The duties owed by agents to their principals are to be found in the express terms of their contract.

Critically evaluate this statement.

Answer

You should begin your answer by explaining that the express terms of the contract between the agent and the principal will set out the obligations of the parties including the duties owed by the agent to the principal. This is little different to any other kind of contract.

You should also note that beyond the express terms, there are other contractual duties owed to the principal (a duty to obey the principal’s lawful instructions, a duty to act with due care and skill in the performance of his duties and a duty to perform his obligations personally).

In addition, an agent also owes a fiduciary duty to his principal. You should explain that this is due to the fact that the agent has the power to affect the legal relations between his principal and the third party and therefore occupies a position of trust and confidence. As a result, equity imposes fiduciary duties on agents to protect their principals. An agent will owe these fiduciary duties to their principal whether paid or acts gratuitously.

The fiduciary duties owed by an agent to their principal are:

• to avoid a conflict of interest.

An agent must avoid situations where their personal interest conflicts, or possibly conflicts, with their duty to their principal (Aberdeen Rail Co v Blaikie Brothers [1843-60] All ER Rep 249).

An agent must not, without their principal’s consent, use the principal’s property to secure a profit for themselves or use any information or knowledge for their own benefit which they acquired by virtue of their position as agent (Boardman v Phipps [1967] 2 AC 46).

Agents might have certain interests that might conflict with (or might be seen to conflict with) the interests of their principal. In such situations, an agent can avoid placing himself in a conflict situation by disclosing any potential conflict to their principal who may then, if they so wish, permit the agent to continue to act for them in full knowledge of the potential conflict (Clark Boyce v Mouat [1994] 1 AC 428).

• not to make a “secret profit” or to accept a bribe.

A secret profit is made where an agent, whilst acting for their principal, receives some profit over and above that agreed with the principal. An agent is not allowed to accept commission from a third party without their principal’s approval. (Imageview Management Ltd v Jack [2009] EWCA Civ 63). See, also, Hippisley v Knee Brothers [1905] 1 KB 1.

• to account to the principal for payments received.

An agent has two key duties in respect of payments they receive that are intended for his principal:

• They must keep such monies separate from their own money unless they are permitted by the agency agreement to mix the funds.
• They must keep and maintain accurate accounts of transactions and to furnish their principal with them when their principal requests them (Turner v Burkinshaw (1867) LR 2 Ch App 488). The duty to furnish their principal with accounts upon their principal’s request survives the termination of the agency agreement (Yasuda Fire & Marine Insurance Co of Europe Ltd v Orion Marine Insurance Underwriting Agency Ltd [1995] QB 174).

An agent who fails to maintain proper accounts of transactions made on their principal’s behalf will put their own funds at risk because there is a presumption that any monies that the agent cannot prove to be their own will be deemed to belong to their principal (Lupton v White (1808) 15 Ves 432).

• to preserve confidentiality.

An agent is under an absolute duty to preserve his principal’s confidentiality. This includes not disclosing any confidential information to any third parties. This duty is higher than merely taking reasonable precautions with the principal’s information and survives the termination of the agency agreement (Bolkiah v KPMG [1999] 2 AC 222).

You should also consider the duties owed by commercial agents under the Commercial Agents (Council Directive) Regulations 1993 and note that these duties are broadly similar to those owed under common law (Cureton v Mark Insulations Ltd [2006] EWHC 2297).

Regulation 3 sets out the duties of a commercial agent to their principal. These are that “in performing his activities a commercial agent must look after the interests of their principal and act dutifully and in good faith” (Regulation 3(1)). In addition, Regulation 3(2) sets out that a commercial agent must:

• make proper efforts to negotiate and, where appropriate, conclude the transactions they are instructed to take care of;
• communicate to their principal all the necessary information available to them;
• comply with reasonable instructions given by their principal.