Imageview Management Ltd v Jack [2009] EWCA Civ 63

[2009] EWCA Civ 63Case No A2/2008/1408
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
Venue QUEEN’S BENCH DIVISION (LEEDS DISTRICT REGISTRY)
THE HON MR JUSTICE UNDERHILL
LS0217A
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 13/02/2009
Before
THE RT HON LORD JUSTICE MUMMERYTHE RT HON LORD JUSTICE DYSONTHE RT HON LORD JUSTICE JACOB
Between
Imageview Management LtdAppellantKelvin JackRespondent
(Transcript of the Handed Down Judgment ofWordWave International LimitedA Merrill Communications Company190 Fleet Street, London EC4A 2AGTel No: 020 7404 1400, Fax No: 020 7831 8838Official Shorthand Writers to the Court)
Mr Jonathan Lopian and Mr Seb Oram (instructed by Messrs Hill Dickinson) for AppellantMr Steven Turner (instructed by Messrs Bates Wells & Braithwaite) for RespondentHearing Hearing date: 18 December 2008
Judgment
[1]What if a footballer’s agent, in negotiating for his client, makes a secret deal with the club for himself on the side? That is what this case is about. It would not have happened if Mr Mike Berry (whose company, Imageview Ltd. was the footballer’s agent) had been open. If he had told his client, the footballer Kelvin Jack, that when he was going to negotiate for Mr Jack to sign for Dundee United, he was also going to make a deal with the club for himself about getting a work permit for Mr Jack, then, if Mr Jack had had no objection, there would have been no problem. Instead of doing that Mr Berry made a secret deal.[2]The details are short and simple:(a) Mr Jack is Trinidad and Tobago’s international goalkeeper. In July 2004 he wanted to play professionally in the UK (and had just been briefly on the books of Reading FC). The close of the transfer window was only a week or so away. He had contact with Dundee United and then asked Mr Berry (whom he knew) to negotiate with the club. Mr Berry agreed that he (in fact via Imageview) would act as his agent. There was no written contract of agency at the time. There was one later, dated 3rd August 2004. It is agreed that the written contract reflected the July oral agreement. So I can refer to its language as a matter of convenience.(b) The contract was for a 2 year term. Mr Jack was to pay Imageview 10% of his monthly salary if Imageview successfully made arrangements for him to sign with a UK club. Imageview agreed, inter alia, to provide “advice and representation in connection with any contract or renewal of a contract which the Player might wish to enter into”. It further provided that Imageview was to “use its reasonable endeavours to promote the Player and act in his best interests”.(c) Mr Berry spoke to his contact at Dundee. He negotiated a contract for Mr Jack to play for the club for two years. At the same time he agreed that Dundee would pay Imageview a fee of £3,000 for getting Mr Jack a work permit. Such a permit was needed because Mr Jack is a non-EU citizen.(d) Mr Berry did not tell Mr Jack about this work permit contract. And about a year later, when Mr Jack asked about it, Mr Berry told him “it was none of your business.”(e) Imageview duly obtained a work permit for Mr Jack and Dundee paid the £3,000 fee.(f) The Recorder held that the actual value of the work done in getting the permit “in real terms” was £750. There is not (and realistically could not be) any appeal about that finding.(g) The fee of £3,000 for the work permit contract was set by Mr Berry by, in part, taking into account the length of Mr Jack’s contract with Dundee.(h) Mr Jack signed and played for Dundee and began paying the 10% due under his agency contract with Imageview. He stopped doing so after a year or so when he found out about the work permit contract.[3]In these proceedings: i) Imageview claims the unpaid agency fees from Mr Jack (£3,203.07); ii) Mr Jack defends that claim and himself claims back the agency fees he has already paid; iii) Mr Jack also claims the full £3,000 received by Imageview from Dundee, alternatively the “excess” above the real value of the work done, namely £2,250.[4]Unless there was a breach of duty, the other questions do not arise and Mr Jack is liable for the unpaid balance of the fees. Was the undisclosed side deal “none of Mr Jack’s business”? Mr Recorder Walker, upheld by Underhill J, held that it was indeed Mr Jack’s business: it was not Mr Berry/Imageview’s private and separate arrangement.[5]The basis for such a finding was that Imageview in negotiating a deal for itself had a clear conflict of interest. Put shortly, it is possible that the more it got for itself, the less there would or could be for Mr Jack. Moreover it gave Imageview an interest in Mr Jack signing for Dundee as opposed to some other club where no side deal for Imageview was possible.[6]There is no answer to this. The law imposes on agents high standards. Footballers’ agents are not exempt from these. An agent’s own personal interests come entirely second to the interest of his client. If you undertake to act for a man you must act 100%, body and soul, for him. You must act as if you were him. You must not allow your own interest to get in the way without telling him. An undisclosed but realistic possibility of a conflict of interest is a breach of your duty of good faith to your client.[7]That duty should not cause an agent any problem. All he or she has to do to avoid being in breach of duty is to make full disclosure. Any agent who is doubtful about his position would do well to do just that – the mere fact that he has doubts will generally be a message from his conscience. As Mr Steven Turner, counsel for Mr Jack put it, all an agent has to do is to “give the player details of any side-deals that may form part of his transfer arrangements. Sunlight is, after all, the best of disinfectants.”[8]The law as to an agent’s duty of fidelity where there is a realistic possibility of a conflict of interest, goes back a long, long way. Sadly the courts have found it necessary to re-state it from time to time. I make no apology for doing so yet again. I go to just three old cases to demonstrate that what I said above contains nothing new.