Month: April 2011

The way in which agency is established in Scots law is an issue lacking clarity.  Lord Bannatyne’s decision in the case of Rodewald v Taylor, 18 Jan 2011, [2010] CSOH 05, available at http://www.scotcourts.gov.uk/opinions/2011CSOH5.html, provides some interesting food for thought on this issue.   

Judicial statements on the contractual nature of agency are not difficult to find, examples including Graham & Co v United Turkey Red Co 1922 S.C. 533, 5 per Lord Salvesan 546 and Lord Ormidale 549; Lothian v Jenolite Ltd 1969 S.C. per Lord Milligan at 120; Trans Barwil Agencies (U.K.) Ltd v John S. Braid & Co Ltd 1988 S.C. 222 per Lord McCluskey at 230; Connolly v Brown 2007 S.L.T. 778 per Lady Dorian at para [54].  This contract may be established either orally or in writing.  The conduct of both parties can be used in order to make an inference of the consent necessary to form the contract, see, for example Ben Cleuch Estates Ltd v Scottish Enterprise [2006] CSOH 35 in which Lord Reed (at para [143]) notes that agency may arise through a course of conduct “as a matter of implied agreement.” 

Others have argued that a contract is not necessary in order to establish agency, for example, Gow in The Mercantile and Industrial Law of Scotland at 516, and more recently, Forte and Van Niekerk who go much further, arguing that agency is not only non-contractual but non-consensual: “Agency” in K. Reid, R. Zimmermann and D. Visser, Mixed Legal Systems in Comparative Perspective: Property and Obligations in Scotland and South Africa, (2006, at p. 246).

In Rodewald v Taylor the dispute related to a property known as “Corshellach,” owned by the pursuer and tenanted by the BBC.  Rental payments appear to have been made to the defender.  The pursuer argued that the defender was acting as her agent in receiving these rental payments, and they therefore ought to have been remitted to the pursuer.  Counsel for the defender denied that any relationship of agency existed, and explained that the defender and her husband, Mr Nagy, were occupying another property owned by the pursuer, Glenwood, rent-free. In consideration for such rent-free occupation, the defender was to let and collect the rents for Corshellach.   

The pursuer rested her case on establishing a relationship of agency between her as principal and the defender as agent.  Agency was, counsel argued on her behalf, a contract.  Lord Bannatyne indicated (at para [33]) that, “…to give fair notice to a defender of the case made against that party, it requires the pursuer to aver the essentials of the contract which in my view are as follows:
(a) Who the parties are to the alleged contract;
(b)  Where the contract was entered into;
(c) When the contract was entered into;
(d) The terms of the contract; and
(e) The form of the contract.”

The pursuer was found ultimately to have failed to aver sufficiently the foundation of her case.

This case may appear unremarkable: Lord Bannatyne was, after all, responding to the fact that the pursuer had based her case on contract.  Arguably, therefore, it may contribute little to the debate over whether agency is always both consensual and contractual. 

In English law, one need not establish an actual contract in order to establish agency.   The key is, rather, consent.  According to McKendrick: “It suffices that P consents to the exercise of authority by A and that A consents to exercise that authority.” (Goode’s Commercial Law, (4th edn, 2010), 180, at footnote 16, relying on Yasuda Fire and Marine Insurance Co of Europe Ltd v Orion Marine Insurance Underwriting Agency Ltd [1995] Q.B. 174).  Had an English court been faced with these same facts, the result is likely to have been the same, however.  No averments were made in the case that the pursuer consented to the defender acting on her behalf.  The slight difference of focus between the two legal systems is, however, interesting.  The Scots position may be an echo of a civilian past, agency being built on the consensual but gratuitous contract of mandate (gratuitous contracts being problematic in English law because of the requirement of consideration).

The pursuer’s legal team does not appear to have made use of ad hoc agency, a concept recently articulated by Lord Drummond Young (Whitbread Group plc v Goldapple Ltd 2005 SLT 281; Laurence McIntosh Ltd v Balfour Beatty Group Ltd and the Trustees of the National Library of Scotland, [2006] CSOH 1907; John Stirling t/a M & S Contracts v Westminster Properties Scotland Limited [2007] CSOH 117; [2007] BLR 537).  In those cases, agency was established very easily, on the basis of inferences of consent.  I have argued that Lord Drummond Young’s approach to establishing agency failed to meet the requirements of decided case law (with Niall Whitty, ‘Payment of another’s debt, unjustified enrichment and ad hoc agency’, 2011 Edin L R 57).  In those cases, it seemed clear that Lord Drummond Young was using agency as a concept to achieve justice on the facts of the case.  Rodewald may be a case of equally compelling facts: the pursuer alleged that the defender retained rents which were not due to her.  Ad hoc agency was neither pled by the pursuers nor suggested by Lord Bannatyne. 

