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M221 Business Law LLB

Published : 08-Sep,2021  |  Views : 10


Task 1:

By referring to case law and examples, critically discuss the fiduciary duties owed by an agent to the principal. These shall include:

1. The duty to avoid conflict of interest.
2. The duty not to act for his own benefit or the benefit of a third person without the informed consent of the principal.
3. The duty not to accept a bribe (commission or other inducement) from a third party that is secret from the principal.
4. The duty to account.
5. The duty not to delegate authority.

Task 2:

By referring to case law and examples critically discuss the concept of vicarious liability in the area of tort law.

  • Knowledge and understanding of relevant legal principles
  • Structure
  • Analysis and application of law
  • Use of sources and academic conventions


Task 1

Agency law is the law which governs the relationship which is present between a principal and an agent. Initially, it was formed under the English law, but has moved on to the common law of different nations. Under the agency law, for the actions or the undertaking of the agent, the principal is held accountable and liable, owing to the authority given by the principal, to the agent, to act on behalf of the principal (Busch, Macgregor and Watts, 2016). An agent owes different fiduciary duties towards the principal, which include, the duty to avoid conflict of interest, the duty to avoid acting for their own benefit, or for the benefits of a third party, unless the consent from the principal has been attained, the duty to not accept the bribe from a third party, unless the same is known to the principal, the duty to account, and the duty of not delegating the authority (Munday, 2010).

An agent, who has been appointed by the principal, has the duty to avoid any such actions or tasks, where there is a conflict of interest with that of the principal. This is because the agent is appointed by the principal and thus, has a duty to keep the interest of the principal supreme. However, in case the principal gives the permission to the agent, to undertake the task, then eve if there is a conflict of interest, the task or act can be undertaken by the agent (Murdoch, 2014). The agent also has the duty to avoid any such act, which benefits him or a third person, unless the principal has given the consent for the same. For instance, when an agent chooses to sell his property to the principal, as per the present market price, the agent has the fiduciary duty to act on behalf of the agent, as he has been appointed by the principal (Adamson, 2008).

The agent is required to remit the sums which he attained by making any secret profits or misusing his position and attaining benefits for himself or for someone else. Any and all sums received by the agent, while performing his duties has to be given to the principal, or may result in a liability being raised against the agent, which is established later on in this discussion. The duty to not delegate is a key one, as the acts done by the sub-agent, who is appointed by the agent, would not bind the principal. The agent also has the fiduciary duty to keep the information of the principal confidential and any such information, which has been entrusted upon the agent, is not to be disclosed to the third party, till the time the same is allowed or permitted by the principal (Estates Agents Authority, 2017). The agents also have the duty to use skill and care while they perform their duties and in case the agent fails to do so, they are held as prima facie negligent. The common la also puts a fiduciary duty on the agents of obedience. This requires the agents to follow the instructions of the agents in a reasonable manner and to use professionalism in discharge of these instructions. These duties can be further explained with the help of established case laws, which highlight that the agent can be held liable for the breach of fiduciary duties (Lawctopus, 2015).

In the matter of Armstrong v Jackson [1917] 2 KB 822, a stockbroker had been appointed by the principal for the purchase of some shares. The stockbroker sold his own shares to the principal and it was held, that the contract could be terminated by the principal. This was because it could be shown in an obvious manner that there was conflict between the interest and the duty of the agent, as the interest of the agent was to sell the shares at the highest attainable prices, though, by being the agent, his duty was to purchase the shares at for the principal at the lowest possible prices (Swarb, 2015a).

Another fiduciary duty upon the agents is not to earn secret profits for themselves, as the agent is not to utilize the position for securing the benefit for themselves. In the case of Lucifero v Castel (1887) 3 TLR 371, the principal had been appointed the agent to buy the yacht. Though, the yacht was bought for him and was sold off by the agent to the principal for a profit. This was not known to the principal, when he purchased the property of the agent. It was the duty of the agent to pay back the profits to the principal. It was held that the agent had to take into account the large undisclosed profit made by him to the principal (Abbott, Pendlebury and Wardman, 2007).

The agent is required to refrain from misusing the confidential information with regards to the affairs of the principal. In case the principal fears that the agent could dispose off or demolish the confidential information, or disburse it to another party, an injunction can be applied by the principal. This injunction is also known as the Anton Piller injunction, as it was initially granted by the court of law Anton Piller KG v Manufacturing Processes Ltd and others [1975] EWCA Civ 12 (Swarb, 2016a).

