in turn:

a) Self-Employed

This is necessary, as employees are already protected by employment law. To determine whether the agent is self-employed, you have to rule out that he does not come under an employee's definition, and that the effects/constituents of the agreement don't amount to a contract of service: Smith v Reliance Water. An employee provides his work/skill for his master, for consideration, agreeing that he will be subject to enough control to make that other the master, and the other provisions of the contract are consistent with it being a contract of service: per Mackenna J Ready Mixed Concrete v Minister of Pensions. NB a self-employed intermediary can mean a legal person (a company): Bell Electric v Aweco Appliance. In most cases, the agent's self-employment is self-evident: Marjandi v Bon Accord. 

b) Continuing Authority

Having authority for a one-off contract doesn't make you a commercial agent. However, a single contract with authority for successive renewals and extensions of it applies. Continuing authority also exists where there is a string of individual contracts: Poseidon Chartering v Zeeschip. 

c) 'Sale or Purchase of Goods'

Developing a market for services doesn't make you a commercial agent: Crane v Sky In-Home Service. The borderline can be murky however: for example computer hardware counts as good (The Sale of Goods Act 1972 applies) but software isn't: St Albans City v International Computers. The difference is that a sale requires a transfer of ownership - software only involves a licence to use it.

d) 'Negotiate on behalf of' or 'negotiate and conclude on behalf of and in the name of'

Agents who effect introductions ('canvassing agents') only fall within the commercial agents definition in reg 2(1) if a wide interpretation is given to 'negotiate'. But this issue is unresolved.

In Parks v Esso Petroleum Morritt LJ was prepared to give 'to negotiate' a wide construction. He stated that to determine whether the negotiations fulfill the commercial agent definition depends on i) whether the agent dealt with, managed or conducted the relevant transaction, and ii) what material process the negotiation involved. Subsequently however, Fulford J argued that Morritt LJ's statement was 'unduly wide': PJ Pipe v Audco India. This was reinforced by Tigana v Decoro where the agent cemented the relationship between the principal and his clientèle. It didn't matter that the agent didn't have authority to agree terms or price. Applying PJ Pipe what matters is protecting agents who generate goodwill. Fulford J said 'negotiate' meant 'to deal with, manage or conduct'.

e) 'On behalf of another person (the principal)'  or 'on behalf of and in the name of that principal'

Undisclosed principal's can't have commercial agents because of this requirement as they appear to act on their own behalf: Sagal v Atelier Bunz. The same goes for a commission agent, who concludes the contract in their own name: Mavrona v Delta. And an agent who sells for a mark-up, as they are acting on their own behalf: Imballaggi Plastici v Pacflex. If the agent makes any contractual relationship with the third party then they act for their own benefit, falling outside of the second limb: re Nevill. 

f) Sub-agents

If the agent delegates their tasks they don't receive the benefits of the regulations: Light v Ty Europe. Otherwise apportionment would be necessary and 'chaos and confusion' would arise.

g) Domestic Law Extensions

Member States cannot narrow the concept of a commercial agent, but they can be more generous to them. For example, in Dutch law, the distinction between goods and services doesn't arise.

Secondary Activities

A qualification to the definition of a commercial agent is that they don't receive the benefit of the regulations if their activities are considered 'secondary' (Directive art 2(2))

Since the UK previously had no concept of commercial activity, there was also no concept of a 'secondary activity'. This needed creating and defining, and it was so in Reg 2(3) and The Schedule to the CAR. The burden of showing this lies on the agent. This may not fit every situation, so in cases where 2 purposes of the agent's arrangement have equal value, this doesn't mean the agent's tasks are secondary: Crane v Sky-In-Home. 

The Schedule;

1.  The activities of a person as a commercial agent are to be considered secondary where it may reasonably be taken that the primary purpose of the arrangement with his principal is other than as set out in paragraph 2 below.

2.  An arrangement falls within this paragraph if—

(a)the business of the principal is the sale, or as the case may be purchase, of goods of a particular kind; and

(b)the goods concerned 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 that customer on future occasions, or to transactions in those goods with other customers in the same geographical area or among the same group of customers, and

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.

3.  The following are indications that an arrangement falls within paragraph 2 above, and the absence of any of them is an indication to the contrary—

(a)the principal is the manufacturer, importer or distributor of the goods;

(b)the goods are specifically identified with the principal in the market in question rather than, or to a greater extent than, with any other person;

(c)the agent devotes substantially the whole of his time to representative activities (whether for one principal or for a number of principals whose interests are not conflicting);

(d)the goods are not normally available in the market in question other than by means of the agent;

(e)the arrangement is described as one of commercial agency.

4.  The following are indications that an arrangement does not fall within paragraph 2 above—

(a)promotional material is supplied direct to potential customers;

(b)persons are granted agencies without reference to existing agents in a particular area or in relation to a particular group;

(c)customers normally select the goods for themselves and merely place their orders through the agent.

5.  The activities of the following categories of persons are presumed, unless the contrary is established, not to fall within paragraph 2 above: Mail order catalogue agents for consumer goods. Consumer credit agents. 

To not be secondary, the court must be convinced that the commercial interest of the principal is furthered in the ways outlined in paras 2(a) + (b). In Imballaggi Plastici v Pacflex Waller LJ saw force in the argument that if the agent's arrangement with their principal falls within para 2, only by using indications under paras 3 and 4 for the purpose of making that assessment, then it must be taken to not be secondary.
In Crane v Sky-In-Home Briggs J thought the question of what the agent's primary purpose is best determined by looking to the time the agent was appointed.

a) Applying the Schedule

Apply in order:

     Reg 2(3): Directs to the Schedule to determine what activities are secondary.
     Para 1: The focus of the Schedule, that is, determining the primary purpose of the agent and principal's relationship
     Para 2: If the primary purpose then falls outside of para 2, then the commercial agent's activities are secondary and they cannot take advantage of the Regulations.
     Para 3 + 4: Amplifies activities which may be secondary
     Crane v Sky In-Home: Determine what activities are secondary by reference to the time of the contract's conclusion.
     Edwards v International Connection: How the agency is performed has no direct relevance to the question of whether the primary purpose test is satisfied. Accordingly, whether transactions are generally negotiated on an individual basis aren't in point.
     Crane: If the agent has two purposes of equal status, so that neither can be described as primary, para 1 does not apply (since there needs to be a primary purpose) and the agent's activities won't be secondary for the purposes of the Regulations.