[9]At least as early as 1888 (there are earlier cases, for instance Salomons v Pender 1 H&C 639, a citation from which appears below) the principles were firmly laid down in Boston Deep Sea Fishing v Ansell (1888) 39 Ch. D. 339. A managing director of a company in placing orders for vessels for his company secretly agreed with the shipbuilders to receive a commission.[10]Cotton LJ said this at p.357: Then when he was engaged in that contract, in respect of the matters of that very contract, he in one instance got a percentage of 1 per cent. from the Shipbuilding Company, and, in the other case, he insisted on getting - that is the evidence - and did get, a lump sum of £50. It is suggested that we should be laying down new rules of morality and equity if we were to so hold. In my opinion if people have got an idea that such transactions can be properly entered into by an agent, the sooner they are disabused of that idea the better. If a servant, or a managing director, or any person who is authorized to act, and is acting, for another in the matter of any contract, receives, as regards the contract, any sum, whether by way of percentage or otherwise, from the person with whom he is dealing on behalf of his principal, he is committing a breach of duty. It is not an honest act, and, in my opinion, it is a sufficient act to shew that he cannot be trusted to perform the duties which he has undertaken as servant or agent. He puts himself in such a position that he has a temptation not faithfully to perform his duty to his employer. He has a temptation, especially where he is getting a percentage on expenditure, not to cut down the expenditure, but to let it be increased, so that his percentage may be larger. I do not, however, rely on that, but what I say is this, that where an agent entering into a contract on behalf of his principal, and without the knowledge or assent of that principal, receives money from the person with whom he is dealing, he is doing a wrongful act, he is misconducting himself as regards his agency, and, in my opinion, that gives to his employer, whether a company or an individual, and whether the agent be a servant, or a managing director, power and authority to dismiss him from his employment as a person who by that act is shewn to be incompetent of faithfully discharging his duty to his principal.[11]Bowen LJ put it this way at p.362: This is an age, I may say, when a large portion of the commercial world makes its livelihood by earning, and by earning honestly, agency commission on sales or other transactions, but it is also a time when a large portion of those who move within the ambit of the commercial world, earn, I am afraid, commission dishonestly by taking commissions not merely from their masters, but from the other parties with whom their master is negotiating, and with whom they are dealing on behalf of their master, and taking such commissions without the knowledge of their master or principal. There never, therefore, was a time in the history of our law when it was more essential that Courts of Justice should draw with precision and firmness the line of demarcation which prevails between commissions which may be honestly received and kept, and commissions taken behind the master's back, and in fraud of the master. And at p.363: Now, there can be no question that an agent employed by a principal or master to do business with another, who, unknown to that principal or master, takes from that other person a profit arising out of the business which he is employed to transact, is doing a wrongful act inconsistent with his duty towards his master, and the continuance of confidence between them. He does the wrongful act whether such profit be given to him in return for services which he actually performs for the third party, or whether it be given to him for his supposed influence, or whether it be given to him on any other ground at all; if it is a profit which arises out of the transaction, it belongs to his master, and the agent or servant has no right to take it, or keep it, or bargain for it, or to receive it without bargain, unless his master knows it.[12]In those days the courts were apt to use the word “fraud” for a breach of an agent’s fiduciary duty. These days such use can perhaps inflame matters and detract from the debate. The term used does not matter, it is the breach of duty which does. This appears best from the judgment of Fry LJ at p.368: In my judgment, the conduct of Ansell in so dealing was a fraud—a fraud on his principals—a fraud, not according to any artificial or technical rules, but according to the simple dictates of conscience, and according to the broad principles of morality and law, and I think it is the duty of the Courts to uphold those broad principles in all cases of this description. We were invited to consider the state of mind of Mr. Ansell; whether he thought it wrong; in other words we are invited to take as the standard for our decision the alleged conscience of a fraudulent servant. I decline to accept any such rule as one on which the Court is to decide such questions.[13]It is evident that the Court felt it necessary to state the principles forcefully – witness Bowen LJ’s reference to the “large portion” of agents he thought were doing undisclosed side deals for themselves.[14]The effect of Ansell’s breach of duty was that he had to account for the commissions received and that he was not entitled to outstanding salary which otherwise would have been due. That clearly governs Imageview’s claim for outstanding commission which would otherwise have been due.[15]Note also that it did not matter whether or not Ansell thought he was doing wrong. So also here. It does not matter whether Mr Berry thought it was all right to make the side deal, as he may have done if a practice of side deals exists in the world of football agents. I note that Mr Berry did not allege such a practice – his main defence at trial was that he had told Mr Jack all about the deal at the time. The Recorder did not believe him. That he lied perhaps suggests that he knew in his heart that he ought to have been open with his client. Otherwise why lie? There is no point in speculating further.