Agency Law: Duties, Remedies, Third Parties, and Termination

Conflict of Interest and Fiduciary Duties: Aberdeen Railway Company v Blaikie Brothers

• The case involves Sir Thomas Blaikie, who held simultaneous conflicting roles as the Managing Director of the firm Blaikie Brothers and the Chairman of the Board of the Aberdeen Railway Company.

• Railways were recognized as the primary "money-making industry" of the $19^{th}$ century.

• The Transaction: In his capacity as Chairman, Sir Thomas Blaikie entered into a contract with his own firm, Blaikie Brothers, for the supply of iron chairs to the Aberdeen Railway Company.

• Pricing: The contract dictated a price of $8.5$ GBP per tonne. While the lecturer notes this was a "good price," the legal issue was not the fairness of the deal but the conflict of interest.

• Legal Conflict: As Chairman, he was an agent for the railway; as Managing Director, he was an agent for the supply firm. He was effectively acting as both the buyer and the seller.

• Lord Cranworth's Judgment: Lord Cranworth, then Lord Chancellor (the highest judge in the United Kingdom), delivered the judgment.

• The Rule: The core of the judgment focuses on the "evil" of a trustee/agent dealing with themselves. Sir Thomas Blaikie, as part of his own company, would be naturally inclined to fix the price as high as possible to benefit Blaikie Brothers, contradicting his duty to the railway to obtain the lowest price.

• Relevant Comparison Cases: Boston Deep Sea Fishing & Ice Co v Ansell and Blaikie Brothers are cited as historic but still foundational cases regarding an agent's duty to the principal.

The Principal's Duty to the Agent: Financial Obligations

• Traditionally, students focus on the agent's duties to the principal, but the relationship is reciprocal. The principal owes duties involving "full relief," which refers to monetary compensation: "shekels," "denaro," or "liquid currency."

• Reimbursement: The agent has a right to be paid back for expenses incurred during the "proper performance" of their agency duties.

• Case Study: Tomlinson v Liquidator of Scottish Amalgamated Silk (1935):   - Tomlinson was a director of Scottish Amalgamated Silk.   - He was prosecuted for fraud, but the company became insolvent and went into liquidation.   - The liquidator's job was to wind up affairs, e.g., turning approximately $1,000,000$ GBP in assets into cash to pay off $10,000,000$ GBP in debts.   - Tomlinson successfully defended the fraud charge and was found not guilty.   - He sought to reclaim his substantial legal fees (solicitors and barristers) from the liquidators, arguing these were expenses incurred as a director/agent.   - The Court's Ruling: Tomlinson was unsuccessful. The court held that defending a criminal fraud action is not part of the "proper performance" of agency duties. It was a personal cost he would have borne regardless.

• Remuneration: This is the "reward" or pay for the job, distinct from reimbursement (which is just covering costs).   - Remuneration can take various forms: cash/fixed sums ($1,000$ GBP), a percentage share of a transaction ($5\%$), or physical goods.   - Absence of Agreement: If no rate is specified, the "customary rate" for the trade applies (e.g., hypothetical rates of $20\%$ for literary or theatrical agents, and $10\%$ for stockbrokers). If no trade custom exists, "reasonable remuneration" must be paid.

Entitlement to Commission and Court Interventions

• Menzies, Bruce-Low & Thomson v McLennan:   - An agent facilitated the sale of a brewery.   - The agent found a willing buyer at the specified price.   - Subsequent negotiations between the principal and the third party failed, and the transaction did not conclude.   - The principal refused to pay commission because the sale wasn't finished.   - Court Decision: The court held the agent had performed the specific task requested (finding a buyer). If the principal wanted commission to be contingent on a completed sale, they should have written that specific condition into the contract.

• Dudley Brothers v Barnet:   - An agent was instructed to find a buyer for a leasehold.   - The agent found a buyer, but the principal backed out of the deal.   - The agent was still held to be entitled to remuneration.

• Market Shipping Company:   - In this case, the contract explicitly stated that the shipbroker's commission was only payable upon delivery of the ship and payment of the purchase price.   - Because the transaction was not completed, the commission was NOT paid. This contrasts with the Menzies case because the specific qualification was included in the contract.

• Kennedy v Glass:   - This involved a person who was not a professional broker but acted as one to bring about a contract of sale.   - The court applied the principle of "quantum meruit" (implied by the lecturer's Latin reference), ruling the individual was entitled to commission because the principal had taken advantage of their services.