Specific Exclusions

Agents which cannot be commercial agents:

- Company directors, partners and insolvency practitioners: reg 2(1).
- Gratuitous agents of those acting on commodity exchanges: reg 2(2)(a), (b).
- Certain Crown agents: reg 2(2)(c).

Fiduciary Obligations under the Commercial Agents Regulations

Mandatory mutual duties (reg 5(1)) to act 'dutifully and in good faith' from the agent (reg 3) and from the principal (reg 4). 'Dutifully and in good faith' is a concept of the civil law. We can analyse this duty by analogy with English employment law where duties of mutual trust and confidence are recognised. In Vick v Vogle-Gapes it was held that the duty in the CAR is at least as wide as the implied reciprocal obligations in an employment contract. They approved the formulation of this duty from Malik v Bank of Credit that a party 'shall not without reasonable and proper cause' act in a manner 'calculated and likely to destroy or seriously damage the relationship of trust and confidence between employer and employee'.

It is arguable that due to these mutual duties, 'good faith' could act as a qualification on the principal's powers. Although it has not been confirmed, it is arguable that a commercial agent could invoke reg 4 to prevent a principal acting arbitrarily in deciding whether to deal with a party brought forward by the agent: Page v Combined Shipping & Transport. The most this restriction could be is the principal must have a good reason not to contract. A lesser restriction would be that the principal must at least give genuine consideration to contracting with an introduced third party. However, reg 4 cannot be invoked where the contract between the principal and commercial agent addresses the issue of the principal's obligation to act reasonably (in some respect): Npower v South of Scotland Power. 

The consequence of a breach by either party are damages to the innocent party under normal contract law rules - the breach is of a performance obligation, not a fiduciary one: reg 5(2).

Remuneration for Commercial Agents

The definition of commission is set out in reg 2(1):

'"[C]ommission" means any part of the remuneration of a commercial agent which varies with the number or value of business transactions.'

Hence, mark-up is not commission: Mercantile International Group v Chuan Soon Huat because 1) Mark up doesn't even count as 'remuneration': Imballaggi Plastici v Pacflex 2) The language of the regulation suggests commission connotes a much closer relationship between the remuneration and the number or value of business transactions than mark-up has 3) It is confirmed by regs 7 and 8: If there is agreement as to the remuneration, the principal can calculate commission by reference to the number or value of transactions. Reg 12 (mandatory) also states that a principal can supply a statement of the commission due. These regulations are inoperable in cases of mark-up in an amount not known to the principal.

Entitlement to and payment of commission

Entitlement during the agency contract

Set out in reg 7(1):

'A commercial agent shall be entitled to commission on commercial transactions concluded during the period covered by the agency contract -

(a)         where the transaction has been concluded as a result of his action; or
(b)         where the transaction is concluded with a third party whom he has previously acquired as a customer for transactions of the same kind.'

'As a result of' is clearly based on causation, but we don't know if it goes so far as the effective cause rule.

Another right of the commercial agent is for commission from groups of customers or parties in his area, reg 7(2):

'A commercial agent shall also be entitled to commission on a transaction concluded during the period covered by the agency contract where he has an exclusive right to [1] a specific geographical area or to [2] a specific group of customers and [in case 1 or 2] where the transaction has been entered into with a customer belonging to that group or area'.

This is an exclusive right: there is no need for a causal link between the activity of the agent and the customer in his area/group: Kontogeorgas v Kartonpak. But, commission is only possible where the principal acted, directly or indirectly, in its conclusion: Chevassus-March v Groupe Danone (following from references to the principal in regs 10 and 11).

Entitlement after the agency contract has terminated

Determined by regs 7, 8 and 9.

Reg 8:

'Subject to regulation 9 below, a commercial agent shall  be entitled to commission on commercial transactions concluded after the agency contract has terminated if -

(a)           the transaction is mainly attributable to his efforts during the period covered by the agency contract and if the transaction was entered into within a reasonable period after that contract terminated; or
(b)           in accordance with the conditions mentioned in regulation 7 above, the order of the third party reached the principal or the commercial agent before the agency contract terminated'

As 8b) says, reg 7 must be satisfied during the agency.

To determine the length of a 'reasonable period' and how 'attributable' the contract must be to the commercial agent is determined by the facts of the case, and both must be satisfied - their relationship is 'conjunctive and cumulative': Tigana v Decoro per Davis J. It will depend on the nature of the agency. If the agency operates in a market where the value of goods are subject to fluctuation, or consistent changes (such as IT and clothing), then the reasonable time will vary. The same goes for life-long equipment, such as aircraft and automative machinery in Ingmar v Eaton Leonard where 21 months was 'within a reasonable period' due the product and customer base. The 'reasonable period' may also be determined by the contracting parties: Vick v Vogle-Gapes. 

When there are 2 commercial agents, where one replaces the other, both may be able to claim for commission: the first under reg 8, and the second under reg 7. This issue is dealt with by reg 9, which says that the starting point is that reg 8 takes priority over reg 7. Reg 8 is more meritorious - by definition the work done is still mainly attributable to the first agent. However, reg 9 concedes some circumstances where it may be unfair to give all the commission to the first agent: 'unless it is equitable under the circumstances for the commission to be shared', this gives a judicial discretion to apportion the commission. But there needs to be significant input by the second agent, even though most of the work is still attributable to the first.

Loss to the right of commission

Determined by reg 11(1):

'The right to commission can be extinguished only if and to the extent that -

(a)       It is established that the contract between the third party and the principal will not be executed; and
(b)       That fact is due to a reason for which the principal is not to blame.'

'Established' = a fact rather than a supposition. 'Blame' does not connote fault in the English sense - it merely means that non-performance was caused by the principal. It's clear that if the transaction won't occur due to the third party or frustrating event won't generate commission for the agent.

Financial Consequences of Termination of Authority

Commercial Agent's Entitlement to Compensation or Indemnity

For entitlements at common law, they must be explicit in the contract. But in commercial agency, the relationship is at arm's length. If the agency terminates then they are entitled to be bought of their hypothetical shares - meaning significant reparation is given. Although the regulations don't use this language, this is their effect.

reg 17(1)

'This regulation has effect for the purpose of ensuring that the commercial agent is, after termination of the agency contract indemnified in accordance with paragraphs (3) to (5) below or compensated for damage in accordance with paragraphs (6) and (7) below.'

Compensation is the French approach, and in indemnity if the German approach: a single 'European' method couldn't be agreed upon, so both were adopted.

