Football agents: fiduciary duties

Imageview Management Ltd v Kelvin Jack [2009] EWCA Civ 63, an English Court of Appeal case, decided earlier this year, provided the Court with an important opportunity for analysis of the fiduciary duties of an agent.

In a clear and concise judgment, Lord Justice Jacob put the issue succinctly: “What if a footballer’s agent, in negotiating for his client, makes a secret deal with the club for himself on the side?”

The footballer in question was Kelvin Jack, Trinidad and Tobago’s international goal keeper.  He had instructed an agent, Mr Berry, to act for him in a proposed move to Dundee United.  Mr Berry operated through a company known as Imageview Management Ltd.  In the course of negotiations between Berry and Dundee United, and unknown to Jack, it was agreed that Dundee United would pay Imageview a fee of £3,000 for getting Jack a work permit. 

When Jack discovered what had taken place, he ceased paying commission to Imageview, and sought repayment of all commission already paid.  When he asked Berry why the payment had been concealed from him, Berry replied that “…it was none of your business.”

Berry was proved wrong.  The Court of Appeal held that no further commission was payable, and, in addition, all commission already paid to Imageview was to be refunded to Jack.  This draconian remedy illustrates the seriousness with which the law regards breaches of fiduciary duties.  In the words of Jacob LJ (at para 6):

“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.”

Jacob LJ draws on three significant cases on fiduciary duties: principally Boston Sea Fishing v Ansell (1888) 39 Ch. 339, but also Andrews v Ramsay [1903] 2 KB 635 and Rhodes v Macalister (1923) 29 Com Cas 19.  His analysis of these authorities illustrates that the rules against secret profits have long been established, and yet cases continue to arise of agents failing to understand the law in this area.  Significantly, it is clear that where the agent honestly believes that what he is doing is legal, this makes no difference: the draconian remedy of repayment of all commission remains the standard remedy.

How should the agent have acted?  He could, of course, have refused to enter into any sort of side deal with Dundee United.  Another possibility was open to him.  In the words of Lord Atkin in Rhodes (p. 29):

“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.” Thus, had Berry disclosed the payment of £3,000 to Jack, and Jack had consented to receipt by Berry of this sum, Berry would have been able to retain it. 

This case was obviously one which caused the Court of Appeal no difficulty: the surreptitious nature of the agent’s activities left them in no doubt that repayment of the entire commission was the correct remedy.  However, Jacob LJ also took the opportunity to explore less clear cases, in which the agent may be permitted to retain some commission even though in breach of his fiduciary duty.  Again, in the words of Lord Atkin (Keppel v Wheeler [1925] 1 KB 577 at 592):

“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.” 

Clearly, cases in which the agent is held entitled to retain a proportion of his commission are likely to be extremely rare.  The onus will also lie on the agent to establish his right to retain it. 

Finally, it is worth highlighting Jacob LJ’s comment that the law in this area goes back a “…long, long way.”  The law of fiduciary duties of an agent in Scotland and England has been shaped by two Scottish appeals to the House of Lords: York Buildings Co v Mackenzie (1795) 3 Paton’s Appeal Cases 378 and Aberdeen Railway Co v Blaikie 1854 1 Macq 461.  The former case makes interesting reading, not least for the inability of a very large body of Court of Session judges to make up their minds during the course of two hearings.  Lord Monboddo, a favourite of this blogger, played an interesting role in York.  He changed his mind completely between the two Court of Session hearings.  He also did not find it problematic that he was sitting as a judge in the Court of Session case notwithstanding the fact that he had been the judge who had presided over the auction at which the breach of fiduciary duty had occurred.  Rather than seeing this as a difficulty, he took the opportunity to make interjections adding to the evidence of the witnesses in the case.  His role in shaping Scots commercial law has clearly yet to be fully investigated.       


Scottish Government: Privacy Consultation

The Scottish Government has launched a new consultation on Identity Management and Privacy Principles.  The consultation is part of a move to regulate the collection and use of personal data by public organisations, and includes a focus on risk management and accountability. 

The consultation stems from draft principles intended to produce better management and use of personal identifiers.  These principles were the result of an expert group, which met from October 2008 to March 2009, and included the Assistant Information Commissioner for Scotland, Ken Macdonald, and Professor Charles Raab of the University of Edinburgh. 

One of the key recommendations from the expert group is that organisations should avoid collecting large amounts of personal data which is held centrally – since such databases leave individuals badly exposed to security breaches, whether intentional or accidental.

This consultation is very much to be welcomed, not least as public bodies are rather notorious for their poor data handling in recent years.  The highest profile loss of personal data in the public sector, that of 25 million child benefit records by HMRC in 2007, is of course not a direct target of the Scottish proposals, but breaches of data security north of the borderby tend to suggest that the public sector in Scotland has some way to go in ensuring security of private information.  Recent examples have included:

While the Data Protection Act 1998 (policed by the Information Commissioner) is intended to ensure the security of personal data, it appears that large organisations require clearer guidance on the standards to be met, and the very practical steps they can take to ensure this.

The consultation closes on 23 November 2009, and next steps will be awaited with interest.  The one question which remains is:  does the private sector require a similar set of recommendations?

