Placing yourself in conflict with your principal

When can an agent act for two or more competing principals?

Agents and principals are required to act ‘dutifully and in good faith’ towards each other. This means more than simply being courteous to each other. For an agent, it means he must act in such a way so as to ensure that he does not put the interest of any other person (or his own interest) above the interest of his principal. 

When an agent is appointed on the basis that he will only act for the appointing principal, this should be relatively easy to achieve. But what of the situation where an agent represents (or wants to represent) several principals? How does the agent ensure that he does not put the interest of the second principal above the interest of his first principal (and vice versa)?

One of the main attractions to becoming a commercial agent is the degree of autonomy enjoyed as to the manner in which they conduct their business, including the ability to represent several principals. However, an agent’s desire to act for more than one principal has the potential for conflict with an agent’s duty to put the interests of his first principal first.

How does the law deal with this potential conflict?

Essentially, the question that needs to be answered is: do the products being sold by the two principals compete or conflict with each other? This is not necessarily a straightforward question, and can lead to disagreement between an agent and his principal(s). Take, for example, two floorcovering brands. If they are made of different materials or sit at different price points, there is unlikely to be a problem – the two brands do not compete. Probably the same is the position if they are sold for different purposes - for example, domestic bathrooms and office use.

However, when by reference to a particular criterion there is a meaningful overlap, the possibility for conflict grows. In this instance, an agent acting for both floorcovering brands is likely to be in breach of his duty to act in the best interest of his principals, unless both principals had expressly consented to the agent acting for both brands, knowing what they were agreeing to.

This raises a further important question: when can it be said that the principal has consented to the agent acting for a competitor? Is it enough for the agent to tell his principal that he is going to act for "Joe Bloggs Limited" on the basis that his principal really ought to know that "Joe Bloggs Limited" sells conflicting products? What if the agent tells his principal that he plans to act for "Joe Bloggs Limited", who sells conflicting products, and the principal says nothing? Or what if the agent is actually acting for "Joe Bloggs Limited" with his first principal’s knowledge, but without the first principal ever realising that the products conflict, or even (having discovered that the products conflict) does nothing about it? 

It may come as a surprise to many agents to learn that in all these situations the agent will not be treated as having obtained the first principal’s informed consent and so, in acting for "Joe Bloggs Limited", the agent would be acting in breach of his duty to act in the best interest of his first principal. This would entitle the first principal to sue for damages caused to it by the unlawful competition or terminate the agency contract without paying compensation or an indemnity and without giving notice (or both).

Honesty, therefore, really is the best policy for agents who want to act for more than one principal. Before taking on a new agency contract, agents should ensure that they tell the first principal (preferably in writing!) of the other principal he intends to act for and what that principal’s products are. This process should be repeated in respect of any subsequent agencies the agent wishes to take on.

Rebecca Richardson
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