Unless the contract provides for indemnity, compensation is paid: reg 17(2). Reward is always payable to the commercial agent with 2 exceptions:
1) Reg 18 applies:

18.  The compensation referred to in regulation 17 above shall not be payable to the commercial agent where—

(a)the principal has terminated the agency contract because of default attributable to the commercial agent which would justify immediate termination of the agency contract pursuant to regulation 16 above; or

(b)the commercial agent has himself terminated the agency contract, unless such termination is justified—

(i)by circumstances attributable to the principal, or

(ii)on grounds of the age, infirmity or illness of the commercial agent in consequence of which he cannot reasonably be required to continue his activities; or

(c)the commercial agent, with the agreement of his principal, assigns his rights and duties under the agency contract to another person.

2) The agent fails to notify the principal within 1 year after the agency's termination that they intend to pursue their entitlement (reg 17(9)). In the absence of a formal termination notice stipulating a clear termination date, the question is when on the facts the agent ceased to have authority not just to negotiate or negotiate and conclude on behalf of the principal but also to liaise with customers on behalf of the principal in connection with any orders: Claramoda v Zoomphase. 

Regulations 17 and 18 are mandatory (reg 19). They are even mandatory if the principal is from a non-member state and there is a choice of law clause favouring their non-member jurisdiction: Ingmar GB v Eaton Leonard. 

Termination of the Agency Contract

The trigger for compensation or indemnity is any termination - the precise trigger is 'termination of the agency contract', which means to agency relationship: Moore v Piretta. Reg 17 isn't triggered by each expiry in a string of contracts as the relationship is ongoing.
The purpose of the remuneration is to compensate the agent in light of the value of their work. Thus, payment is still due in the event of termination caused by the agent's death: reg 17(8). Other instances constituting termination include:

i) Expiry of the agency in accordance with the contract's terms: Tigana v Decoro
ii) The closure by the principal of their (healthy) business, even if there is no formal termination of the agency: King v Tunnock. 

Indemnity

Available only if the contract says so. Regs 17(3) and (4) set out the 3 stage process of quantifying the amount:

             i) Reg 17(3)(a): What has the principal gained from the agency?
             ii) Reg 17(3)(b): What is the agent losing due to termination? With commercial agency, there is no requirement for the agent to mitigate their loss. The regulations are designed to reward the agent's success in developing goodwill towards the principal's business. Indemnity affords the agent a hypothetical share in the business corresponding to the contractually agreed percentage commission, unless that is 'grossly disproportionate either way to the efforts of the agent so as to produce an inequitable result': Moore v Piretta per John Mitting QC.
            iii) Reg 17(4): sets out a ceiling figure on what the commercial agent may receive: an average of their annual remuneration calculated over 5 years (or less if the contract didn't last that long). There is no such cap on compensation.

The German method of calculating indemnity was ruled unlawful where the principal enjoyed substantial benefits in excess of the value of the agent's lost commission: Semen v Deutsche Tamoil. 

The award of an indemnity doesn't prevent the agent suing under normal contract law principles for any additional loss suffered: Reg 17(5).

Compensation

Defined in reg 17(6) as compensation 'for damage [the commercial agent] suffers as a result of termination of his relations with his principal'. Guidance in applying this is found in reg 17(7) which provides 2 examples of what sort of termination could give rise to these damages:

'...circumstances which -

(a) deprive the commercial agent of the commission which proper performance of the agency contract would have procured for him whilst providing his principal with substantial benefits linked to the activities of the commercial agent; or
(b) have not enabled the commercial agent to amortize the costs and expenses that he had incurred in the performance of the agency contract on the advice of his principal.'

Essentially compensating the time and effort expended to develop goodwill. Compensation serves both to prevent the unjust enrichment of the principal and to compensate the agent for the loss of the contract's remuneration.

'Proper performance' - see the previous discussion of Reg 4(1)
'Substantial benefits' - there is no pre-condition to compensation that the principal has already benefited from the agent's activities - this is relevant, but not essential. Substantial benefits 'may have a prospective or retrospective focus (or both), depending on the circumstances': PJ Pipe v Audco India per Fulford J.

The difficulty in calculating compensation with the French approach is that a 3 year average of commission is calculated, and then 2 years worth of commission is given. This doesn't require proof of damage, so the UK courts had to consider how effective this would be applied to the regulations, HL:

Lonsdale v Howard & Hallam - Lord Hoffmann made several points:
Under reg 17(6) compensation is given for the value of what the agent loss by the contract's termination. The value is determined by the goodwill he generated, and the loss is being deprived from exploiting that goodwill. Thus, the sum is determined by future income from the agency, and we must assume the possibility of sale - so the market's fluctuations would affect this hypothetical price. In this case the agent wouldn't have lost anything by termination of the agency contract, so he was denied compensation.

Failure of Entitlement to Compensation or Indemnity - reg 18

No indemnity or compensation is payable where

18 (a)    the principal has terminated the agency contract because of default attributable to the commercial agent which would justify immediate termination of the agency contract pursuant to regulation 16 above; or
    (b)     the commercial agent has himself terminated the agency contract, unless such termination is justified -
             (i) by circumstances attributable to the principal, or
             (ii) on ground of age, infirmity or illness of the commercial agent in consequence of which he cannot reasonably be required to continue his activities; or
    (c)     the commercial agent with the agreement of his principal, assigns his rights and duties under the agency contract to another person.'

under 18(a) permitting a fixed term agency to expire and refusing to renew doesn't amount to termination, and definitely doesn't amount to termination by default: Cooper v Pure Fishing. 

'By circumstances attributable to the principal': refers back to reg 16. Bell Electric v Aweco Appliance affirmation by the agent in response to a repudiatory breach by the principal forfeits their right to indemnity or compensation under the Regulsations.

'Age' is an independent factor which may render it unreasonable to oppose cessation of activity: Abbott v Condici. There is no need to prove age related physical or mental wear. It's usually difficult to oppose the UK retirement age of 65 as a standard.

Law of Agency: Terminating Authority

Termination of Actual Authority

Unless the agent's authority is irrevocable (see below), then their authority may be terminated in the following ways.

1) Termination According the Contract's Terms

If the agent'f authority is conferred for a particular task then accomplishing that task terminates their authority. Sometimes termination occurs by the circumstances of the market the agent operates in, due to custom: Dickenson v Lilwall. Once authority has terminated by completing the contract the agent has no authority to subsequently vary the terms of the (sale) contract: Blackburn v Scholes. 

If the agent doesn't succeed then their authority will expire on either a conferred period of time, or a reasonable time. What is reasonable may be longer when a) the agreement contains a restraint of trade clause (Decro-Wall v Practitioners) b) the contract predictably accounts for a very high proportion of the agent's business c) the agreement involves considerable initial investment of time and effort by the agent but no real rewards until later.