As has been stated earlier, the agents are required to refrain from accepting any bribes as these are considered not only immoral, but also as secret profits. Boston Deep Sea Fishing and Ice Co. v. Ansell (1888) 39 Ch D 339 is one the cases, where this fiduciary duty was breached. The defendant was the director of the plaintiff and had been employed on fixed term contract. The defendant was also the director of a boat building company, though, this was secret. As he received incentives on sale, he ordered a number of boats from the plaintiff through the other company. As the defendant was found incompetent, he was dismissed and sued for being wrongfully dismissed. The secret dealing was discovered during this litigation. Due to these reasons, even though the defendant could be proved as being competent, but owing to the secret dealing, the court held that the dismissal was totally justified (Swarb, 2016b).

The agent has also been given the duty of not delegating their authority. In the matter of De Bussche v Alt (1878) LR 8 Ch D 286, the agent had to sell of the ship of the principal. The partner of the agent purchased this ship and later on sold it off for a huge profit. He had purchased the same at $90,000 and sold it off at $160,000 and this was a huge price back in 1870s. The issue brought before the court was whether the partner of the agent could be held liable. It was held by the court that the partner of the agent could indeed be held liable. This was because the sub-agent could not be sued. And the partner had to be treated as the co-agent, and hence could be sued for the deprivation of the principal (Ball, 2014).

The principal has the option of initiating actions against the agent, as well as, the third party for giving the bribe, where the principal sustained losses due to entering o the contract and the ensuing damages. In the matter of Mahesan v. Malaysian Govt. Officers Co-operative Housing Society Ltd [1978] 1 MLJ 149, the appealing party held the position of both secretary and the director of the OCHS. The land had been purchased by the appellant for $944,000, from the other party, who had acquired the same for $456,000. Even though this fact was known to the appellant, he failed to inform the OCHS about this. This fact was discovered by the OCHS that the sale was done and also came to know that the appellant had received a secret commission of $122,000 from the vendor. Due to these reasons, it was held by the Privy Council that the respondent, i.e., OCHS had the option of recovering the bribe or the actual loss which was suffered by it, as a result of being a part of the contract (Virgo, 2012).

In the case of Andrews v. Ramsay and Co [1903] 2 KB 635, the principal was allowed to recover the amount of secret commission received from the third party by the agent, along with the commission which was paid to the agent. In this case, the defendant had been directed by the plaintiff to sell off the property and had agreed to pay a commission to the agent of 50 pounds. The defendant got 100 pounds as deposit for the property from the purchaser. The plaintiff was paid 50 pounds by the defendant and kept the other 50 pounds as his commission, with the knowledge of the plaintiff. It was later on learnt by the plaintiff that the defendant had attained 20 pounds from the purchaser as commission. Due to these reasons, the plaintiff initiated case against the agent for recover of both 20 and 50 pounds and the recovery of the same was allowed by the court (Swarb, 2015b).

Task 2

The vicarious liability is one of the principles, which are derived from the agency law and as a result of this doctrine, the employer is held liable for the acts done by their employee. Further, in case the acts of the employee results in a tort, the employer is held liable for the liability arising out of such tort (McIvor, 2015). The vicarious liability results in a secondary liability being raised under the common law, whereby the superior is held accountable for the undertaken acts of their subordinates. The vicarious liability is not just for the employer employee, but also for the general principal agent relationship. However, the employer-employee vicarious liability is the most common form of it (Giliker, 2010).

The employers are held vicariously liable for the omissions and the negligent acts undertaken during the course of employment of the employee. In order to hold the employer liable for the acts of the employee, there is a need to show that there was a sufficient relationship between the two (Wibberley, Chambers and Gioia, 2017). And for this, the sufficient relationship test, given under the case of Hollis v Vabu [2001] 207 CLR 21 proves to be helpful. This test contains a range of factors for establishing the relationship, for instance, the pay schemes, degree of control, and skill level, amongst the other things (High Court of Australia, 2017). In the matter of Panorama Developments (Guildford) Limited v Fidelis Furnishing Fabrics Limited [1971] 2 QB 711, it was held by the court that company secretary is the employee of the company, and owing to this, the company to be held vicariously liable for the acts of the company secretary (French, Mayson and Ryan, 2014).

It is also required to show that the employee was the person doing the wrong, and that a tort had been committed, that to during the course of the employment. Due to the inconsistency in the relation of the decisions given under the tort law, it becomes difficult to show that this doctrine is appropriate in its entirety. The problem which arises here relates to the classification of employee, for which the courts have presented certain tests. This is due to there being a range of criteria for deciding upon the employment relationships. Earlier, the control test was used to determine the liability of the employee, on the basis of the right of control which the employer had over the employee. Though, this test was deemed as improper, apart for the borrowed workers, as was held in the matter of Mersey Docks and Harbour Board Ltd v Coggins and Griffith (Liverpool) Ltd [1946] 2 All ER 345 HL (Swarb, 2017a).

