Rhodes v Macalister: CA 1923

The plaintiff agent acted to find a seller of mineral rights for the defendant principal. He told his principal that the properties could be purchased for from andpound;8,000 to andpound;10,000. If the agent could find a seller at below andpound;9,000, then, the defendant agreed, the plaintiff could have the difference between the actual price and andpound;9,000. The agent found a seller at andpound;6,625 and claimed the difference, viz. andpound;2,375. But secretly the agent had also negotiated with the seller, at a time when they made the contract with the buyer, to be paid a commission on the sale. Lush J had found for the defendant.
Held: The agent’s claim failed. It made no difference to the agent’s position that no damage was caused to his principal, or that the principal may be advantaged by the agent’s breach of duty in accepting the secret commission.
Bankes LJ said: ‘There seems to be an idea prevalent that a person who is acting agent or servant of another is committing no wrong to his employer in taking a commission or bribe from the other side, provided that in his opinion his employer or principal does not have to pay more than if the bribe were not given. There cannot be a greater misconception of what the law is, or what the duty of a servant or agent towards his master or principal in reference to such maters is, and I do not think the rule can too often be repeated or its application more frequently insisted upon. . . what was [the agent’s] position and what was his duty. Of course, as long as he was acting for the vendors of these properties only he was perfectly entitled to suggest to them that they should fix a price which would include a commission to himself, and he would be perfectly justified in receiving that commission or putting forward the price to an intending purchaser as the only price which he could persuade the vendors to give, so long as that was his real opinion. But the moment he accepted the position of agent for the intending purchasers his entire position in law changed. He could no longer consistently with his duty, unless he disclosed the facts, act as agent for the vendors to procure purchasers with the result of some commission or payment to himself. He could not retain that position consistently with his duty to the purchasers of obtaining these properties at as low a price as he possibly could. . . the moment he accepted the position of agent to procure these properties as cheap as possible for the intending purchasers his interest and duty conflicted, and he could no longer act honestly towards the intending purchasers without disclosing to them that in that figure of andpound;8,000 to andpound;10,000 which he had mentioned as the probable price of these properties he had included a figure which he intended should cover a commission to himself.’
Scrutton LJ said: ‘I agree with the judgment that has just been delivered and I only propose to re-state it in my own words because I think it is of very great importance that the principle upon which we are acting should be thoroughly understood, and from Mr Vachell’s argument it is not thoroughly understood by commercial men, especially in that part of the country from which his clients appear to come . . The law I take to be this: that an agent must not take remuneration from the other side without both disclosure to and consent from his principal. If he does take such remuneration he acts so adversely to this employer that he forfeits all remuneration from the employer, although the employer takes the benefit and has not suffered a loss by it. . . I hope it is thoroughly understood in London; and if it is not thoroughly understood in the Forest of Dean, then the sooner it is understood there the better for commercial honesty.’ and
‘But I decide it on the broad principle that whether it causes damage or not, when you are employed by one man for payment to negotiate with another man, to take payment from that other man without disclosing it to your employer is a dishonest act. It does not matter that the employer takes the benefit of his contract with the vendor; that has no effect whatever on the contract with the agent, and it does not matter that damage is not shown. The result may actually be that the employer makes money out of the fact that the agent has taken commission.
In this case, therefore, it appears that as one of the two joint agents has, in breach of his duty, taken commission from the other side, he forfeits, and they both forfeit, all right to remuneration from their employer. The more that principle is enforced the better for the honesty of commercial transactions. I have only repeated what my Lord has said because it cannot be repeated too often to commercial men – that in matters of agency they must act with strict honesty.’
Atkin LJ said: ‘This is a class of case where the Courts always have maintained, and do maintain, and I trust always will maintain, a very high standard of conduct on the part of agents. It is a standard of conduct which I am afraid sometimes conflicts with the standard of conduct adopted for themselves by commercial men – not by honourable men in commerce, but by a great many men engaged in mercantile transactions. I entirely agree with what has been said as to the importance of repeating and letting it be known as widely as possible what the standard of conduct expected of an agent is at law. . . Now that is not an impossible standard of attainment. It is laid down by the law and it is in respect of a practical matter. The remedy is a very simple one and it is well within the compass of any ordinary business man. The complete remedy is disclosure, and if an agent wishes to receive any kind of remuneration from the other side and wishes to test whether it is honest or not, he has simply to disclose the matter to his own employer and rest upon the consequences of that. If his employer consents to it, then he has performed everything that is required of an upright and responsible agent.’
Bankes, Scrutton, Atkin LJJ
(1923) 29 Com Cas 19
England and Wales
Citing:
ApprovedBoston Deep Sea Fishing and Ice Co v Ansell CA 1888
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 . .
ApprovedAndrew v Ramsay and Co 1903
The defendant had been employed as agent by the plaintiff to sell property belonging to the plaintiff. The defendant achieved this and was paid his commission, but had also taken a secret commission from the buyer. The plaintiff sought repayment of . .

Cited by:
CitedImageview Management Ltd v Jack CA 13-Feb-2009
The appellant company acted for the respondent footballer in placing him with a football club. The respondent said that he had also taken a payment from the club, nominally for arranging a work permit. The respondent said this was improper. The . .
CitedFHR European Ventures Llp and Others v Mankarious and Others ChD 5-Sep-2011
The claimants sought return of what it said were secret commissions earned by the defendants when working as their agents, and the defendants counterclaimed saying that the commissions had been known to the claimants and that additional sums were . .

These lists may be incomplete.
Updated: 15 February 2021; Ref: scu.282636