In some instances however, an agency can be terminated at will by its transient nature, which doesn't call a for dedicated initial investment. Two examples are estate agents and solicitors: Luxor (Eastbourne) v Cooper and Court v Berlin. 

A case where the Court of Appeal refused to give an extended notice period was in Alpha Lettings v Neptune Research because a) longer notice periods are more consistent with formal agreements, which tend to address this issue 2) The agent was free to represent competitors 3) The agency only constituted 1/5th of the agent's turnover 4) Generally the length of the agency and their regular expenses aren't relevant factors in determining the notice period. Only the initial investment and incurring of expenditure for legitimate future return are relevant. 5) An otherwise unreasonable termination will not extend the notice period if it is consistent with the contract.

2) Discharge of the Agency Contract

Authority is immediately terminated if the contract is frustrated: Sovfracht v Van Udens - war created illegality in this case. Also if either party causes a repudiatory breach which the other accepts. Termination occurs if and when it is accepted.

3) Revocation

In agency law the unilateral withdrawal of authority by the principal is always effective regardless of the contract's terms, and is immediately effective upon notice to the agent. It may be an unlawful repudiatory breach, but it still effective to terminate the relationship. The principal retains this power, even if they have no right to do so e.g. Warlow v Harrison. 

4) Demise or Incapacity of the Principal

Demise of the principal, whether by death (natural person) or insolvency (a company), instantly terminates the agent's authority: Lodgepower v Taylor. The same goes for loss of mental capacity - maintaining agency for an insane person is addressed via legislation - under the Mental Health Act 2005 a principal can create a 'lasting power of attorney' giving power to the donee continuing authority to take decisions on the principal's behalf once they succumb to insanity.

In each of these instances actual authority terminates irrespective of whether the agent is aware of the terminating event or not. Any subsequent act of the agent, even if genuinely honest and reasonable, renders the agent liable for breach of warranty of authority (to the third party) and give no entitlement to remuneration.

Irrevocable Actual Authority

This is notably different to agency in general, as it benefits the agent. Hence, the fiduciary relationship doesn't apply here.

Must be either a) conferred by deed (/power of attorney), or b) the authority exists to secure an interest of the agent existing independently of the agency. For example, the principal owes the agent money and he can't pay him back. So, he grants the agent authority to generate money on his behalf, and the agent is repaid with the proceeds: Gaussen v Morton. This doesn't extend to the agent simply gaining through the exercise of authority, the interest must be independent of the agency: Temple Legal Protection v QBE. The grant of authority must be intended to benefit an interest of the agent. Factual coincidence of the authority and the interest is insufficient: Schindler v Brie. 
It doesn't matter if the contract describes (or doesn't describe) it as 'irrevocable' - this is irrelevant.

Irrevocable authority exceptionally survives any attempted unilateral revocation by the principal. Under a power of attorney, authority also survives death or mental incapacity. It's unclear whether this is the case with the common law, but it is generally assumed to have the same result.

Continuation of Apparent Authority After Termination of Actual Authority

Apparent authority survives the termination of the agent's actual authority. The result is that the principal may be bound by the agent's acts unless they give notice of termination to third parties. For example, where a company decided to limit their agent's authority from a general authority to a specific authority requiring permission for each transaction, they were bound even when the agent didn't seek it: Rockland Industries v Amerada Minerals. The revocation of authority may rest on the agent's position rather than their actual status: SED Trygg v Manches. This also applies to cases of incapacity by insanity (and thus presumably death as well): Drew v Nunn - this decision is motivated by a desire to protect third parties.

Financial Consequences of Termination of Authority (1): At Common Law

Where the principal unlawfully revokes the agent's authority they are entitled to damages for breach of contract, aka the loss caused by the breach: Bell Electric v Aweco Appliance. Agency contracts, due to the nature of agency relationship,  are not specifically enforceable. Due to the this however, we also have to ask - what is the agent entitled to? A right to remuneration? The nature of agency is that they have opportunities to earn remuneration, but no contractual rights. With respect to the duration of the contract, the agent is entitled to compensation based on the shortest period for which the principal was legally obliged to engage him.

(2) Terminating Commercial Agency (see next post)

Law of Agency: Contracts Concluded through Agents

Contracts Concluded with the Agent acting within their Actual Authority

It is necessary to distinguish between disclosed and undisclosed principals, as will soon become apparent.

Disclosed Principal

There is generally no difficulty here: the agent is rarely involved with the contract between the principal and the third party. But there are some circumstances where the agent may sue and be liable to be sued.

a) Contract under seal

If the agent executes the deed in their own name they incur liability, even if they are described as an agent. But in the commercial contexts, deeds are rare.

b) Contracts not under seal

For the agent to incur liability under a normal contract, the question is one of construction. Rarely the interpretation will incur liability for the agent, due to the (obvious) intentions of the parties. Inclusion about their remuneration doesn't affect this.

            i) Written Contracts: the wording of the document

Particular emphasis is placed on the terms of the contract if it is written, especially those surrounding any signature. Where an agent signs as himself, he is personally liable. He cannot adduce evidence of fact (i.e. the agency) to which the contract doesn't refer: Parker v Winlow. Even if the contract acknowledges the agency, but says it is between the agent and the third party, the agent will be liable under it: The Virgo. Therefore, an agent won't be personally liable if the contract a) says he is signing for someone else, and b) doesn't say he is a party to the contract; Gadd v Houghton. 

          ii) Foreign Principals

There used to be a strong presumption favouring an agent's personal liability where his principal was foreign. This has now substantially weakened. It is just one circumstances to take into account in interpreting the conract: Teheran Europe v ST Belton. It is indeed easier for to sue someone in your own jurisdiction, so it would make the contract easier for everyone if the agent was in the position to sue and be sued. Where the contract involves an extension of credit to an overseas principal, there is a stronger inference that the agent intended to be liable too.

c) Consequences of the Agent's Personal Liability 

Liability is joint and several - the third party must sue either the agent or the principal, not both. There is uncertainty however, whether the basis for this is the doctrine of merger or the doctrine of election. In the former case, the third party's judgment against the two potential defendants merges into one liability, and one judgment: RMKRM v MRMVL. The consequence is that when you have obtained judgment, you can't sue the other even if the first party becomes bankrupt: Priestly v Fernie. if It is the latter, then the third party makes an unequivocal choice. But it's hard to argue he chose one defendant over the over when he hasn't received compensation from the judgment. Difficulty is also caused by undisclosed principal's - if the third party sues the agent, it can hardly be said he made a choice when he didn't know about the principal.
It is clear that commencing proceedings is insufficient to erase the other party's liability: Clarkson, Booker v Andjel. 

