Fiduciary duties in agency

John Youngs Insurance Services Ltd v Aviva Insurance Service UK Ltd ([2011] EWHC 1515 (TCC)), decided by Mr Justice Ramsey in the English High Court, makes a contribution to our understanding of fiduciary duties in agency.  Although it is an English case, it leads us to reflect on equivalent issues in Scots law, particularly given that English cases are often treated as authoritative in the Scottish courts.

The proceedings arose out of an agreement between the two companies in terms of which Youngs provided services to Aviva consisting of handling claims made by Aviva policy holders and undertaking building repair work where the damage was insured.  Although there was no written agreement between the parties, both accepted that their relationship was governed by a draft agreement.  The case involved both claim and counterclaims by the parties following termination of the relationship between them.

In terms of the agreement between the parties, Youngs was to act in separate capacities in relation to Aviva.  Youngs was to perform both Claims Handling Services and Building Repair Services for Aviva. In relation to the former, it was held that Youngs acted as agents in a fiduciary capacity for Aviva.  In relation to the latter, however, Youngs were held to have acted as principals.  A party may, therefore, act as an agent for another only in certain respects: agency need not govern the entirety of the relationship between the parties.  Thus the agent may be a fiduciary for some purposes and not for others (New Zealand Netherlands Society v Kuys [1973] 2 All E R 1222)

The case also contains an interesting discussion of the duty to render accounts.  This duty is categorised by Watts and Reynolds in the leading English text, Bowstead and Reynolds, as a fiduciary one.  Counsel for Aviva referred to in Yasuda Fire & Marine Insurance Company of Europe Limited v Orion Marine Insurance Underwriting Agency Limited [1995] 3 All ER 211, where, referring to the agent’s duties to provide records of transactions, Colman J stated: “That, as I have held, is a duty that is imposed by law in consequence of the existence of the agency relationship and is not founded on the existence of a contract of agency.”  What is the status of the agent’s duty to render accounts in Scots law?  Certainly, it is not classified in Scottish textbooks as a fiduciary duty.  Classification of the duty as arising from equity may have advantages in English law, namely, access to remedies of an equitable nature. 

Care may have to be taken with the Yasuda case as an authority in Scottish cases.  Yasuda is a case which emphatically states that the agency relationship need not be a contractual one.  This can be seen in the statements it contains about the duty to render accounts, for example, Colman J at 219: “That obligation to provide an accurate account in the fullest sense arises by reason of the fact that the agent has been entrusted with the authority to bind the principal to transactions with third parties and the principal is entitled to know what his personal contractual rights and duties are in relation to those third parties as well as what he is entitled to receive by way of payment from the agent.”  This contrasts with the position in Scots law where the courts emphasise the contractual nature of the principal/agent relationship.  In Scots law the duty to render accounts may more naturally be considered an implied term of the contract existing between principal and agent rather than a fiduciary duty imposed by law.    

Mr Justice Ramsey also summarises the English authorities on the nature of fiduciary duties.  Relying heavily on the case of Bristol and West Building Society v Mothew [1998] Ch 1 he identified (at para 94) the “…distinguishing obligation of a fiduciary” as the “obligation of loyalty.”

The case also tackles a particularly difficult question, namely the interaction of the agent’s fiduciary duties and the contractual background.  To what extent can the agent’s fiduciary duties be shaped by the contract concluded between principal and agent?  Mr Justice Ramsey’s judgment takes us through all the significant authorities on this point, from England and the wider Commonwealth including Henderson v Merett Syndicates [1995] 1 AC 145 where Lord Browne-Wilkinson stated “…the extent and nature of the fiduciary duties owed in any particular case fall to be determined by reference to any underlying contractual relationship between the parties.”  Other relevant cases including Kelly v Cooper [1993] AC 205, a decision of the Privy Council,   Boardman v Phipps [1967] 2 AC 46 and a decision of the High Court of Australia, Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41, in which Mason J stated (at 97): “That contractual and fiduciary relationships may co-exist between the same parties has never been doubted.  Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship.  In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties.  The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them.  The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction.”

If the equitable duty to render accounts is independent of the underlying contract, then it need not cease when the underlying contract between the parties ceases: Mr Justice Ramsey explained: “I have held that Youngs did owe Aviva an equitable duty to account in relation to an aspect of the claims validation process part of the Claims Handling Services.  Whilst the scope of any equitable duty is derived from the contractual relationship between Youngs and Aviva, I consider that the equitable duty to account in relation to claims validations which were carried out by Youngs up to the date of the termination of the contract does not come to an end with that termination.  In that sense the equitable duty to account is independent of the provisions of the Contract and, after the termination of the Contract, the scope and extent of that duty will depend on equitable principles.”
This case marks a step in the development of the understanding of the interaction of the agency contract and the agent’s fiduciary duties in English law.  These questions are equally relevant, and as yet unsolved, in Scots law. 

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