After this, it was held that a single test could not be deemed as sufficient for the determination of the employment status, and due to this reason, the court went on to develop the multiple test, through the case of Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497, where the factors for relationship were held to be the required criteria (Swarb, 2016c). However, in the matter of Hall v Lorimer [1993] EWCA Civ 25, it was held that a single test is not sufficient or conclusive to determine this status, and hence, the facts of the case had to be considered to determine the status (Swarb, 2015c). Owing to this difficulty in the determination of the status, the imposing of vicarious liability becomes inappropriate in certain cases.

In some cases, the position has been clarified with regards to worker. For instance, in the case of Cassidy v Ministry of Health [1951] 2 KB 343, it was held that the doctors are the employees; in the case of Nethermere (St Neots) Ltd v Gardiner And Another [1984] ICR 612, it was held that the people working from home could be classified as being the employees when they carry out the same work as is done by the people at the workplace (Prassl, 2015). Some of the workers have been held as not falling under the employee definition, for instance the trainees and apprentices and an example of this can be seen in the case of Wiltshire Police Authority v Wynn [1980] QB 95, where the female cadet was undergoing training and hence was held as not being employed as a police officer (Employment Cases Update, 2017).

The employer can be held accountable for the tortious acts of the employee, only when the same have been undertaken during the employment course, instead of “on a frolic of his own”, as was held in the matter of Storey v Ashton (1869) L. R. 4 Q B 476 (Kotecha, 2014). This is also an area where the agreement of the courts is difficult to attain. For this purpose, the Salmond test is the traditional test used, as per which, the tort during the course of employment would hold the employee liable only when the same is a wrongful act which had been authorized through the master, or the unauthorized and wrongly mode of undertaking an act, which had been authorized through the master (Roach, 2016).

This test has a second limb, which relates the unfairness, where the conduct of the employee had been prohibited in an express manner by the employer, and the act had been authorized, which would make the employer liable, as was held in the matter of Limpus v London General Omnibus Co (1862) 1 H&C 526 (Swarb, 2017b). Conversely, the operations of vicarious liability would be undermined in a serious manner, in case the employer had been able to steer clear of the liability, by forbidding the employer from undertaking some task. The test has also been criticized based on the negligent acts being only covered of the employee, and hence, the intentional torts are not considered. This restrictive test has been improved since the case of Lister v Hesley Hall Ltd [2001] UKHL 22, which had been a controversial test, where the young boys had been abused sexually by the warden. It was held that the employer was required to be held liable for the tort committed by the employee, when there was a close connection of the employee in the employment (Horsey and Rackley, 2013).

The key issue in such cases is the connection between the undertaken tort and the work, which has to be close enough, or the work had to provide the opportunity to under the tort. The close connection in Lister v Hesley Hall Ltd was held due to the charge given to the warden to look after the boys, which had a close connection with employment. An example was given by Lord Hobhouse in this case, where they stated that in case the grounds man had been employed in the same manner, as has been the warden by the school, the grounds man would have been outside during the course of employment, as the duty of the grounds man was to look after the ground and not after the boys (Horsey and Rackley, 2013).

However, this judgment was put to question by the verdict given by the Court of Appeal in the case of Trotman v. North Yorkshire County Council [1999] L.G.R. 584, where it was held that the vicarious liability could not be attached for the sexual abuse as was not something which could be regarded as a mode of carrying the duties of the employee (Hopkins, 2001). So, through Lister v Hesley Hall Ltd, the liability of the employer was widened, which was quite appropriate as often the victims are not adequately compensated. This decision had been upheld in the cases of Mattis v Pollock [2003] 1 WLR 2158 and also in Maga v Trustees of the Birmingham Archdiocese of the Roman Catholic Church [2010] EWCA Civ 256, where the employer was held vicariously liable for the sexual abuses carried on by the employee (Calitz, 2014).

It is arguable if the close connection test can actually act as a replacement for the Salmond test or whether the same would be restricted in such cases where a criminal conduct is undertaken by the employee. However, this is clear that the vicarious liability would continue to apply for the negligent acts undertaken by the employee. And for being liable, there is a need to have a state of mind, as a result of which, the senior officer or the director are required to, when the tort is being committed by them, have a state of mind and has to be attributed to the company. And a leading example of this can be found in the matter of Meridian Global Funds Management Asia Limited v. Securities Commission [1995] 2 AC 500, where the employees of the company were acting within the scope of their authority; through, the same was not known to the directors. Yet, the company was held liable, as it was held by the court that the company should have known about the acquisition of the shares (Lo, 2016).

To conclude, due to the applicability of the doctrine of vicarious liability, the employer is held liable for the acts of the employee, even when the same, can at times, be coupled with the problems like the identification of presence of the employee-employer relationship.


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