Undisclosed Principal (UDP)

In this case the third party isn't aware the principal exists, and believes the agent is in fact the principal. This is different to where he knows agency exists but doesn't know who the principal is - that is an unnamed principal, but disclosed. English Law approves of undisclosed principals by citing their commercial convenience - what that is nowadays is unclear, as it is a C19th principle.

The position of the UDP is also unclear - are they an exception to the privity rule, or are they the other party to the contract lacking certain rights a disclosed principal has? Analogies with assignment would support the first approach, but it would appear that although unarticulated, most judgments proceed on the later approach. But regardless, the question is one of the exceptions to and limitations upon their rights and liabilities when they are undisclosed.

a) Limitations on the UDP's right to sue the third party

            i) The Third Party Pays The Agent

The third party receives a good discharge of their debt if they pay the agent before the principal is revealed. The reason why is unclear. The C19th notion that it is estoppel based is fictional - there would need to be a representation, and how can the principal make a representation when his existence is unknown? A better basis would relate to Watteau v Fennick - apparent authority. But an even better view would simply be that the ability of an agent to give good discharge is a rule of agency law in which estoppel plays no part.

         ii) Undisclosed Principal is subject to any equities arising before their existence is revealed

All defences and equities the third party acquires as against the agent (before the principal was revealed) may be used against the principal: Browning v Provincial Insurance. The underlying reasoning in this case is that a third party should not be worse off because of the principal being revealed. This reflects the law of assignment, which ensures that assignment doesn't operate to the debtor's prejudice (as assignment may happen at any moment).
The existence of this rule leads some to argue that the underlying nature of the undisclosed principal is assignment (as mentioned above), with the contract arising between the agent and third party with the agent effectively assigning it to the principal. But conventional assignee's can't be sued, unlike the UDP. It is better to proceed by way of analogy with assignment rather than equating it with agency. The Privy Council in Siu Yin Kwan v Eastern Insurance made clear that an UDP can intervene in a non-assignable contract.

A scenario can arise where the third party contracted with the agent because the agent owed them money. The third party wanted to generate a set off to discharge the agent's debt. The set off defence can be used against the principal as well: Rabone v Williams. Considerable difficulty was created by the House of Lords decision Cooke v Eshelby. The third party set off their debt to the agent through this contract, but the UDP sued for the funds. The House of Lords prevented the third party using the set off defence. The HL invoked estoppel. A better explanation would be that the third party knew the agent contracted sometimes as an agent, and others as principal - he should have checked. That would make this a disclosed principal case.

In this instance, Cooke is 1) Not actually an UDP case due to the agent's ambiguous status 2) Can be explained by being inventive with estoppel like with Watteau v Fennick - it's artificial but achieves the correct result. Or 3) Cooke is wrong, but, it is a HL decision, so only the Supreme Court could declare this.

b) Excluding an undisclosed principal from intervening in the contract

            i) The contract terms are inconsistent with the agent being an agent

The UDP can't intervene where the contract is incompatible with their existence: HL Drughorn v Transatlantic. This construction is rare however, otherwise the commercial convenience English law identifies with UDPs would be defeated: Teheran Europe v ST Belton per Diplock J. Lord Lloyd cautioned against courts too readily excluding UDPs, otherwise the commercial convenience Diplock J identified would be jeopardised: Siu Yin Kawn v Eastern Insurance. 

What can prevent the UDP intervening is if the agent is described as the 'owner'. This would put them at the top of the property hierarchy: Humble v Hunter. There are 2 other examples of the UDP being excluded by wording, but this is very rare:

Insurance rules preclude the existence of an undisclosed principal: UK Steamship v Nevill

Where an UDP has relied on a misrepresentation their agent did not rely upon, they cannot rescind: Collins v Greyhound Racecourses. They could not do this otherwise the third party's rights against the agent would be denied.

A court won't grant specific performance to an UDP whose agent misrepresented that he was contracting as principal: Archer v Stone. 

            ii) Identity of the other contracting party is material 

If the contract is genuinely personal (such as painting a portrait) then the principle is simply common sense. However, that aside, there are doubts about the existence and scope of such an exclusionary rule.

In favour of such a rule existing is analogy with formation mistakes in contract law. In Boulton v Jones for example, it was held to be a fundamental mistake where A thought he was contracting with B who owed him money, so he could set off the debt, but was in fact contracting with C (NB not an agency case, but a similar idea could apply in this area of the law).

There are a series of cases which cause difficult in this area of the law:

Said v Butt - McCardie J emphasised the  personal nature of the first night viewing at a play, and referring to cases such as Boulton v Jones held no contract to exist.

Greer v Downs - In this Court of Appeal decision, the facts were parallel to Boulton. Held the contract was between A and B - C could not intervene. But here the exclusionary identity rule was not even required, as A was protected by the 'subject to equities' rule - the defence of set off would have been available against C. The result is right, but the reasoning is questionable.

Dyster v Randall - a first instance decision by Lawrence J which has caused notable difficulty. Decided a year before Greer, in which Lawrence (then LJ) was present. Land was sold to an agent with an UDP, who the vendor would not have sold to directly. It was held not to be a personal contract, distinguishing it from Said v Butt, and the agent could have easily bought for himself and assigned the contract anyway.

Dyster was not mentioned in Greer. So what's the difference? I would say Greer is wrong in invoking the exclusionary identity rule rather than using the subject to equities rule. In which case Said is a personal contract, and Dyster isn't, so both are correct. Unfortunately however, Greer is a Court of Appeal decision, and the other two are first instance.

c) Limitations on the third party's right to sue the undisclosed principal

The Principals liability is subject to 2 qualifications, Merger and Election (as mentioned above), or

The Principal Settles with the Agent Before His Existence Is Revealed

Payments by the UDP to the agent operate on the same basis as settlement when a disclosed principal pays his agent, relying on a representation from the third party that he will accept payment in this manner.
As the third party contracted on the creditworthiness of the agent alone, he bears the risk: Armstrong v Stokes. But there are 2 weaknesses to this authority: i) It concerned brokers who dealt sometimes as principals and sometimes as agents - arguably not a UDP case at all (like Cooke v Eshelby), so anything with regards to UDPs could be strictly obiter. ii) The later case of Irvine v Watson in the Court of Appeal (whereas Armstrong was first instance) although concerning disclosed principals, remarked that Blackburn J went too far and that the third party should only prejudiced in circumstances giving rise to an estoppel. But this is stupid, as they don't know the principal exists. Certainly doesn't overrule Armstrong and is very definitely obiter. Again this decision (Irvine) really came about when all the C19th courts were thinking in terms of estoppel, so is not very useful to us.

