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contractual duty to exercise due care can now also be pursued in tort, if the conduct complained of does also constitute the tort of negligence.

The degree of skill and care to be exercised by an agent depends on his/her business or profession. It is that degree that is expected of the ordinary competent practitioner in the business or profession concerned. A doctor is not judged by the standards of the top Harley Street specialist but by those of the average qualified doctor, and so on.

An agent is not expected to be perfect – merely to be reasonably competent, qualified as necessary, and up to date. He/she must act within these parameters.

Gratuitous Agents

Agents who are not acting for profit or reward owe duties to their principals – but not of such a high order. The standard of skill and care required is only that which people ordinarily exercise in their own affairs. If the gratuitous agent has held out to the principal that he/she possesses a particular skill or expertise, then the standard of care required of him/her will be that ordinarily shown by people who do possess that skill or expertise.

A gratuitous agent is not a contractual one. Hence, the duty she owes her principal lies only in tort. On the authority of the decision in Hedley Byrne & Co. Ltd v. Heller & Partners Ltd (1964), such an agent is free to restrict or exclude all or any liability, if she wishes. As no contract is involved, the provisions of the Unfair Contract Terms Act 1977 will not apply.

In Hedley Byrne, a customer asked its bank to give a banker's reference on a prospective client. The bank sought this from the client's bankers. They duly replied, giving a favourable reference but adding that it was given "without liability". In fact, the client was in dire financial straits, and its bank was aware of this. It was held by the House of Lords that the bank owed a duty of care to the original enquirer, and that it had been negligent. However, it was saved from liability for the ensuing loss by its disclaimer.

A gratuitous agent cannot be held liable for failing to carry out the work he has been given, because there is no contract between him and the principal. However, it is probable that some liability will arise in tort, based on the principle of estoppel. If the principal has relied on the promise of his gratuitous agent, and so failed to find someone else to do the work, the agent would, it is suggested, be estopped from denying that he had agreed to perform, and so owe a duty of care to undertake the work properly. However, there is no authority for this proposition.

The standard of care required of a gratuitous agent, if he undertakes the work, is not easy to define. It has been suggested that he will be liable only for "gross negligence". While "gross negligence" is a term of common use – and is, indeed, a standard used in other jurisdictions

– it is not known to English law. There are no grades of negligence: a person is either negligent, as understood by the legal definition of the term, or not. (The tort of negligence is of considerable complexity, and this is outside the scope of this course.) Hence, it is probable that the standard of care required is "that which may be reasonably expected of him in the circumstances".

Fiduciary Duties of all Agents

An agent is said to be in a fiduciary relationship towards a principal – she is, loosely speaking, in a position of trust. However, she is not a trustee in the legal sense. A trustee owes a higher degree of integrity and duty towards a beneficiary than an agent does towards a principal. Perhaps, we can best sum this up by saying that an agent must behave honourably and loyally in all her dealings with her principal.

Having said that, let us look at the various situations in which an agent is required to behave in a certain way.

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them (these are called "secret profits"). Should he do so, the principal can require the secret profits to be handed over to him.

A bribe falls into the category of secret profits. Under the Prevention of Corruption Act 1906, both the agent who accepts a bribe and the person offering the bribe are liable to criminal penalties (fines or imprisonment). The acceptance of a bribe by an agent produces an irrebuttable presumption that he/she has been influenced by the bribe. It is of no consequence that the agent has not, in fact, been influenced, nor that the principal has not, in fact, suffered any loss. The mere acceptance of a bribe is a breach of fiduciary duty. Not only may the agent be required to hand over the amount of the bribe but, also, he/she forfeits the right to receive any fee or commission in respect of the transaction.

A further instance of secret profits is where an agent acts for both parties to a transaction without the knowledge of the respective principals. An agent who is employed to negotiate a loan for his/her principal may not accept a commission from the lender (Re a Debtor (1927)), nor may an insurance broker who is an agent of the insured act as agent for the underwriters for the purpose of getting an assessor's report.

Where an agent accepts any bribe or secret commission, the principal may exercise any or all of the following remedies, according to the circumstances.

Dismiss the agent without notice.

