The internal relationship

Duties of agent towards principal

Where there is a contract, the agent (A) will obviously be liable for failure to carry out the contract. In some cases, there will be elaborate express terms. In other cases, it would be a question of what is to be implied. In most cases, A will be expected to take reasonable care and skill in pursuit of what he has been appointed to do. In addition, where A is a commercial agent within the Commercial Agents (Council Directive) Regulations 1993, certain duties are imposed by these.

Contractual liability

A has a duty to carry out his principal’s instructions properly, as specified in the contract. In relation to commercial agents, there is a duty under rag to ‘make proper efforts to negotiate and, where appropriate, conclude the transactions’ he is assigned and to ‘comply with reasonable instructions given by his principal’. There is, also, an obligation on such agents to communicate ‘all necessary information’ to the principal.

Tortious liability

In some cases, there will be no contract, for instance, because the appointment is gratuitous. A would nowadays usually be liable in tort under Hedley Byrne for carelessly carrying out his instructions.

There can be parallel liability in contract and tort, as was confirmed by the House of Lords in Henderson v Merrett Syndicates Ltd (1994). The case arose out of the collapse of the Lloyd’s insurance market and the substantial losses suffered by ‘names’ who had invested. One of the main issues was whether the agents who managed the insurance business on behalf of the names were liable in the tort of negligence as well as in contract. The House of Lords had no doubt that this was so. The agents had assumed a responsibility towards the names to perform professional services and, thus, were under a duty of care.

Fiduciary duties

Perhaps the most important obligations (and certainly the least understood by many principals and agents) are the fiduciary duties of the agent to the principal. Commercial agents are required by the 1993 Regulations to act ‘dutifully in good faith’. The common law has also always treated an agency relationship as fiduciary. The duties of a fiduciary were said by Millett LJ in Bristol and West Building Society v Mothew (1996) to include the following obligations:


The general principle must be that the agent is not to delegate the task which has been entrusted to him. This is on the basis that P has chosen A relying on the agent’s personal qualities and is not, therefore, required to accept someone else’s performance. There will be many cases where delegation is expressly permitted and, no doubt, there are also cases in which it is impliedly permitted. So, for example, if the practice in a particular trade or profession is to delegate, it can, no doubt, be inferred that delegation is permitted unless it is expressly prohibited. Similarly, there will be cases where the nature of the transaction will be such as to show that A can in practice not carry out his task without sub-agents.

Rights of agent against principal

By far the majority of reported cases involve disputes about how much the agent is entitled to be paid. Of course, some agents were not entitled to be paid, either because the appointment was gratuitous or because they had exceeded their authority (unless their acts were later ratified). It appears that, in general, most agents are entitled to be paid. Two main areas of dispute have arisen: one is the rate of payment and the other the conditions to be satisfied before payment is due.

The rate of payment

A argued that he should be entitled to some reasonable commission in addition to the £50 per month. The court rejected this. To hold otherwise would have involved the court in varying the parties’ agreement by taking over a discretion which was clearly vested in the principal. The position was the same in Re Richmond Gate (1965) as regards a managing director who agreed to serve on such terms as the board might fix.

Finally Comment

A will have a lien on any goods and chattels of P which are in his hands, so he need not release the goods until P has met all his legitimate claims. This is, however, an extreme remedy and it was suggested, obiter, by Mustill J. in Compania Financera ‘Soleada’ SA v Hamoor Tanker Corp Inc. (The Borag) (1980), that it should only be available where the principal’s conduct is of a ‘repudiator nature’.

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button