[16]25 years on from Boston Deep Sea there was the case of Andrews v Ramsay [1903] 2 KB 635. It was because this case was the principal authority upon which the judge based his decision that Scott Baker LJ gave permission for this second appeal, saying that there was a question of principle as to whether it should be followed. We have had more authorities cited. And a search reveals that Andrews v Ramsay has been regularly cited down the years. Never, so far as I can see, has it been doubted.[17]The facts of Andrews were these. The plaintiff principal had asked the defendant estate agents to find a purchaser for his property at a price of £2,500 and if one such was found the agents’ fee would be £50. A purchaser (with the splendidly Edwardian name Clutterbuck) at £2,100 was found. He paid the agents £100 by way of deposit. The agents paid the principal £50 and, with the principal’s consent, retained £50 as their commission. But it then transpired that the agents had had a side deal with Clutterbuck whereby he paid them £20. Oddly there were two actions, though no point turned on this. In the first the principal claimed and recovered the £20 as a secret profit made by the agent in breach his duty of good faith. In the second action the principal claimed the return of the £50. He succeeded – even though he had had the benefit of the agent’s services.[18]Lord Alverstone CJ said (and I make no apology for citation at length), at p.636: It is said that the defendants ought not to be called upon to hand over the £50 to the plaintiff because the plaintiff has had the benefit of their services. The principle of Salomons v. Pender (1865) 3 H&C 639 seems to me to govern the case, and it is, in my opinion, amply sufficient to do so. In that case it was held that an agent who was himself interested in a contract to purchase property of his principal was not entitled to any commission from the principal. The principle there laid down is that, when a person who purports to act as an agent is not in a position to say to his principal, “I have been acting as your agent, and I have done my duty by you,” he is not entitled to recover any commission from that principal. In Salomons v. Pender Bramwell B. said at p.642:
“It is true that … the defendant has had the benefit (if it be one) of the plaintiff's services. But the defendant is in a position to say, ‘What you have done has been done as a volunteer, and does not come within the line of your duties as agent.’”
And in the same case Martin B. quoted the passage from Story on Agency, p. 262, § 210, where it is said:
“In this connection, also, it seems proper to state another rule, in regard to the duties of agents, which is of general application, and that is, that, in matters touching the agency, agents cannot act so as to bind their principals, where they have an adverse interest in themselves. This rule is founded upon the plain and obvious consideration, that the principal bargains, in the employment, for the exercise of the disinterested skill, diligence, and zeal of the agent, for his own exclusive benefit. It is a confidence necessarily reposed in the agent, that he will act with a sole regard to the interests of his principal, as far as he lawfully may; and even if impartiality could possibly be presumed on the part of an agent, where his own interests were concerned, that is not what the principal bargains for; and in many cases, it is the very last thing which would advance his interests. The seller of an estate must be presumed to be desirous of obtaining as high a price as can fairly be obtained therefor; and the purchaser must equally be presumed to desire to buy it for as low a price as he may.”
It seems to me that this case is only an instance of an agent who has acted improperly being unable to recover his commission from his principal. It is impossible to say what the result might have been if the agent in this case had acted honestly. It is clear that the purchaser was willing to give £20 more than the price which the plaintiff received, and it may well be that he would have given more than that. It is impossible to gauge in any way what the plaintiff has lost by the improper conduct of the defendants. I think, therefore, that the interest of the agents here was adverse to that of the principal. A principal is entitled to have an honest agent, and it is only the honest agent who is entitled to any commission. In my opinion, if an agent directly or indirectly colludes with the other side, and so acts in opposition to the interest of his principal, he is not entitled to any commission. That is, I think, supported both by authority and on principle; but if, as is suggested, there is no authority directly bearing on the question, I think that the sooner such an authority is made the better. “It is true that … the defendant has had the benefit (if it be one) of the plaintiff's services. But the defendant is in a position to say, ‘What you have done has been done as a volunteer, and does not come within the line of your duties as agent.’” And in the same case Martin B. quoted the passage from Story on Agency, p. 262, § 210, where it is said:
“In this connection, also, it seems proper to state another rule, in regard to the duties of agents, which is of general application, and that is, that, in matters touching the agency, agents cannot act so as to bind their principals, where they have an adverse interest in themselves. This rule is founded upon the plain and obvious consideration, that the principal bargains, in the employment, for the exercise of the disinterested skill, diligence, and zeal of the agent, for his own exclusive benefit. It is a confidence necessarily reposed in the agent, that he will act with a sole regard to the interests of his principal, as far as he lawfully may; and even if impartiality could possibly be presumed on the part of an agent, where his own interests were concerned, that is not what the principal bargains for; and in many cases, it is the very last thing which would advance his interests. The seller of an estate must be presumed to be desirous of obtaining as high a price as can fairly be obtained therefor; and the purchaser must equally be presumed to desire to buy it for as low a price as he may.”