Recover the secret commission from the agent, if it has been paid over – or, if it has not been paid over, then from the person who has promised it.

Bring an action for damages against the person who gave or promised the bribe.

Refuse to pay the agent any commission or remuneration in connection with the transaction; he/she may recover any commission which has been paid.

Repudiate the whole transaction.

(d)Using the Position as Agent to acquire Personal Benefit

If an agent uses his position to acquire a benefit or secret profit from a third party, he is required to account for it to his principal (Keech v. Sandford (1726)).

Property was leased to a trust. The lease was determined by the landlord, whereupon a trustee acquired the lease for himself.

HELD: The trustee held the lease in trust for the beneficiaries. It was stated by the court:

"If the agent uses a position of authority, to which he has been appointed by the principal, so as to gain money by means of it for himself, then also he is accountable to the principal for it."

(e)Using Property of the Principal to Acquire a Personal Benefit or Profit

Property includes not only goods or physical possessions but also intangible rights. Hence, an agent is not permitted to use her principal's goods (nor confidential information she has acquired as a result of her duties) to make a personal profit for herself.

In the Court of Appeal, in the case of Boardman v. Phipps (1967), quoted above, Lord Denning MR said:

"It is quite clear that if an agent uses property, with which he has been entrusted by his principal, so as to make a profit for himself out of it, without his principal's consent, then he is accountable for it to his principal. Likewise with information

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or knowledge which he has been employed by his principal to collect or discover, or which he has otherwise acquired, for use of his principal, then again if he turns it to his own use, so as to make a profit by means of it for himself, he is accountable."

(f)Money Received for the Principal's Account

An agent has a duty to pay or account on demand for any money he receives, or which he holds, which is for the account or use of the principal. In other words, an agent cannot hold on to money which, in reality, belongs to his principal, if the principal requires it to be handed over. This rule applies notwithstanding the fact that third parties may have claims on that money, and even if the money was received by the agent as a result of a void or an illegal transaction.

For example, a turf-commission agent is employed to place bets for his customers (principals). If these bets result in winnings, the agent is required to pay over such winnings actually received by him. This is so, even though – as a result of the Gaming Acts 1845 and 1892 (as amended) – the actual bets are void and, in the event of nonpayment of the stake by the customer, the agent could not recover from him (De Mattos v. Benjamin (1894)).

(g)Accounting Requirements

Agents are required to keep property or money belonging to the principal separate from their own. It is also their duty to keep proper and accurate accounts of all transactions carried out in the course of their agency. They must produce such accounts and supporting books and documents to the principal or his/her agent on demand.

(h)Acquiring the Principal's Property in the Agent’s own Name

If an agent acquires property for or on behalf of her principal, but in her own name, then she is, of course, the legal owner of it. However, she holds it as a trustee for the principal.

Contracts between a Principal and a Third Party

The general rule – which is of the very essence of the relationship of principal and agent – is that an agent is not liable on contracts which he makes, in his capacity as agent, between his principal and a third party.

Although the agent actually makes the contract with the third party, he does so on behalf of the principal, and it is the principal's contract. Having made it, the agent, in effect, drops out. We consider exceptions to this in a later study unit.

F. RIGHTS OF AGENTS AGAINST PRINCIPALS

An agent has numerous duties and responsibilities vis-à-vis his/her principal – but he/she also has rights.

Payment

It is interesting that an agent is not entitled to any payment or remuneration for services as of right. His/her only entitlement is if the contract of agency expressly or by implication provides for it. This means that a non-contractual agent has no entitlement to be paid, and is truly a "gratuitous agent".

On the other hand, where the agency is contractual, and the agent is in the course of a business as such, then remuneration will be very readily implied if the contract makes no

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express provision for it. In the case of professional agents who charge on a fixed scale, this scale does not automatically apply, unless it can be shown that a term of the contract, express or implied, so provides. Frequently, however, in such cases, the custom of the trade or profession will ensure that the scale is implied into the contract.

Assuming the agency contract does provide for remuneration, there are various rules as to if and when it is, in fact, payable.