Agent Acting Outside Actual Authority or Authority of Necessity

As Between Agent and Principal 

Unless the principal ratifies, the agent is liable to the principal for breach of contract. But if within the scope of the agent's authority, the third party can hold the principal to the contract.

As Between Agent and Third Party

        i) Liability on the Contract

It is exceptional for an agent to be liable on a contract when the principal is disclosed, but it is the general rule when the principal is undisclosed.

       ii) Liability for Breach of Warranty of Authority

An agent is viewed as warranting to the third party that he has actual authority. This gives rise to a collateral contract on which the agent is liable for any loss caused to the third party should the agent lack authority. This is a case of strict liability: Yonge v Toynbee. In this case the agents (solicitors) didn't know their client had gone insane, but they were still held liable for all costs incurred in proceedings.
The damages are measured by the loss caused - the standard contract measure; the position they would have been in, minus the position they are in: Firbank's Executors v Humphreys. If the resulting contract would have been worthless to the third party anyway (for example because they committed a repudiatory breach) then the third party can't claim any damages: Singh v Sardar Investments. The agent also doesn't warrant the principal's character/solvency/business plan etc, just their own authority. These are things the third party must consider on their own: Nelson v Nelson. 

       iii) Liability in Tort

A possibility is to sue in the tort of deceit or negligent misstatement. But suing for breaching a warrant of authority is an adequate remedy with a higher chance of success.

Law of Agency: Fiduciary Relationship part 2) Obligations owed by the principal

Remuneration

The basic obligation of the principal is to pay their agent. So the question is, when can this happen?

Whether Remuneration is Payable and What Amount?

This boils down to what the contract says:

a) Express Contractual Term

If the figure is at the principal's discretion, as long as this has been exercised, it doesn't matter if that figure is objectively unreasonable - the contract cannot be rewritten by the courts: Sunkersette v Strauss. As long as the principal actually gives some thought to it and isn't arbitrary, then whatever they say is correct ('remuneration as should be deemed right'): Taylor v Brewer. If the principal does not exercise their discretion then the court must award a sum the principal would have given had he used his discretion properly. If this wouldn't have been much at all, then that is what the agent must be awarded: Bryant v Flight. 

b) Contract is Silent

In such a case the remuneration is a 'reasonable charge' determined by the facts of the case: Supply of Goods and Services Act 1982, s15.

Whether Remuneration is Earned

a) What does the agreement require the agent to do?

Again, a matter of contractual interpretation. For example where an auctioneer hired to get one type of contract but secured another which gave the principal basically the same benefit, the auctioneer wasn't entitled to remuneration: Marsh v Jelf. 

If the principal is careless with his contracts he may end up paying multiple commission, as occurred in Foxtons v Thesleff where one contract said that commission was payable once contracts were exchanged. Even though the property buyers didn't follow through and another estate agent procured a sale, commission was still owed.

In Thorpe & Partners v Snook auctioneers were entitled to commission if the property was sold within 3 months - it didn't say they had to sell it, hence commission has to paid.

b) Procuring a transaction: the effective cause rule

          i) Effective Cause not just 'causa sine qua non'

The agent must be the 'effective cause' of the contract between their principal and the third party to earn commission. This is a product of contractual interpretation, and gives effect to the parties' intentions. It's usually enough for the agent to introduce the principal and third party. They don't have to finalise the details. But what underpins this rule is that the principal doesn't have to pay multiple amounts of commission (unless they're careless).The result is that litigation often concerns 2 agents claiming commission for a contract.

The base of the test is whether the resulting contract is 'really brought about by the act of the agent': Green v Bartlett per Erle CJ.

The most commonly cited case on this matter is McNeil v Law Union & Rock Insurance where the agent introduced the third party, with whom the principal cut the agent out of the contract. As he was the efficient cause of this contract he was still entitled to commission regardless.

Introduction doesn't necessarily require the agent to personally introduce the third party, so long as the contract provides for 'introduce a purchaser' as estate agency contracts do. All they have to do is introduce the third party to the transaction: Wood v Dantata. For example a 'for sale' sign a third party sees causing them to approach the vendor directly is enough: Burney v London Mews. 

The burden is on the agent to show that he made the introduction. If he does so and there are no subsequent facts to suggest they weren't, the burden shifts to the principal: Chasen Ryder v Hedges per Staughton LJ.

Coles v Enoch - It seems the agent must intend the resulting contract with the specific third party. In this case an agent's commission was denied where the agent's discussion with a possible tenant was overheard by a third party who took the lease.

            ii) The agent must be the effective cause of the type of transaction he was engaged to produce

Where the agent engaged someone to look for a buyer who then decided to buy themselves, the agent wasn't the effective cause of the contract - they didn't intend the resulting contract with that party: Barnett v Isaacson. 

Can more than one agent earn commission?

It is possible that the transaction was a result of the combined efforts of several agents, but the law won't apportion commission. It really depends on who achieved the end result. But it is possible that 2 agents are contracted under different terms which lead them both to earn commmission. For example, one could introduce the party, and the other could head negotiations e.g. Foxtons v Theselff. Another example is Bernard Marcus v Ashraf: commission was payable to the auctioneers from the moment they received their instructions. They were entitled to commission even the property was sold by another firm before the auction - both agents were entitled to commission.

            iii) Contracting out of the effective cause requirement

Again a matter of contractual interpretation. If the contract is inconsistent with the effective cause requirement then a true effective cause isn't required: in County Homesearch v Cowham only a 'deemed introduction' was required which included matters which would not otherwise constitute introduction.

Wood v Dantata supports the proposition that introducing a purchaser means introducing them to the transaction rather than merely to the property.

If a contract doesn't mention the effective cause requirement that doesn't mean it's not necessary. It may be implied if commission is payable on the contract's conclusion, or represents a quantification of the contract price. It would be unlikely that a principal intended to end up paying multiple sums of commission. In MSM Consulting v United Republic of Tanzania it was held that although the contract negated any requirement that the agent introduced the purchaser to the transaction, that didn't mean they didn't have to be the effective cause of the resulting transaction.

            iv) Misrepresentation

An agent is not entitled to commission if the contract they procured is voidable for their misrepresentation: Long (Peter) v Burns - being engaged to procure a contract must mean a legally enforceable one.

