172 Chapter 6Agency
To act in good faith and to avoid any conflict of interest
Agents must act in good faith and must not allow their own interests to conflict with the
interests of their principals. For example, an agent who is employed to sell the principal’s
property cannot buy it himself, unless he makes full disclosure of this to the principal.
Similarly, an agent employed by the principal to buy cannot perform the contract by selling
his own property to the principal.Not to make a secret profit
Most agents have a contract with their principals, and these contracts generally entitle them
to be paid a salary or a commission. There is a strict rule that an agent must not gain any
other profit or benefit if it has not been agreed by the principal.Armstrong vJackson (1917)An agent, a stockbroker, was asked by a principal to buy 600 shares in a certain company.
The agent sold the principal 600 of his own shares in the company, pretending that he had
bought the shares in the open market. Some years later the principal discovered what had
happened.
HeldThe principal could have the purchase set aside.
McCardie J said: ‘It matters not that the agent sells at the market price, or that he acts with-
out intent to defraud... The prohibition of the law is absolute. It will not allow an agent to
place himself in a situation which, under ordinary circumstances, would tempt a man to do
that which is not the best for his principal.’Not to take a bribe
Agents must not take bribes. In this context a bribe does not always indicate corruption.
Any secret payment to an agent, which is made by a third party dealing with the agent, is
likely to be regarded as a bribe. For example, if a firm’s buyer is given inducements to
favour a particular supplier, this will be regarded as a bribe, whether the agent does in fact
favour that supplier or not.Boardman vPhipps (1967) (House of Lords)The agent was a solicitor acting for a trust, the principal. The principal owned shares in a
certain company. The agent repeatedly advised the principal’s trustees that if they bought
more shares in the company they could control it and make huge profits. The trustees
repeatedly refused to consider this. The agent therefore bought the extra shares himself.
The agent and the principal now controlled the company and this led to both of them
making big profits. The principal then sued the agent for the profits he had made.
HeldThe agent had to hand these profits over to the principal because he held them on
trust for the principal. He was in breach of his fiduciary duty because he had used know-
ledge gained while acting as agent to make a secret profit for himself. In the Court of
Appeal, Lord Denning MR said that an agent would have to account to the principal for any
benefit made either by using the principal’s property, or by using his position as agent, or
by using information or knowledge gained as an agent.