(a)Effecting a Transaction

If the agent's remuneration is due on the occurrence of some future event, she is not entitled to it unless and until that event actually occurs. If it does not occur, she has no right to payment for services rendered on the basis of work done (quantum meruit).

Frequently, agents receive their commission only when they actually effect some transaction. Much of the litigation in this area has revolved around the rights of estate agents to charge commission in respect of property sold through their efforts. Ultimately, the whole question hinges on the proper construction of the contract – but very clear and unambiguous words must be used if an estate agent is to get any commission unless an actual sale takes place.

The reason for this, as was pointed out by the House of Lords in the leading case of

Luxor (Eastbourne) Ltd v. Cooper (1941), is that the agent does not promise to do anything, nor is any obligation put upon him. In effect, all the contract says is:

"If the agent introduces a purchaser, and a sale takes place, then he is entitled to commission."

Consequently, if the vendor sells his house himself to a person who was not introduced by the agent, the agent is not entitled to a penny. Further, if a prospective purchaser who has been introduced by the agent withdraws after the contract of sale has been made, but before completion, the agent is not entitled to any commission. He has not "introduced a purchaser" (James v. Smith (1931)). However, as we have said before, it all really depends on the wording of the contract.

(b)Effective Cause of Transaction

Where the contract provides for commission to be paid on a transaction to be brought about by the agent, it will not be due unless the agent is the effective cause of the transaction occurring. If it occurs without the involvement of the agent, he/she is not entitled to commission.

Miller, Son & Co. v. Radford (1903)

A vendor employed an agent to find a purchaser for his property – or, failing that, a tenant. The agent introduced a tenant, and his commission was duly paid. Just over a year later, the tenant purchased the property. The agent claimed commission on the purchase.

HELD: He was not the cause of the purchase; hence, there was no entitlement to commission.

(c)Implied Term

On the other hand, a term will readily be implied in business agency contracts that the principal will not prevent the agent from earning his/her commission. For example, in

G Trollope & Sons v. Martyn Bros (1934), the Court of Appeal held that the vendor of a property would be liable to the agent if he unreasonably withdrew from negotiations with a prospective purchaser, and so prevented the agent earning his commission. However, in Rhodes v. Forwood (1876), a colliery owner appointed a sole agent for seven years for the sale of his coal in Liverpool. After four years, he sold the colliery.

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HELD: There was no breach of contract. The owner was not obliged to sell coal in Liverpool and he was free to sell it anywhere he liked. If this did not constitute a breach – which it didn't – then selling the whole colliery was not a breach either.

(d)Breach of Duty

An agent is not entitled to any remuneration in the event of serious misconduct or breach of duty. This, therefore, extends further than the rule we have previously mentioned – that an agent who accepts a bribe forfeits his/her remuneration.

However, it appears that not all breaches of duty will deprive an agent of remuneration. In Robinson Scammell v. Ansell (1985), an estate agent had entered into a contract with clients to sell their home. A purchaser was introduced to the clients by the agent, and the clients accepted the purchaser's offer. The clients were, in turn, attempting to buy another property for themselves. The estate agent then found out that the clients' own purchase of a house had fallen through and, before telling his clients of this, he informed the prospective purchaser of their current home that the agreed sale might not proceed, and he suggested alternative properties for him to look at.

When the clients discovered what the agent had done, they informed the agent that they no longer wanted him to act for them. In the event, they then dealt personally with the prospective purchaser of their house and did, in fact, complete the sale of the house to him. The agent then requested payment of £920 commission, and the exclients refused to pay. In the county court, it was held that the agents were in breach of duty to their clients and that the clients were, therefore, entitled to treat the contract as repudiated and refuse payment of the commission.

The Court of Appeal reversed this decision, and ruled that, in the circumstances, the estate agent, who had acted in good faith, was entitled to his commission, even though he was in breach of duty to his clients. Although an agent might commit a repudiatory breach of contract which would entitle the principal to bring the contract to an end, this did not, in itself, deprive the agent of rights which had already accrued to him under the contract. On the other hand, it was noted, certain breaches of duty by an agent might result in the agent losing his right to remuneration. For example, in Andrews v. Ramsey (1903), an agent who had made a secret profit, in breach of his fiduciary duty to his client, was not only required to account to his principal for the secret profit but was also deprived of his commission.

