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.