Exploring the Complex Nature of Agent Duties

It would be incorrect to say that the only duties owed to the principals by their agents are to be found in the express terms of their contract. This is because there are also common law duties that are applicable to the agent as well as certain statutory duties that are relevant even if these duties do not find express mention in the contract. This essay discusses the duties of the agents, which are both in the nature of contractual and other duties. The essay also argues that the nature of agent’s duties to principal is fluid and one agent’s duty will not be the same as the other. At the same time, there are certain general principles under fiduciary duties that are applicable to agents irrespective of whether or not these are stated expressly in the contract. There are other duties that may be applicable to commercial agents under specific EU directives and laws. All of this makes for a complex area of duties of agents that cannot be explained simplistically on the basis of contractual duties as some duties are of a nature that require the agent to go above and beyond the contractual duties.

In the event that the relationship of agency is governed by an express contract, the duties of the agent are clearly identifiable in the contract and the principal has action against the agent for breach of contract on the ground of the agent failing to comply with any of these duties. In such a situation, the duty of the agent is strict in nature and is clearly defined under the terms of the contract. This may lead to an assumption that the duties of the agents are those that are owed under the express terms of the contract and that there are no other duties to be imposed on the agent. This assumption does not accord with the common law duties of the agents that are not required to be expressly mentioned in the contract but which do characterise the relationship of agency as a special relationship where both contractual and special duties may arise for the agent.

The special duties of the agent arise from the fiduciary nature of the relationship of the agent with his principal. An agent’s special position also means that he does not just owe contractual duties to the principal, but also fiduciary duties. The latter are not related to or limited to contract. With relation to fiduciary duties, the contract can be said to have been infiltrated by the law on agency and fiduciary duty, as the fiduciary duty applies to the agent even if not expressly contained in the contract. There are different aspects of the duty of the fiduciary, which were explained in Bristol, where the court defined fiduciary duty as a term properly limited “to those duties which are peculiar to fiduciaries and the breach of which attracts legal consequences differing from those consequent upon the breach of other duties.” The court explained the duties that the fiduciary owes to the principal as follows:

“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.”

---

1. Andrea Tosato, ‘An exploration of the European dimension of the Commercial Agents Regulations’ (2013) LMCLQ 544.
2. Alan Paul Dobson and Robert Stokes, Commercial Law (Sweet and Maxwell 2012) 526.
3. Turpin v Bilton [1843] 5 Man. & G. 455; Bertrom, Armstrong and Company v Godfray [1838] 1 Knapp 381.
4. Bristol and West Building Society v Mothew [1998] Ch 1, [16].
5. Ibid, [18].

Therefore, the following can be listed as the duties of the agent as a fiduciary: (i) duty to act in good faith; (ii) duty to not make profit; (iii) duty not avoid conflict of interest; (iv) duty to not to act for his own or third party’s benefit without principal’s consent. The duty related to acting in good faith is not defined in a statute but is generally explained as the duty to act "with honesty, openness and regard for the interests of the other party to the transaction." The duty to give single-minded loyalty to the principal is the overarching duty as mentioned in Bristol and may also be said to be the distinguishing duty of the agent to his principal.

The duty to avoid conflict of interest was defined in Parker v McKenna as the duty to not put themselves in a position where personal interest may conflict with the duty. This duty arises irrespective of it not being expressly mentioned in the contract of agency and is an example of how the agent’s duties may go above and beyond those that are contractual in nature. Moreover, the failure to disclose conflict of interest to the principal can lead to liability of the agent. For instance, in FHR European Ventures LLP v Mankarious, the failure to disclose conflict of interest to the principal led to the liability to account for the profit of 10 million Euros by the agent to the principal. The FHR decision is also related to the duty not to make secret profit from the relationship of agency and it illustrates the principle of fiduciary relationship of trust between the principal and the agent. For this purpose, it is not required that the contract should mention that the agent should not make such a profit for this duty to arise. Under the common law, this duty arises regardless of the contract. Moreover, agents cannot make secret commissions or indulge in bribery. In Industries and General Mortgage Company Ltd v Lewis, the court explained that bribery to the agent as a payment of a secret commission from a third party to the agent with whom the third party is dealing.