[19]Having regard to Mr Jack’s claim for the return of the commission already paid by him it is also worth citing what Wills J had to say: The £50 in question was paid by the purchaser to the defendants as agents for the plaintiff as part of the £100 deposit on the purchase, and the defendants were allowed by the plaintiff to retain £50 in the belief that they had earned that sum as commission. If the money had all been paid over, and the defendants had had to sue the plaintiff for commission, it seems to me perfectly clear that they could not recover it. They would have no chance whatever of succeeding in such an action, and I think that they ought not to stand in any better position because the plaintiff, believing that they had acted properly, had allowed them to retain the £50. The case ought to be the same whether the commission has already been paid or whether the agent has to sue for it.[20]20 years later this Court, in the shape of that formidable trio Bankes, Atkin and Scrutton LJJ felt it necessary, apparently by reason of its widespread breach, to spell out again the high nature of an agent’s duty of fidelity. This was in Rhodes v Macalister (1923) 29 Com. Cas. 19. The plaintiff agent had acted in finding a seller of mineral rights for the defendant principal. The agents told their principal that the properties could be purchased for from £8,000 to £10,000. The terms of the agency were then agreed on the basis that if the agent could find a seller at below £9,000, then, he, the agent, could have the difference between the actual price and £9,000. The agent found a seller at £6,625 and claimed the difference, viz. £2,375. But secretly the agent had also negotiated with the seller, at a time when they made the contract with the buyer, to be paid a commission on the sale. The agent’s claim failed.[21]Bankes LJ said this at p.20: There seems to be an idea prevalent that a person who is acting agent or servant of another is committing no wrong to his employer in taking a commission or bribe from the other side, provided that in his opinion his employer or principal does not have to pay more than if the bribe were not given. There cannot be a greater misconception of what the law is, or what the duty of a servant or agent towards his master or principal in reference to such maters is, and I do not think the rule can too often be repeated or its application more frequently insisted upon. And at p.23: …what was [the agent’s] position and what was his duty. Of course, as long as he was acting for the vendors of these properties only he was perfectly entitled to suggest to them that they should fix a price which would include a commission to himself, and he would be perfectly justified in receiving that commission or putting forward the price to an intending purchaser as the only price which he could persuade the vendors to give, so long as that was his real opinion. But the moment he accepted the position of agent for the intending purchasers his entire position in law changed. He could no longer consistently with his duty, unless he disclosed the facts, act as agent for the vendors to procure purchasers with the result of some commission or payment to himself. He could not retain that position consistently with his duty to the purchasers of obtaining these properties at as low a price as he possibly could. …. … the moment he accepted the position of agent to procure these properties as cheap as possible for the intending purchasers his interest and duty conflicted, and he could no longer act honestly towards the intending purchasers without disclosing to them that in that figure of £8,000 to £10,000 which he had mentioned as the probable price of these properties he had included a figure which he intended should cover a commission to himself.[22]Scrutton LJ said this at p.25: I agree with the judgment that has just been delivered and I only propose to re-state it in my own words because I think it is of very great importance that the principle upon which we are acting should be thoroughly understood, and from Mr Vachell’s argument it is not thoroughly understood by commercial men, especially in that part of the country from which his clients appear to come [the property was mining rights in the Forest of Dean – so somewhere in or near Gloucestershire.] At p.27: The law I take to be this: that an agent must not take remuneration from the other side without both disclosure to and consent from his principal. If he does take such remuneration he acts so adversely to this employer that he forfeits all remuneration from the employer, although the employer takes the benefit and has not suffered a loss by it. And also at p.27 after citation from Lord Alverstone in Andrews v Ramsay: I hope it is thoroughly understood in London; and if it is not thoroughly understood in the Forest of Dean, then the sooner it is understood there the better for commercial honesty.[23]I would say the same about the world of football and other sports agents. Like any other agent he or she cannot serve two masters. Nor, without full disclosure, can his or her own interest ever be allowed to conflict with that of his or her principal.[24]Scrutton LJ in Rhodes, went on to say at p.28: But I decide it on the broad principle that whether it causes damage or not, when you are employed by one man for payment to negotiate with another man, to take payment from that other man without disclosing it to your employer is a dishonest act. It does not matter that the employer takes the benefit of his contract with the vendor; that has no effect whatever on the contract with the agent, and it does not matter that damage is not shown. The result may actually be that the employer makes money out of the fact that the agent has taken commission. Also: In this case, therefore, it appears that as one of the two joint agents has, in breach of his duty, taken commission from the other side, he forfeits, and they both forfeit, all right to remuneration from their employer. The more that principle is enforced the better for the honesty of commercial transactions. I have only repeated what my Lord has said because it cannot be repeated too often to commercial men – that in matters of agency they must act with strict honesty.