Agent's Remedies Against the Principal

• Lien: Pronounced "leen," it is a possessory security.   - Definition: The right to retain possession of a principal's property until the agent is paid.   - Garage Analogy: If a high-end BMW is taken to a specialist in Aberdeen for repairs, the garage owner has a lien. They can refuse to return the keys until the repair bill is paid.   - Stockbroker's Lien: A general lien allowing them to retain share certificates or papers until they are paid.   - Accountant's Lien: A specific lien; they can only retain papers necessary for the specific transaction they are being paid for (e.g., profit and loss accounts, tax returns).   - Solicitor's Lien: Solicitors can retain documents related to property sales or mortgages as security for their fees.

• Right of Set-off: A remedy where one debt is used to cancel another.   - Example: If a principal owes an agent $50,000$ GBP and the agent owes the principal $20,000$ GBP, the agent can "set off" the debt and only sue for the remaining $30,000$ GBP.

Agency and Third Parties: Liability and Disclosure

• The General Rule: If an agent acts within their authority for a disclosed principal, the agent creates a contract between the principal and the third party and then "steps back into the shadows" to collect commission/expenses. The agent is not personally liable.

• Personal Liability for Agents: This occurs if:   1. The agent fails to disclose they are acting as an agent (undisclosed principal).   2. The agent acts outside the scope of their authority.   3. Specific trade customs apply.

• Lord Anderson’s Judgment in E.F. Clay Crane & Co v Blackstetten (1923):   - Lord Anderson of the Court of Session established the settled rights of agents/principals/third parties.   - If A contracts for a disclosed principal, A cannot sue or be sued on the contract.   - If A contracts for an undisclosed principal who is later revealed, the third party has the "right of election": they can sue either the agent OR the principal, but not both.   - Once the choice (election) is made, it is final. Usually, the third party sues the party with "the most money."

Anonymous and Undisclosed Principals

• Rationale for Anonymity:   - Land Development Scenario: A famous land developer in Slovenia wants to buy a plot. If they contact the seller directly, the seller might raise the price, assuming the developer knows about hidden value or future opportunities.   - Personal Enmity Scenario: A buyer (e.g., a Mr. Montague) wants to buy from a seller (e.g., a Mr. Capulet) who hates him. The seller would rather burn the property than sell it to his enemy. An agent is used to hide the buyer's identity.

• Agent Risks: Acting for an undisclosed principal carries higher risk for the agent, who may be sued personally. To compensate, agents usually demand an indemnity and a significantly higher commission.

• Named/Identifiable Principals:   - Snowdon-Roff v Kimber-Cole: A principal was liable for "demurrage" (charges for a ship staying too long in a harbor/quay) because the agent was acting for a disclosed principal.   - Solicitors/Photographers: A solicitor (agent) instructs a photographer for court evidence; the photographer debits the solicitor's account, but the principal is the client.   - Identification: Even if not named, a principal is "disclosed" if they are easily identifiable (e.g., supplies delivered to a specific ship).

• Trade Exceptions: In certain trades, agents are liable by custom.   - House Purchases: Solicitors may provide a warranty or indemnity specifically ensuring money is available before paperwork (disposition) is signed, effectively guaranteeing the debt to make the transaction work.

Termination of Agency

• Contractual Limits: Agency can end by a specific time limit (e.g., $1$ year or $5$ years).

• Notice: If no limit is specified, either party can end the relationship by giving "reasonable notice."

• Unilateral Termination: Principals must notify third parties that an agent no longer has authority (e.g., sending a note to past business contacts stating "Douglas Payne no longer acts on my behalf"). Notice to third parties must be "adequate."

• Operation of Law: Agency ends automatically due to:   - Death.   - Insanity.   - Bankruptcy.   - Illegality (e.g., if trade with a country becomes illegal due to war, or if a trade like opium is outlawed).   - Impossibility of performance.

• Commercial Agents: These are governed by specific regulations that the lecturer notes but does not examine for this specific course.

Introduction to Partnership Law

• Agency vs. Partnership: Agency is largely based on Common Law (case law-heavy). Partnership is primarily governed by the Partnership Act 1890.

• The Partnership Act 1890: Described as one of the most clearly written statutes, containing $50$ sections and a short schedule.

• Next Steps: The course will transition to examining this statute in depth over the following weeks.