An employer having dismissed an employee (its managing director) later learnt of the employee’s fraud.
Held: The employer was allowed to rely upon that fraud to justify the dismissal. Where an agent is in wrongful repudiation of his contract with his principal, he loses his right to claim remuneration from his principal. It is sufficient if there was a fundamental breach of contract justifying a dismissal whether or not the employer knew of it at the time of dismissal. The managing director could not recover his salary for the part of the year which he had completed before his dismissal. His right to his salary was conditional on his fulfilling his duties for the year and that condition had not been fulfilled. The contract was indivisible, and no payment under it could be claimed.
Cotton LJ said: ‘Then when he was engaged in that contract, in respect of the matters of that very contract, he in one instance got a percentage of 1 per cent. from the Shipbuilding Company, and, in the other case, he insisted on getting – that is the evidence – and did get, a lump sum of £50. It is suggested that we should be laying down new rules of morality and equity if we were to so hold. In my opinion if people have got an idea that such transactions can be properly entered into by an agent, the sooner they are disabused of that idea the better. If a servant, or a managing director, or any person who is authorized to act, and is acting, for another in the matter of any contract, receives, as regards the contract, any sum, whether by way of percentage or otherwise, from the person with whom he is dealing on behalf of his principal, he is committing a breach of duty. It is not an honest act, and, in my opinion, it is a sufficient act to shew that he cannot be trusted to perform the duties which he has undertaken as servant or agent. He puts himself in such a position that he has a temptation not faithfully to perform his duty to his employer. He has a temptation, especially where he is getting a percentage on expenditure, not to cut down the expenditure, but to let it be increased, so that his percentage may be larger. I do not, however, rely on that, but what I say is this, that where an agent entering into a contract on behalf of his principal, and without the knowledge or assent of that principal, receives money from the person with whom he is dealing, he is doing a wrongful act, he is misconducting himself as regards his agency, and, in my opinion, that gives to his employer, whether a company or an individual, and whether the agent be a servant, or a managing director, power and authority to dismiss him from his employment as a person who by that act is shewn to be incompetent of faithfully discharging his duty to his principal.’
Bowen LJ said: ‘This is an age, I may say, when a large portion of the commercial world makes its livelihood by earning, and by earning honestly, agency commission on sales or other transactions, but it is also a time when a large portion of those who move within the ambit of the commercial world, earn, I am afraid, commission dishonestly by taking commissions not merely from their masters, but from the other parties with whom their master is negotiating, and with whom they are dealing on behalf of their master, and taking such commissions without the knowledge of their master or principal. There never, therefore, was a time in the history of our law when it was more essential that Courts of Justice should draw with precision and firmness the line of demarcation which prevails between commissions which may be honestly received and kept, and commissions taken behind the master’s back, and in fraud of the master. . . Now, there can be no question that an agent employed by a principal or master to do business with another, who, unknown to that principal or master, takes from that other person a profit arising out of the business which he is employed to transact, is doing a wrongful act inconsistent with his duty towards his master, and the continuance of confidence between them. He does the wrongful act whether such profit be given to him in return for services which he actually performs for the third party, or whether it be given to him for his supposed influence, or whether it be given to him on any other ground at all; if it is a profit which arises out of the transaction, it belongs to his master, and the agent or servant has no right to take it, or keep it, or bargain for it, or to receive it without bargain, unless his master knows it.
Fry LJ said: ‘In my judgment, the conduct of Ansell in so dealing was a fraud-a fraud on his principals-a fraud, not according to any artificial or technical rules, but according to the simple dictates of conscience, and according to the broad principles of morality and law, and I think it is the duty of the Courts to uphold those broad principles in all cases of this description.
We were invited to consider the state of mind of Mr. Ansell; whether he thought it wrong; in other words we are invited to take as the standard for our decision the alleged conscience of a fraudulent servant. I decline to accept any such rule as one on which the Court is to decide such questions.’
Bowen LJ, Cotton LJ, Fry LJ
(1888) 39 ChD 339,
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