Indemnity

An agent is entitled to be reimbursed all expenses properly incurred on the principal's behalf, and to be indemnified against all losses and liabilities incurred in the execution of the agency.

This is a general rule, and subject to exceptions, especially in the case of expenses. It may very well be that the contract envisages, or expressly provides, that the expenses incurred by the agent are included in the commission or fee paid. The custom of the trade or profession will, often, be an important factor. However, an indemnity against liabilities is more universal – although, again, the actual contract is the deciding factor.

Warlow v. Harrison (1859)

An auctioneer was instructed to sell certain property, and he incurred liabilities in connection therewith. The principal then revoked his instructions.

HELD: The auctioneer was entitled to be indemnified by the principal for the liabilities incurred.

However, an agent is not entitled to indemnity, nor reimbursement:

Incurred as a result of his/her own negligence or default;

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For any unauthorised act which is not, subsequently, ratified by the principal;

In respect of any knowingly unlawful act.

Lien

All agents, prima facie, have a lien on the goods or chattels of their principals in respect of lawful claims they may have against them for remuneration, charges, loss, or liabilities incurred in the course of the agency.

However, the lien of an agent can be displaced by express or implied agreement in the agency contract, or if goods or chattels are delivered to the agent for a special purpose or directions for disposal are given inconsistent with the agent's lien.

Normally, the lien of an agent is a "particular" lien – that is, it applies only to goods or chattels being retained by the agent as security against debts or liabilities arising in respect of those particular goods or chattels. In other words, if an agent has in his possession goods in connection with one transaction, he cannot exercise his lien over those goods in respect of debts which arise in connection with a separate transaction.

However, a particular lien can be extended into a general lien by agreement. A general lien applies to all goods or chattels of the principal which are in the agent's possession, irrespective of how (or in respect of which transaction) the debt or liability arose.

For a lien – whether particular or general – to operate, the agent must be lawfully in possession of the principal's goods or chattels. Or possession must be held by a third party for or on behalf of the agent.

The third party who actually holds them must have acknowledged ("attorned") that he/she holds them on behalf of, or to the order of, the agent. Furthermore, the goods or chattels must have been lawfully obtained by the agent.

You should note carefully that an agent's lien extends only to the goods and chattels belonging to her principal – or documents of title to goods (e.g. bills of lading), or to securities such as share certificates. It does not cover money belonging to the principal held by the agent. Therefore, subject to any contrary agreement, or to trade custom, an agent has no right to offset her remuneration against money she holds for the principal. The right to set off strictly applies only if and when the principal sues the agent for repayment of money owed.

An agent loses his lien, or it is extinguished:

When the sum due to him is tendered; so, if he refuses to accept the tender, he loses his right to retain the goods.

If he acts in any capacity or enters into any contract which is inconsistent with retention of his lien; for example, an agent who had a lien on his principal's goods permitted the principal to have free access to the goods, and to use them for his own purposes, provided they were returned – he is held to have lost his lien (Forth v. Simpson (1849)).

If he waives it; waiver occurs whenever the agent expressly, or by his conduct, acts in such a way as to lead to the reasonable conclusion that he no longer considers the lien to be subsisting.

If the agent voluntarily gives up possession of the goods which are the subject of the lien.

Goods Bought in an Agent's Name

Should an agent buy goods in her own name, without disclosing to the seller that she is, in reality, acting as an agent, then the agent becomes personally liable to the seller for the

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price. The result of this, as between principal and agent, is that the property in those goods vests in the agent until such time as the principal pays the price. When he does, the property in the goods is transferred to him – the normal rule being, of course, that, where the agent buys as an agent, and discloses this fact, then the property in the goods bought passes direct to the principal, and at no time vests in the agent.

