The Court of Appeal recently took the opportunity to reaffirm, in trenchant terms, the importance of the fiduciary obligations owed by agents to their clients.
The judgment serves as a reminder to agents of the possible consequences of acting in conflict with their clients’ interests or of making a secret profit from their dealings on behalf of their clients.
Background
Kelvin Jack (the “Client”) is the goalkeeper for the Trinidad and Tobago national football team. He wanted to work in the UK and in order to assist him in with this he retained the services of football agent Mike Berry, through Berry’s company Imageview Management Ltd (the “Agent”).
In August 2004 Berry used his contacts to secure the Client a 2 year deal to play for Dundee United. It was agreed that the Client would pay the Agent 10% of his monthly wages.
The Client required a work permit to play in the UK. At the same time as he negotiated the 2 year deal, the Agent, unbeknownst to the Client, entered into a side deal whereby Dundee agreed to pay it £3,000 to obtain the work permit. But the actual cost of obtaining the work permit to the Agent was £750. The Agent kept the balance of £2,250 for itself.
Sometime after he signed for Dundee, the Client became aware of the side deal regarding the work permit and stopped paying the Agent’s commission. The Agent subsequently sued the Client for the unpaid commission. The Client counterclaimed for repayment of all of the commission he had paid the Agent and for the £3,000 the Agent had received from Dundee for obtaining the work permit.
Having lost at trial, the Agent appealed.
The Decision
The Court of Appeal decided that it had to answer the following questions:
1. Was the undisclosed deal a breach of the Agent’s duty to the Client?
The Court held that it was and had been from the moment the Agent had placed its interests in a position of conflict with those of its Client. A clear conflict of interests arose because:
(a) it was quite possible that the more the Agent got, the less the Client would or could get himself; and
(b) it gave the Agent an interest in the Client signing for Dundee as opposed to any other club for which the work permit side deal was not available.
Lord Justice Jacob said:
“An agent’s own personal interests come entirely second to the interests 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.”
It was irrelevant whether or not Berry thought he was doing anything wrong.
2. Was further agency commission payable and could the Client recover agency commission already paid?
It was held that no further agency commission was payable by the Client regardless of how long he remained at Dundee.
The Court went further. Once in breach of its fiduciary obligations, the Agent forfeits any right to commission and the Client was therefore entitled to be reimbursed all of the commission he had paid the Agent during the term of the agreement. It did not matter that this meant the Client had received the benefit of the Agent’s work free of charge.
Lord Justice Jacob emphasised the deterrent factor:
“We are here concerned not merely with damages… but with what the remedy should be when the agent has betrayed the trust reposed him… Necessarily such a betrayal may not come to light. If all the agent has to pay are damages, the temptation to betray the trust reposed in him is all the greater.”
3. Could the Client recover from the Agent all or some of the £3,000 fee paid by Dundee United to the Agent for obtaining the work permit?
Yes. The Client was entitled to recover the full £3,000 notwithstanding that the Agent had incurred £750 in obtaining the work permit.
4. Should there be a deduction from this secret profit to reflect the value of the Agent’s work?
The answer in this case was no. In limited circumstances, an allowance could be given to an agent for his skill and effort in obtaining the secret profit so long as it would not be unjust to do so. This was not such a case as the Agent had, in the Court’s view, engaged in surreptitious dealing. Although the Client had benefitted from the work permit, this benefit was something he didn’t expect to pay for.
Conclusion
The message this judgment sends to all agents could not be clearer. An agent should not, without first properly informing his or her clients, engage in activities which could place the agent in a position of conflict with the client’s interests. Whilst heavy, this duty should not cause any problems because a client, properly informed of a possible conflict or secret profit who allows his or her agent to proceed on this basis will have no grounds for complaint.
In the words of the Court:
“All that [agents] need 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… All an agent has to do is give the [client] details of any side-deals that may form part of his… arrangements. Sunlight is, after all, the best of disinfectants.”
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