If there is, indeed no contract between pursuer and defender, the pursuer could have recovered the rents on the basis of unjustified enrichment.  There appears to have been no attempt by the pursuer to base her case on unjustified enrichment. 

What conclusions can we reach from this case?

(1) Where the pursuer seeks to establish agency as a contract, the standard of proof remains high;
(2) Arguably, it provides evidence of a tendency to use agency where the real solution lies in unjustified enrichment; 
(3) Ad hoc agency may remain stuck on the starting blocks;
(4) We continue to lack evidence that the Scottish courts are willing to conceive of agency as a non-consensual concept.    

 

Like the old case of Allen v Hyatt (1914) 30 TLR 444, the recent case of Park's of Hamilton's (Holdings) Ltd. v Campbell [2011] CSOH 38; 2011 G.W.D. 8-196 is one of those unusual cases where it was held that a director of a company owed fiduciary duties under the law of agency to the shareholders of the company. Section 170(1) of the Companies Act 2006 clearly states that a director owes the duties adumbrated in sections 171 to 171 of the Act to the company and not any individual shareholder. However, in Park’s of Hamilton (Holdings) Ltd. v Campbell, the director was held to be an agent of each individual shareholder of a company when he sent a letter to each of the shareholders indicating that a third party had made an offer for the entire share capital of the company and asked them to sign a power of attorney in his favour enabling him to sign the SPA on their behalf. Since the director was an agent of the shareholders, he owed them fiduciary duties under the common law (not sections 171 to 177 of the Companies Act 2006) and the main issue in the case was whether the director had breached the fiduciary duty not to make a personal profit out of his agency. The shareholders contended that the terms of a consultancy agreement to be entered into between the director and the company post-completion relating to his remuneration had been concealed from them. The director's defence was that there had been disclosure of the personal profit under the consultancy agreement to the shareholders and that the latter had provided informed consent. The director based these assertions on the fact that the solicitors of the company were aware of the terms of the share purchase agreement and consultancy agreement and that that their knowledge could be imputed to each of the individual shareholders since the terms of engagement of the solicitors expressly provided that they were acting as agents of the shareholders in respect of the sale of their shares in the company.

In the recent case of Commonwealth Oil & Gas Ltd. v Baxter 2009 SC 156, para. [10], Lord President Hamilton conceived of the ‘no-profit’ rule as having a fluctuating and self-modulating character somewhat alien to the uncompromising hard-edged duty described by Rimer LJ in the Court of Appeal case of [2009] 2 BCLC 666:

“… it seems to me that if, without the identification of any particular opportunity, the company, expressly or implicitly, were to give its prior consent to a director pursuing possibly competing interests, his duty would not extend to avoiding such conflicts. If, for example, in the present case agreement had been reached between [the director] and [the company] that some opportunities (say, any onshore) would be brought to [the company] but that others (say, offshore) could be exploited by [the director] for his own interest and benefit, the scope of [the director]'s duties would have been modified by that arrangement. Even without express agreement, the actings of parties could in some circumstances have given rise to a modification of [the director]'s duties…"

Thus, in terms of the text above, where the principal’s actions are such that it expressly or implicitly provides its consent to the agent exploiting an opportunity or making a personal profit, the agent will not be deemed to be in breach of duty. Thus, there are two stages for the director to go through to be relieved of liability: (1) Disclosure of the breach, including the source and extent of the profit; and (2) the receipt of informed consent of the principal. With regard to the disclosure requirement,  the director in Park's of Hamilton (Holdings) Ltd. argued that disclosure to the company’s solicitors was sufficient and that the shareholders would be deemed to have constructive knowledge in such circumstances. This assertion was predicated on the argument that the terms of engagement of the company's solicitors provided that they were acting as the agents of the director and each of the shareholders in the sale of their shares in the company. Lord Hodge indicated that it might indeed be possible for the disclosure requirement to have been satisfied by virtue of the doctrine of constructive knowledge, but was not convinced that the remit of the company's solicitors could be ascertained without a proof before answer. Evidence would need to be lead about the scope of the company's solicitors' agency and from whom instructions were received. The provisions of the terms of engagement of the company's solicitors would be part of the factual matrix, but of themselves could not be conclusive.

Although Lord Hodge's judgment in Park's did not settle the status and relevance of the constructive/imputed knowledge of a principal (through an agent such as a solicitor or accountant) and whether this was sufficient for another agent to have discharged its duty to disclose a breach of fiduciary duty, there are indications in that judgment that it is perfectly possible for this doctrine to play a role. Of course, if the question in the case had been about the director's duty to disclose the making of a personal profit at the expense of the company itself, the means by which disclosure could have been validly tendered would have been more restricted since section 175(5) of the Companies Act 2006 provides that disclosure must be made directly to the board of directors of the company. In such circumstances, there would be no scope for the company (via its board of directors) to have constructive knowledge of the director's breach of duty. This is another area where the law of director's duties in company law has diverged and followed a different path from its original sources in agency and trust law.