G.COMMERCIAL AGENTS (COUNCIL DIRECTIVE) REGULATIONS 1993

The UK, unlike many Continental European countries, has not previously had specific legislation regulating the relationship between principals and commercial agents. However, under a 1986 EC Directive, it became necessary for the UK to issue regulations to cover this matter, bringing the UK broadly into line with other European Union member states and Continental practice. This was brought about by the issue of the Commercial Agents (Council Directive) Regulations 1993, which came into effect on 1 January 1994. The Regulations apply to all companies, individuals and partnerships who sell their products through commercial agents in the UK and, unusually, are retrospective in effect, i.e. the they cover not only new contracts with such agents, but also existing contracts. The general effect of the Regulations is that commercial agents automatically receive much better legal protection for the duration of the contract. Additionally, a commercial agent is entitled to more favourable treatment on termination, and has enhanced rights to claim compensation or be indemnified which may include, in some circumstances, the payment of commission following termination of the agency agreement. The parties (i.e. the principal and the agent) are not able to agree between themselves to contract out of many of these provisions, and any term in an agreement which is contrary to the Regulations will be void.

Definition of a Commercial Agent

Under the Regulations, a "commercial agent" is defined as:

"a self-employed intermediary having continuing authority to negotiate the sale or the 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 his principal".

Although the definition refers to "self employed" intermediaries, the Regulations apply whether the agent is an individual or a company.

Agents for the provision of services only do not fall within the Regulations, nor do any of the following persons:

An officer empowered to bind a company or association, e.g. a director.

A partner authorised to bind his/her partners.

An insolvency practitioner.

A commercial agent who does not charge for his/her services.

A person who is operating on a commodity exchange or in a commodity market.

Crown Agents for Overseas Governments and Administrations.

A person whose activities as an agent are secondary. Unless the contrary is established it will be presumed that the agency activities of, say, a mail-order catalogue agent for consumer goods and consumer credit agents will be secondary to their other activities.

You should also note that the Regulations do not apply to distributors or intermediaries acting on a "one-off" basis or for a limited number of transactions (i.e. who do not have

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continuing authority) and apply only to the sale or purchase of goods. It is important to note that, if the agent takes title to the goods, he/she does not qualify for protection under the Regulations.

Summary of the Regulations

We can summarise the key points of the Regulations as follows:

All commercial agency agreements falling within the scope of the Regulations must:

(a)Specify the precise method and amounts of remuneration, commission and compensation or indemnity to be paid to the agent. (If an agency agreement is silent with regard to an agent's remuneration, the agent will be entitled to a level of remuneration which would customarily be payable, or in the absence of custom and practice, an agent will be entitled to reasonable remuneration taking into account all relevant considerations.)

(b)Provide for the exchange of certain information (which may necessitate changes to procedures and records). For example, the principal must:

Notify the agent within a reasonable period of any unexpected downturn in business volume (i.e. when it is anticipated that the volume of commercial transactions will be significantly lower than that which the agent would have expected under normal circumstances).

Keep the agent informed in writing of all acceptances, refusals or non-execution of orders which have been arranged by the agent.

(c)Specify the notice period required to terminate the agreement and payments which may become due following termination. On renewal or continuation of an agreement after the expiry of an initial term of three years or more, the Regulations stipulate that the agent is entitled to a minimum notice period of three months. The agent may, under the terms of the contract, be entitled to receive payments ("an indemnity") to the extent that, for example, he or she has expanded the principal's business by bringing in new customers or increasing the volume of business from existing customers, and the principal continues to derive substantial benefit from these customers.

Additionally, the Regulations:

(d)Entitle the commercial agent in certain circumstances to claim compensation following termination (this would take into account the commission that the agent would have earned if he/she had been able to continue with the contract and may include payment of commission on orders arising after termination). For example, compensation may be payable by the principal where he/she is in breach by giving too short a notice to terminate the agreement with the agent.

(e)Limit the scope and duration of restrictive covenants on a commercial agent following termination. Any provisions restricting an agent's activities after the agreement is terminated will only be valid if they are in writing. In addition, these clauses must be reasonable in their scope in terms of products, geographical areas and customers. Also, no restriction can be for more than a two-year period following the date of termination of the agency agreement. The courts may, however, continue to apply shorter periods, looking to the existing common law considerations and six months, as opposed to two years, is probably a more realistic assessment of a possible restriction on an agent's activities.

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