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

Critically evaluate this statement.

Sample answer

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.

In addition, an agent also owes a fiduciary duty to his principal. 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 his principal are:

• to avoid a conflict of interest

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

An agent must not, without his principal’s consent, use the principal’s property to secure a profit for himself or use any information or knowledge for his own benefit which he has acquired by virtue of his 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 his principal who may then, if he so wishes, permit the agent to continue to act for him 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 his 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 his 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 he receives that are intended for his principal:

• He must keep such monies separate from his own money unless he is permitted by the agency agreement to mix the funds.
• He must keep and maintain accurate accounts of transactions and to furnish his principal with them when his principal requests them (Turner v Burkinshaw (1867) LR 2 Ch App 488). The duty to furnish his principal with accounts upon his 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 his principal’s behalf will put his own funds at risk because there is a presumption that any monies that the agent cannot prove to be his own will be deemed to belong to his 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).

Further, the duties owed by commercial agents under the Commercial Agents (Council Directive) Regulations 1993 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 his principal. These are that “in performing his activities a commercial agent must look after the interests of his 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 he is instructed to take care of
• communicate to his principal all the necessary information available to him
• comply with reasonable instructions given by his principal

Feedback

This is a reasonably good answer clearly demonstrating the student’s knowledge of this area of law. The student has correctly identified 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 and has correctly noted that this is little different to any other kind of contract. However, the student should also have pointed out that 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).

The student was then correct to move on to discuss the other duties owed to the principal; namely fiduciary duties. This section of the answer was good and the appropriate cases were used. Reference to the duties owed by Commercial Agents was good.

A good conclusion would have benefitted the answer.