[25]Atkin LJ spoke in equally strong terms at p.29: This is a class of case where the Courts always have maintained, and do maintain, and I trust always will maintain, a very high standard of conduct on the part of agents. It is a standard of conduct which I am afraid sometimes conflicts with the standard of conduct adopted for themselves by commercial men – not by honourable men in commerce, but by a great many men engaged in mercantile transactions. I entirely agree with what has been said as to the importance of repeating and letting it be known as widely as possible what the standard of conduct expected of an agent is at law.[26]I like to think that Lord Atkin, as he became, would have been pleased to see his trust fulfilled; that the courts have indeed maintained that high standard of conduct, as we do in this case. He added this: Now that is not an impossible standard of attainment. It is laid down by the law and it is in respect of a practical matter. The remedy is a very simple one and it is well within the compass of any ordinary business man. The complete remedy is disclosure, and if an agent wishes to receive any kind of remuneration from the other side and wishes to test whether it is honest or not, he has simply to disclose the matter to his own employer and rest upon the consequences of that. If his employer consents to it, then he has performed everything that is required of an upright and responsible agent.[27]The principles applied in that trio of cases (there are of course others, but three are enough) to my mind show quite clearly that in making the side deal in this case the agent, Imageview, through Mr Berry, acted in breach of the duty of fidelity which it owed to the principal Mr Jack.[28]Mr Lopian, bravely, but to my mind hopelessly, tried to persuade us otherwise. He raised two somewhat interrelated arguments, one on the facts and the other on the law.[29]The heart of his submission was that there is nothing improper in an agent, when acting for a principal, having a private separate arrangement by which he may make a profit for himself provided that that separate arrangement is “collateral” to his fiduciary duty to his principal. There must be a sufficient “nexus” between the agent/third party arrangement and the principal/agent relationship. And there was no sufficient nexus here on the facts.[30]Mr Lopian submitted that if the courts below had been shown the right authorities they would have recognised this principle of “harmless collaterality” and applied it on the facts here. And at any rate we should do so. The authorities he took us to were first the textbook Bowstead on Agency 18th Edn (2006) and then Hippisley v Knee Bros. [1905] 1 KB 1, Nitedals Taenstikfabrik v Bruster [1906] 2 Ch 671, Stubbs v Slater [1910] 1 Ch 632, Keppel v Wheeler [1927] 1 KB 577, Robinson Scammel v Ansell [1985] 2 EGLR 41, Kelly v Cooper [1993] AC 205 Boardman v Phipps [1967] 2 AC 46, and The Peppy [1997] 2 Lloyds Rep. 722.[31]The passage in Bowstead relied upon is as follows: Clearly not everything acquired in the course of the agency relationship can be made the subject of account to the principal … It can be said that the test is to ask whether acquisitions on the agent’s own account would be inconsistent with his undertaking to act for his principal. It will be inconsistent where the benefit is acquired within the scope of the activities which the agent has undertaken to pursue on his principal’s behalf or where the agent uses his position or connection with the principal to obtain a benefit; or obtains one while holding himself out to another party as representing the principal.[32]I do not see how this assists Mr Lopian. It is against him. Mr Berry clearly used “his position or connection with” Mr Jack to obtain a benefit for himself.[33]I do not propose to go to all of these authorities. It is sufficient to consider a few, starting with Hippisley, because it was placed at the forefront of Mr Lopian’s argument. The defendants were auctioneers, employed by the plaintiff to sell some goods. The payment was to be percentage commission with a minimum of £20, certain fixed amounts plus “all out of pocket” expenses. These included the cost of advertisements. After the sale which triggered the minimum commission of £20 the auctioneers’ bill included that plus the gross cost of the advertisements. In fact the auctioneers had received a discount on this cost. They included the gross sum in the bill in the honest but mistaken belief that there was a custom which entitled them to do this, the point being that if the client had ordered the advertisements directly, no discount would have been given. The bill was paid in full. When, later, the plaintiff discovered that there had been a discount he sued, not only for the amount of the discount, but also for the entire £20 commission. He succeeded in the former claim but not the latter.