While fiduciary duties are generally stated, they are not uniformly applicable to all agents as the nature of fiduciary duties is fluid; this was explained in Henderson v Merett Syndicates Ltd., where Lord Browne-Wilkinson noted that the idea that all fiduciaries owe the same duties in all circumstances is not a correct notion as duties may be applied differently to different agents. Therefore, apart from the contractual duties that will be strictly applicable to the agent, the fiduciary duties are applicable if these are relevant to the specific relationship between the agent and the principal.

Commercial agents also have certain duties under the Commercial Agents (Council Directive) Regulations 1993, specifically those that are listed in Regulation 3 (2), which include the duties to make proper efforts to negotiate and conclude transactions; to communicate necessary information to the principal; and to comply with principal’s reasonable instructions. The Regulations are based on the European Communities Directive 86/653/EEC. Duties also include the duty to act in good faith in performing their activities (Reg. 3). The duties that are listed in the Regulations are also similar to the common law duties of the agents.

Agents also have rights under the common law which arise outside the contract. Agent has the right to be indemnified by the principal for losses and liabilities incurred in the discharge of his functions. For this purpose, agent can also exercise right to lien over principal’s property in his custody; however, if there is an express contract to the contrary then the right of lien cannot be exercised. This indicates how common law and contractual rights interact in relationship of agency and also supports the argument that duties, and also rights, are fluid in nature and are specific to the particular relationship of agency.

---

6. Andrea Tosato, ‘Commercial Agency and the Duty to Act in Good Faith (2016) 36 (3) Oxford Journal of Legal Studies 661.
7. Parker v McKenna (1874) LR 10 Ch 96, [94].
8. FHR European Ventures LLP v Mankarious [2011] EWHA 2308 (Ch).
9. Ibid
10. Industries and General Mortgage Company Ltd v Lewis [1949] 2 All ER 573, [575].
11. Henderson v Merett Syndicates Ltd. [1995] 2 AC 145.
12. Andrea Tosato, ‘An exploration of the European dimension of the Commercial Agents Regulations’ (2013) LMCLQ 544.
13. Cureton v Mark Insulations Ltd [2005] EWHC 2297.
14. Thacker v Hardy (1878-1879) 4 QBD 685.

To conclude, the law and authorities related to duties of agents as discussed in this essay conclusively establishes that agents are not just required to abide by the express duties in the contract, but also by duties in common law, which includes fiduciary duties of the agents. Such duties are not universally applicable to all agents and for that reason their nature remains fluid. This also means that whether or not an agent has breached a duty owed to the principal will not just depend on the duties expressly mentioned in the contract but also by ascertaining the common law duties that are applicable to that particular agent. This can only be done on a case to case basis, making the nature of agents’ duties complex and not simplistic as averred in the statement that the duties owed to the principals by their agents are to be found in the express terms of their contract. This statement does not capture the actual position of the agent as a fiduciary or the fact that commercial agents are further subjected to duties under the Commercial Agents (Council Directive) Regulations 1993. Therefore, it would be more prudent to assume that apart from any express duties in the contract, an agent will also have other duties.

Take a deeper dive into Examining Consideration in Contract Law with our additional resources.

Cases

Bertrom, Armstrong and Company v Godfray [1838] 1 Knapp 381.

Bristol and West Building Society v Mothew [1998] Ch 1.

Cureton v Mark Insulations Ltd [2005] EWHC 2297.

FHR European Ventures LLP v Mankarious [2011] EWHA 2308 (Ch).

Henderson v Merett Syndicates Ltd. [1995] 2 AC 145.

Industries and General Mortgage Company Ltd v Lewis [1949] 2 All ER 573.

Parker v McKenna (1874) LR 10 Ch 96.

Rolls Razor Ltd. v Cox (1967) 1 QB 552.

Thacker v Hardy (1878-1879) 4 QBD 685.

Turpin v Bilton [1843] 5 Man. & G. 455.

Books

Dobson AP and Stokes R, Commercial Law (Sweet and Maxwell 2012).

Journals

Tosato A, ‘An exploration of the European dimension of the Commercial Agents Regulations’ (2013) LMCLQ 544.

Tosato A, ‘Commercial Agency and the Duty to Act in Good Faith (2016) 36 (3) Oxford Journal of Legal Studies 661.