The Scottish Government Legislative Programme – impact on commercial law

The First Minister announced the SNP government legislative programme earlier today. Unusually there are two bills of relevance to commercial lawyers.

The statement can be seen here (the relevant section beginning some 14 minutes into the speech)

The intention of the government is to bring forward a new Debt and Family Homes Bill and a Debtor Protection Bill.

The former will follow a consultation on proposals to exempt the family home from certain debt processes (the basis upon which the SNP voted against the Bankruptcy and Diligence etc (Scotland) Act 2007 when it was passed by the Scottish Parliament. The government proposal states that the proposed reform

"to make sure that people who become bankrupt and who are in debt are not made homeless unnecessarily.

That's why:

  • A thorough review wil be conducted of what can be done to ensure that people who become bankrupt are not made homeless unnecessarily
  • We propose to consult on issues relating to debt and the family home and, subject to that consultation, to bring forward a Debt and Family Homes Bill
  • The aim of the Bill will be to put in place a system that strikes the right balance between the interests of creditors and debtors within the effective system for the enforcement of court orders required in a modern economy
  • The review will recognise the Scottish Government's commitment to exempt the main dwelling house from land attachment (that is, the ability of creditors to recover debts by taking possession of and selling houses and other heritable property) "

The interaction between this consultation and bill and the proposed Debtor Protection Bill is not at the minute clear. The latter will

"introduce measures to protect the people of Scotland who are struggling to deal with debt.

It will also increase protection for those who are facing repossession or become bankrupt.

The Debtor Protection (Scotland) Bill will be introduced into the Scottish Parliament in autumn 2009.

The Bill offers protection by:

  • Providing for all repossessions cases to involve court proceedings with the exception of cases where the borrower voluntarily surrenders possession
  • Requiring all lenders to demonstrate to a court that they have taken reasonable steps to avoid repossession, i.e. a 'pre-action protocol with teeth'
  • Enabling the use of lay representation in repossessions cases where the home owner wishes it
  • Extending the period by which a sheriff may postpone the sale of a family home in bankruptcy from one to three years
  • Introducing a requirement for trustees in bankruptcy and trust deeds to notify the local authority of the sale of a family home
  • Allowing the exclusion of specified assets, including the family home, from protected trust deeds
  • Improving access for debtors to debt relief by providing a new route into bankruptcy"

The proposed legislation can be traced back to the Debt Action Forum, established in January of this year. The final report was published in June. Part D of that paper was a legislatiove opptions paper prepared by Scottish Law Commissioner Professor George Gretton and John St Clair (co-author of the leading textbook on corporate insolvency law in Scotland). The Gretton-St Clair paper drew on comparative approaches to personal insolvency law and pointed out that a number of jurisdictions adopt much wider exemptions from bankruptcy than is the current law in Scotland. Accordingly, that paper suggested various potential changes to the law relating to the treatment of family homes to ensure appropriate dovetailing with the protection to homeowners and their families offered by the Mortgage Rights (Scotland) Act 2001.

In pointing out that the protection under the 2001 Act is greater than that offered under s 40 of the Bankruptcy (Scotland) Act 1985 – the Gretton-St Clair report points out the peculiarity that the debtor has more protection against a secured creditor (with whom the debtor agreed that the loss of his or her home was a potential remedy in the event of non-payment) than against the general body of unsecured creditors (although the protections of the 2001 Act would be mirrored in the case of land attachments under the Bankruptcy and Diligence etc (Scotland) Act 2007). A tentative suggestion that the home if worth less than a prescrived value be exempt from bankruptcy is made in the report. Such an approach would be in line with the approach in some jurisdictions (there is a "homestead exemption" in a number of US states). This will prove a controversial area, and the economic evidence presented in the report is janus-headed – with suggestions that entrepreneurship is encouraged, although a potential detrimental impact on the costs of unsecured lending (through the removal of assets available to the general body of unsecured creditors). Determining policy here will require careful consideration.

The Gretton-St Clair report also noted some of the anomalies of the law of standard securities. The protection under the 2001 Act has to be initiated by the party claiming it. This is because Scots law provides a variety of informal means of enforcement of standard securities that do not require court involvement. Similar points are made in the Repossessions Group report (which appears as Annex B to the final Debt Action Forum report). The Repossessions Group considered the issue in some detail and in Part 6 of their report recommended that applications for repossession of residential properties should require to be made to the court (unless the property is voluntarily surrendered to the creditor).

Such proposed reforms are very welcome – in ensuring that the policy of the 2001 Act is implemeted without putting the strain and pressure of initiating court proceedings on the debtor, but that the 2001 Act protections be considered as a matter of course during repossession proceedings. In my teaching experience  there is a look of bemusement from foreign students at the idea that a creditor can simply serve a notice on the debtor and if payment is not received within a specified time period the creditor immediately has a power of sale. The removal of the excessive informality of the current Scottish enforcement proceedings would be a very welcome reform.

We will provide further information on these bills on the Edinburgh Centre for Commercial law blog when made available by the government. Let us hope that in the desire to legislate quickly to deal with the prevailing economic climate that the reforms try to resolve some of the anomalies that have affected the Scottish system.