If the contract is voidable due to the principal's misrepresentation then the agent may still get a commission on the basis of an implied term that the principal wouldn't make fraudulent misrepresentations to prevent enforceability of the sale contract: John D Wood v Craze. 

We don't know what the result would be if the misrepresentation was innocent or negligent.

Whether a Right to Earn Commission

As is basically always the case in this area of agency law, you look to the contract:

a) Express Exclusivity Terms

A principal may only use one agent if there is an 'exclusivity' clause in the contract, and he may not sell directly himself if there is a 'sole and exclusive agency'.

Without an express term there is an:

b) Implied term not to inhibit earning remuneration

Agents take risks that their efforts will go unrewarded when they are engaged to find a purchaser. This isn't disturbed by the implied term entitling agents to remuneration.

The House of Lords held that where the agent introduces purchasers but the principal sells to other third parties, the agent isn't entitled to remuneration as he took the risk by not including an exclusivity clause - so the principal is perfectly entitled to sell to others: Luxor (Eastbourne) v Cooper. 

The courts won't imply terms that will restrict the principal from lawfully dealing with their own property, even if this means the agent loses commission: French v Leeston Shipping. As mentioned before, the courts won't rewrite contracts.

If the contract can't be performed because of a breach by the third party, you can't say there has been a breach of a collateral contract between the agent and the third party. This would imply an entire legal relationship: The Manifest Lipkowy. This would be incompatible with the tests of implied terms (business efficacy and intentions of the parties).

Dicta in Luxor (Eastbourne) v Cooper foreshadowed that there is an implied term in the agency agreement that the principal won't act unlawfully by breaking their contract with the third party, preventing the agents commission. This was applied by the CA in Alpha Trading v Dunnshaw-Patten. 

Lien

This is the agent's security right to enforce their entitlements against the principal. Unless otherwise agreed, the agent has a lien over their principal's chattels: Rolls Razor v Cox. 

Nature of the Lien

An agent's lien is quite weak. It is a possessory lien and the agent only has a right to retain possession of the principal's property. They cannot sell it to discharge the principal's debt.

Liens are either general or particular.
A Particular lien confines the agent's financial rights to the property over which the lien is being exercised.
A General lien is a right over any of the principal's property.
The latter is much more powerful, but for that reason prima facie agents only have particular liens. However, a general lien may  be conferred by express or implied agreement, or by virtue of custom (bankers and solicitors have general liens - Ismail v Richards per Moore-Bick J).

This right to a lien is limited by others with greater rights, such as third party creditors: Peat v Clayton.

Acquisition and Loss of a Lien

An agent can only have a lien if they obtain possession of the chattel AND incur the financial right against the principal while acting as their agent: Dixon v Stansfield per Jervis CJ. Because the lien is possession based, it is lost if the principal voluntarily relinquishes possession, or if the lien is waived by the principal.

Liens and Sub-Agents

Sub-agents may have liens, but their claim for remuneration lies against the agent due to privity. But, they may have a lien over the principal's property if the delegation was within the agent's actual authority: Solly v Rathbone. If the principal is undisclosed, then the lien is confined to financial claims arising before the existence of the principal was revealed: Mann v Forrester. 

Law of Agency: Fiduciary Relationship part 1) Obligations owed by the agent

The obligations an agent owes his principal fall into 2 categories

1) Performance Obligations, and
2) Fiduciary Obligations

It is important to keep these two distinct. Disloyalty and incompetence may have very distinct outcomes.

Performance Obligations

The performance obligations are the tasks the agent is engaged for, and are thus determined by contractual interpretation. The standard is always one of reasonable care with reference to the standard of expertise the agent claims. So for an agent to breach his performance obligations he must have been negligent. It is insufficient that he didn't achieve his goal - it is rare for agents to actually guarantee an outcome (and if they do it must be very express). The tighter the instructions, the less likely an agent will be found negligent, as he doesn't have to use his discretion and can simply follow the orders given.

Remedies for Breach

Normal contract rules apply here - the principal receives damages for the loss they can prove is caused by the breach. An injunction is another possibility where an agent breaches a restraint of trade clause.

Fiduciary Obligations

A fiduciary relationship is originally the strictest relationship arising in equity. It is made up of:

Two Fundamental Obligations

1) He must avoid any potential conflict of interests, and if unavoidable, he should prefer the principal's interests over any others (including his own)
2) He may not obtain any 'secret profit' - a benefit due to his position as agent which his principal does not know about

Due to equity's high threshold the test is very strict. Even if the agent's profit benefits the principal extensively, he should still have gone to the principal, informed him and gotten his consent. Whatever the circumstances, equity cannot make exceptions in any cases, as fiduciaries may be encouraged to not seek consent.

1. Aberdeen Railway v Blaikie Bros

The first leading authority on fiduciary obligations. In this case Lord Cranworth in the House of Lords emphasised the severe nature of the rule (universal application) that an agent cannot enter into transactions where there are conflicting interests. Due to this, no question of fairness arises. The agent caused a contract with another company of which he was managing director - there was a clear conflict of interests here.

2. Brown v Inland Revenue Commissioners

Lord Upjohn: an agreement benefiting the agent may be express or implied from the course of dealing between the agent and the principal (the solicitor and client in this case). But it may only implied if the client knew of his rights and by his course of conduct agreed to waiver them.

3. Regal (Hastings) v Gulliver – leading case

CA held the agents should only account for profits if they had acted wrongly or deprived R of profit it’d otherwise make. The HL disagreed. Lord Russel underlined that an agent who profits without consent, no matter how honest and well-intentioned he may be, cannot escape being called to account. He referred to the leading case of Keech v Sandford where Lord King LC said that it may seem strict that an agent (a trustee in this case) isthe only person who may not benefit without the principal's consent, but justified. He also refers to ex parte James where Lord Eldon LC stated that the rule is an arbitrary one, and is necessary in the interests of justice.

4. Boardman v Phipps

Even though in this case the principal was not deprived of any financial advantage, the HL held (3-2) that Boardman and the beneficiary had to account to the trust group for their profits (subject to an equitable allowance for their efforts). Regal (Hastings) applied + absolute nature of rule again affirmed. Lord Upjohn maj: only benefit for principal is possible, there can be no conflict of interest. Distinguished facts from Regal. Lord Hodson maj: can only defeat account of profits with the assent of principal who had knowledge of the situation. The courts cannot relax this absolute responsibility.

In this case and Regal (Hastings) the agent only took action because the principal was incapable of doing so – but this doesn’t matter.