[34]Mr Lopian relied upon what was said about the latter claim. I quote Lord Alverstone CJ in full: The other claim made by the plaintiff, and in respect to which we did not call upon the defendants' counsel, was that in consequence of the defendants' conduct they were not entitled to retain the £20 which they had deducted from the gross proceeds for their commission, and in support of that claim Mr. Salter relied upon the judgment of this Court in Andrews v. Ramsay, where we held that a dishonest agent could not recover any commission at all. I desire, speaking for myself, to say that in this case I am satisfied that there was no fraud, but that what was done by the defendants was done under a mistaken notion as to what they were entitled to do under the contract: they thought that by reason of the alleged custom they were entitled to deduct from the proceeds of sale the gross amounts of the advertising and printing bills. That is enough to differentiate the present case from Andrews v. Ramsay , where we were dealing with an agent who acted with downright dishonesty. But Mr. Salter went further, and contended that if there has been a failure by the agent to account for a secret discount received, even though that failure may have been due to a bonâ fide mistake, he is not entitled to receive any commission or remuneration for his services from the principal. I am not prepared to go that length. If the Court is satisfied that there has been no fraud or dishonesty upon the agent's part, I think that the receipt by him of a discount will not disentitle him to his commission unless the discount is in some way connected with the contract which the agent is employed to make or the duty which he is called upon to perform. In my opinion, the neglect by the defendants to account for the discounts in the present case is not sufficiently connected with the real subject-matter of their employment. If the discount had been received from the purchasers the case would have been covered by Andrews v. Ramsay; but here it was received in respect of a purely incidental matter; it had nothing to do with the duty of selling. It cannot be suggested that the plaintiff got by one penny a lower price than he would otherwise have got. Therefore I come to the conclusion that, so far as the £20 commission is concerned, the plaintiff is not entitled to succeed.[35]Kennedy J said this: With regard to the £20 claim, I agree with my Lord that this is not one of the cases in which it would be just to deprive the agent of his agreed remuneration as well as of his secret profit. I feel it is difficult to lay down any definite rule upon the subject with confidence, but I would venture to suggest the following: that where the agent's remuneration is to be paid for the performance of several inseparable duties, if the agent is unfaithful in the performance of any one of those duties by reason of his receiving a secret profit in connection with it - and I here use that word "unfaithful" as including a breach of obligation without moral turpitude - it may be that he will forfeit his remuneration, just as in certain cases a captain of a ship might be held in the Admiralty Court to forfeit his wages as a result of misconduct in any branch of his duty as a captain; but where the several duties to be performed are separable, as to my mind they are in the present case, the receipt of a secret profit in connection with one of those duties would not, in the absence of fraud, involve the loss of the remuneration which has been fairly earned in the proper discharge of the other duties. Here the auctioneers were employed for a certain commission to act faithfully as auctioneers. If they had improperly by connivance sold to a purchaser at a lower price than they could fairly have got they would clearly not have been able to recover their commission. There is nothing of this kind in the present case. But by the special terms of their contract they undertook, in addition to their duty as auctioneers, that if the plaintiff would pay them their out of pocket expenses they would truly account to the plaintiff for those expenses. And it seems to me that it would be wrong to say that because the defendants failed in the performance of their duty properly to account for the out of pocket expenses, therefore they are not to have their commission, although they performed all their duty as auctioneers faithfully.[36]Mr Lopian submitted that Hippisley demonstrated that an agent could legitimately try to make a profit “on the side” which was not regarded as so serious that his entire commission became repayable. Mr Lopian fastened on the phrases “in some way connected,” “not sufficiently connected” and “purely incidental matter” in Lord Alverstone’s judgment and “several duties to be performed” in the judgment of Kennedy J.[37]He submitted that the principle brought out by Hippisley was accurately summarised by David Steel QC in The Peppy [1997] Lloyds LR 722 at p.729: … this decision of the Court of Appeal admirably demonstrates the difference between a collateral secret profit which preserves the right to commission and a secret profit (albeit honest) directly impacting on the moneys payable to the principal which may destroy the entitlement.[38]I am not myself satisfied that that is quite right: certainly Hippisley does not establish a “direct impact” test. The better way to look at it is to ask whether the agent was faced with a realistic possibility of a conflict of interest, rather than whether there was a “secret profit … directly impacting on the moneys payable to the principal.” It is the conflict of interest which ought to bring his conscience into play.[39]The first case which used the word “collateral”, I think, was Stubbs v Slater [1910] 1 Ch 195. The facts do not really matter for present purposes, just the language used by Neville J at p.204: The concealed remuneration obtained by the agents in the present case is in the precise matter in which they were instructed to act as agents for their principal. Consequently it cannot be said, as in Hippisley v. Knee Brothers , that what they did was something which was collateral to, and not directly within, their duty as agents. That determines this matter so far as the question of commission is concerned.