Consent

Consent from the principal to the agent's actions will only be effective if the principal was told all of the material circumstances, as illustrated by: Anangel Atlas v Harima Heavy Industries.
Sometimes the principal agrees that the agent will be remunerated by the third party. In such a case the principal must be told how much the agent will receive. Consent cannot be informed unless the principal knows exactly what they are consenting to. This was confirmed by the Court of Appeal in Wilson v Hurstanger. The burden of proof lies on the agent to demonstrate that they received the full informed consent from the principal: Allwood v Clifford. These restrictions may not apply where the third party is, for example, the agent's spouse, but the transaction will be scrutinised very carefully to ensure the spouse is not simply a front for the agent, who is taking all the commission through them.

Conflict Unavoidable

This could occur, for example, when an agent acts for more than one principal, where honouring their duty to one would mean breaching their duty to another. The House of Lords in Hilton confirmed the law's perspective: this is entirely the agent's fault, and they have to deal with the consequences.

Remedies for Breach of Fiduciary Duty

a) Personal remedy against the agent: account of profits

This is the principal's main financial remedy where an agent breaches their fiduciary obligations. An 'account of profits' strips the agent from the illegitimate gains they have made - a contrast with the usual remedies in tort and contract law which concern remedying loss. The reasoning behind this is that it is better for the principal to make a gain, than to not strictly enforce the breach of fiduciary duties. There are however, 2 possible qualifications:

1) An Equitable Allowance

Where an agent has acted in good faith to their principal, deploying considerable time, expertise, and expenditure, then the law recognises the inequity in not making them account entirely for their efforts, e.g. Boardman v Phipps. In some cases, even some profit may be given (as the CA awarded in O'Sullivan v Management Agency). However, where this may breach another contract or come outside a company's constitution, which provides for the awarding of remuneration, then no remuneration will be allowed. An equitable allowance would come outside of these: HL Guinness v Saunders.

2) 'Remoteness of gain' principle

Unfortunately we don't know if there is a point where an account of profits becomes too remote from the original breach. The leading case is Sinclair Investments v Versailles Trade Finance where the Court of Appeal said an account of profits should carry into investments (made with that money). This was not the ratio decidendi of the case however, and the Privy Council seems to make the opposite assumption in Reid.

Additional Remedy Against the Agent in Case of Bribes

The classic example of a breach of fiduciary duty is a bribe. This gives the principal an action in the tort of deceit in accordance with general tort law; compensation for the loss suffered. But as the agent has the bribe, the principal can make the agent account for profits and force the agent to hand it to them. However, he cannot do both as this would amount to double recovery: Mahesan v Malaysia Officers Housing Society. The third party who knowingly gave the bribe is also jointly and severally liable to the principal: Daraydan Holdings v Solland. The losses the principal may recover also include damages for the investigation costs and wasted time of employees: National Grid Electricity v McKenzie.

Personal Remedy against the third party

Where the third party causes the agent to commit a breach of fiduciary duty, then they may be sued by the principal for equitable compensation: Wilson v Hurstanger. 

Proprietary Remedy: the 'constructive trust'

All the above remedies have been personal remedies. But if the agent goes bankrupt, their assets wil be divided and distributed amongst creditors by rules of insolvency. With a personal remedy, the principal would recover very little, if anything. However, if he has a proprietary interest, he will secure priority over the over creditors. One of the most controversial questions in the law of equity is who receives the money (most often a bribe), the principal or the creditors?

If the agent profits by interfering with the principal's assets, then it is uncontroversial that the principal gets a proprietary remedy: Cook v Deek (Company directors negotiating contract for principal signed for themselves, held to be constructive trustees of company's contract/profits).

But why should a bribe go to a principal and not the agent, even though this does not usually represent gains the principal might have made?

In the Court of Appeal case of Lister v Stubbs there was held to be no proprietary remedy in such a case. The fundamental point in the ratio was that to establish a proprietary remedy, the principal must show that the assets somehow represent his property. Since the bribe comes from a third party, how can it be said the principal has a proprietary right over this? This received strong criticism, because if an agent accepts a bribe, the loss comes out of the principal's bank account and goes to the agent.

Just over a century later, the Privy Council held Lister v Stubbs to be wrong in:

AG for Hong-Kong v Reid. In this case the Privy Council was acting as the Supreme Court of Hong Kong, so it is worth noting at the outset that its decisions aren't binding on UK courts. But the court consisted of a powerful panel of law lords. Despite this however, there is no concrete ratio decidendi. They referred to the equitable maxim that 'equity looks on that as done what ought to be done' stating that this gives the principal a proprietary remedy over the bribe as it belongs to him. Although they didn't exactly explain as to why. The methods they used to get to this result involved creating a 'constructive trust' which the agent owes the principal. The confusion probably occurred because the fiduciary in this case embezzled and the invested the money. While there is no doubt the fiduciary could not keep these second generation profits, the Privy Council seems to assume that this cannot be done via an account of profits. They thus declared Lister as incorrect.

However, the reasoning in Reid disappears if we say an account of profits can reach into next generation gains. This is what Sinclair Investments v Versailles Trade Finance is prepared to accept, and thus a proprietary claim is not needed. But then, how can we justify giving the principal priority over other creditors? Lord Neuberger's judgment goes over the entirety of this area of the law, and concludes that Lister is the law as due to the doctrine of precedent the CA can't depart from its own decisions, even if the PC disagrees with it. This case set up an appeal to the Supreme Court, but unfortunately never made it there. So for now, Lister IS THE LAW. So in such a case where a breaching fiduciary goes insolvent, the principal cannot claim priority over the other creditors.

The Impact of a Breach of Fiduciary Duty on the Transaction with the Third Party

The result of this depends on 3 different situations:

1) The agent contracts with the principal in breach of fiduciary duty. In this case the contract is voidable and the principal may rescind it: Kimber v Barber. 

2) The third party induces the breach by the agent. In this case the contract is voidable: Daraydan Holdings v Solland. But since the right to rescind is a discretionary remedy arising in equity, it is on occasion refused: Johnson v EBS Pensioner Trustees. 

3) The agent, acting in breach of fiduciary duty, purports to form a contract with the third party on the principal's behalf. In such a case rules of authority are the main concern (Criterion Properties v Stratford Properties). In Hopkins v Dallas Group Lightman J stated that actual authority is conditional upon being exercised honestly and on the principal's behalf. However, if the act is within the agent's apparent authority, the principal may still be bound. Or of course, if the principal ratifies.