[40]Keppel v Wheeler [1925] 1 K.B. 577 is the last of Mr Lopian’s authorities to which it is necessary to refer. The plaintiff engaged the defendant estate agents to sell a property, instructing them to market it at £6,500 but that he would accept £6,000. They found someone who offered £6,150, an offer accepted “subject to contract”. Before exchange of contracts, another potential buyer offered £6,750. Instead of communicating that offer to their principal, the agents went to the original offeror, suggesting he could sell on and make a profit. They did so in good faith, believing that they had already fulfilled their duty to their principal, not understanding that only formal exchange of contract brings their duty to an end.[41]The plaintiff was awarded damages for breach of the agents’ duty. These were the difference between the two prices, namely £600 less the extra commission which that £600 would have earned. But the plaintiff had to pay commission on the sale itself.[42]Bankes LJ said at p.588 The appellant contended that the agents have disentitled themselves to recover the commission, but I do not take that view at all. It seems to me that an agent might quite properly claim his commission, and yet have to pay damages for committing a bona fide mistake which amounts to a breach of duty. In these circumstances, I think the respondents are entitled to the claim which they make for commission.[43]Atkin LJ said at p.592: The other question is whether the respondents should succeed on their counterclaim. Now I am quite clear that if an agent in the course of his employment has been proved to be guilty of some breach of fiduciary duty, in practically every case he would forfeit any right to remuneration at all. That seems to me to be well established. On the other hand, there may well be breaches of duty which do not go to the whole contract, and which would not prevent the agent from recovering his remuneration; and as in this case it is found that the agents acted in good faith, and as the transaction was completed and the appellant has had the benefit of it, he must pay the commission. Therefore, I think, the defendants are entitled to recover on their counterclaim.[44]I accept Mr Lopian’s submission that there can be cases of harmless collaterality. And that there can be cases where there is just an honest breach of contract such as Keppel. But this is simply not such a case. This is a case of a secret profit obtained because Mr Berry/Imageview was Mr Jack’s agent. And there was a breach of a fiduciary duty because of a real conflict of interest. That in itself would be enough, but there is more: the profit was not only greater than the work done but was related to the very contract which was being negotiated for Mr Jack. Once a conflict of interest is shown, as Atkin LJ said in the last passage quoted, the right to remuneration goes.[45]Mr Lopian suggested that Dundee would not, and had made it clear that it would not, pay Mr Jack any more than £700 per week. For that reason the side deal was collateral. Neither court below accepted that. Nor can I. It flies in the face of reality to say that once the terms of Mr Jack’s contract had been negotiated in principle they could not be reopened. Suppose, for instance, Mr Berry had, after negotiating his £3,000 fee, said to Dundee:
“well that shows you are willing to pay more to get Mr Jack playing for you. How about reducing my fee and giving it to my client, Mr Jack?”
As Mr Jack’s agent he had an interest in saying just that; his own interest was in saying nothing. He had “a temptation not faithfully to perform his duty to his employer” (per Cotton LJ in Boston Deep Sea Fishing). Of course, since he never said anything, we shall never know what Dundee would have done. Nor do we need to (“it is impossible in any way to gauge ... what the plaintiff has lost”, per Lord Alverstone CJ in Andrews).[46]I would also observe this: that none of the cases relied upon by Mr Lopian involve a direct conflict of interest between that of the agent and of his principal: they do not involve any question of a breach of fiduciary duty arising from such a conflict. Nor do any of the cases involve a secret payment to the agent from the very party with whom the agent is dealing on his principal’s behalf. It is in such cases that the Andrews v Ramsey principle applies with its full rigour.[47]Finally in relation to this point and indeed the further points about the appropriate remedies I should mention what was something of a constant refrain from Mr Lopian. It was this: Mr Jack got the benefit of the contract negotiated for him. Why should he not have to pay for it? Why should he have the benefit of the agent’s work for nothing at all?[48]The answer is twofold. First it has already been given in the cases, and second there are sound policy reasons as to why.[49]As far as the cases are concerned, I have already cited enough to show that the principle is established, see for instance Atkin LJ in Keppel (“forfeit any right to remuneration at all”), Lord Alverstone CJ in Andrews (“not entitled to recover any commission”), Wills J in Andrews (“the case ought to be the same whether the commission has already been paid or whether the agent has to sue for it”), Scrutton LJ in Rhodes (“The result may actually be that the employer makes money out of the fact that the agent has taken commission”).[50]The policy reason runs as follows. We are here concerned not with merely damages such as those for a tort or breach of contract but with what the remedy should be when the agent has betrayed the trust reposed in him – notions of equity and conscience are brought into play. Necessarily such a betrayal may not come to light. If all the agent has to pay if and when he is found out are damages the temptation to betray the trust reposed in him is all the greater. So the strict rule is there as a real deterrent to betrayal. As Scrutton LJ said in Rhodes at p.28, “The more that principle is enforced, the better for the honesty of commercial transactions.”[51]Accordingly, as the courts below held, there was a breach of fiduciary duty here. The cases I have cited make it plain that where there is such a breach commission is forfeit – so Mr Jack need pay no more agency fees and is entitled to repayment of the fees paid by him.[52]The £3,000 was a secret profit made by a fiduciary. On normal equitable principles it is recoverable, subject to the possibility (which I park for the moment) of a reasonable remuneration deduction. Snell’s Equity 31st Edn. puts it this way: A fiduciary is bound to account for any profit that he or she has received in breach of fiduciary duty. Cases such as Boston Deep Sea (“if it is a profit which arises out of the transaction, it belongs to his master” per Bowen LJ) amply justify this proposition.[53]Mr Lopian did not really contest otherwise – his main point being that because the deal was collateral there was no breach of fiduciary duty at all. That I have rejected.[54]Below Mr Recorder Walker held there should be such a deduction, whereas Underhill J held otherwise. What then are the principles which govern a deduction when a fiduciary has received a secret profit in breach of his duty of fidelity?[55]The basic principle is beyond dispute, that, in the words of §7-127 of Snell’s Equity, 31stEdn.: A fiduciary is bound to account for any profit that he or she has received in breach of fiduciary duty.[56]Snell, at §7-131,also sets out the general rules about when an allowance for skill and effort will be made: A fiduciary who has acted in breach of fiduciary duty and against whom an account of profits is ordered, may nevertheless be given an allowance for skill and effort in obtaining the profit which he has to disgorge where “it would be inequitable now for the beneficiaries to step in and take the profit without paying for the skill and labour which has produced it.” [The quotation is from the judgment of Wilberforce J in Phipps v Boardman [1964] 1 W.L.R. 993 at p.1018)]. This power is exercised sparingly, out of concern not to encourage fiduciaries to act in breach of fiduciary duty. It will not likely be used where the fiduciary has been involved in surreptitious dealing …, although strictly speaking it is not ruled out simply because the fiduciary can be criticised in the circumstances. The fiduciary bears the onus of convincing the court that an accounting of his or her entire profits is inappropriate in the circumstances [I have omitted the authorities cited in the footnotes to this passage].[57]Mr Lopian did not contest any of this. In his skeleton argument he took us to O’Sullivan v Management Agency etc [1985] 1 QB 428 where Fox LJ said at p.468: Nor do I think that the principle [of making an allowance] is only applicable in cases where the conduct of the fiduciary cannot be criticised. I think the justice of the individual case must be considered on the facts of that case. Mr Lopian particularly relied on the last sentence. But Fox LJ went on to say: Accordingly, where there has been dishonesty or surreptitious dealing, or other improper conduct … it might be appropriate to refuse relief; but that will depend on all the circumstances. The present case is, of course, one of surreptitious dealing.[58]Mr Lopian also took us to Murad v Al-Saraj [2005] EWCA Civ 959 for the warning of the High Court of Australia in Warman v Dwyer (1995) 182 CLR 544 that the remedy of an account should not be allowed to become a vehicle for the unjust enrichment of the plaintiff.[59]Mr Lopian submitted that the work done in getting the work permit was of benefit to Mr Jack. It was this circumstance which meant that Imageview should be given credit for the work done. But, as Underhill J pointed out, the work involved was never anything Mr Jack was expecting to pay for. It was something which he surely knew had to be done before he could play. But it was not a benefit which accrued to him financially. How Dundee arranged for the permit was simply a matter for Dundee.[60]So, like the Judge, I cannot see any reason for exercising the power – one to be exercised sparingly - to make an allowance. The onus of justifying the allowance is far from discharged.[61]So I would dismiss this appeal in its entirety.[62]I agree.[63]I totally agree.[64]The stringent agency duties so brilliantly expounded in Boston Deep Sea Fishing v. Ansellby the greatest constitution of the Court of Appeal in the 19th century and in Rhodes v. Macalisterby the greatest constitution of the Court of Appeal in the 20th century apply to the facts of this case. It is inspiring to read their judgments. I would not qualify them in any respect. I cannot improve upon them in any way.[65]Only one regret, and that is that it is still necessary, in the 21st century, to remind agents of what was said by the greatest of all the judges, Bowen LJ in Boston Deep Sea Fishingat pages 362-363, about conflicts of duty and interest and the necessity for transparency in the dealings of agents, if confidence in them is to continue. In our age it is more important than it ever was for the courts to hold the precise and firm line drawn between payments openly, and therefore honestly, received by agents, and undeclared payments received by agents secretly, and therefore justly liable to all the legal consequences flowing from breaches of an agent’s fiduciary obligations.

Cited in 18 later judgments

and 9 more of the most senior