Dear all,

Some of you may recall my queries concerning remedies in cases
involving secret commissions on the list a couple of weeks back. I
hope list members will forgive a couple of supplementary queries,
focusing on the remedies which a principle may have against the third
party who pays a secret commission to the principle's agent, for loss
caused.

The law is clear that the principle can claim against the agent and/or
the third party for loss caused to the principle because he entered
into a transaction with the third party influenced by the agent, where
the agent was induced by the secret commission. There is a presumption
that the loss caused must equal at least the amount of the bribe or
secret commission paid, though that rule does not seem to have been
applied in all cases. There is some suggestion in the authorities
that the inducement of the agent will be presumed, the precedential
value of which may be lessened because in all the cases I have read,
where the claim was for loss caused, the third party well knew that
the agent was acting wrongfully.

However, I have found strikingly few cases in which a claim for loss
caused has been pursued, as the primary remedy sought. The most
notable exceptions that I have found so far being: Petrotrade Inc v
Smith 2001, Fyffes Group Ltd v Templeman [2000] 2 Lloyd’s Rep 643 and
Mahesan v Malaysia Government Officers’ Cooperative Housing Society
Ltd [1979] AC 374.

In part this is understandable, since claims for an account of profits
and for dishonest assistance have been pursued in many cases and may
be more efficacious. However, on the authorities, the following points
seem unclear to me:
1. Where the principle claims damages against the third party on the
basis that he would not have entered into the transaction but for the
advice of his agent, who was paid a secret commission, what must he
prove? Must he prove that:
(i) If his agent had not been paid the commission, the agent would not
have recommended the transaction?
(ii) A prudent agent would not have advised the principle to enter the
transaction?
(iii) The principle would not have entered the transaction, if the
agent had advised him of the commission payment? or
(iv) The principle would not have entered into the transaction if the
third party had advised him of the payment of commission?

(Note (iii) and (iv) may seem different ways of saying the same thing.
However, if the principle was informed of a commission payment by the
third party, rather than the agent, then the principle's confidence in
his agent might well be shaken and that in turn might lead him to
question a transaction more fully.)

A further query that arises for me is how the secret commission cases
relate to the general scheme of liability of third parties. As I
understand it, third parties are generally only held liable where they
know (or are reckless about the breach of fiduciary duty of an agent.
Yet, where secret commissions are concerned, it is generally no
defence that the third party actually believed that the agent would
disclose the commission - effectively no defence that the third party
believed everything was above board. Are there any other circumstances
in which a third party is held to a similarly strict obligation to
disclose conflicts of interest by an agent to that agent's principle,
or face the consequences? If not, is the rule concerning secret
commissions vulnerable to challenge? Has it been doubted?

Finally, I'd be particularly interested in any relevant cases
concerning secret commissions, in the financial services sector - most
of the main cases I have found concern shipping, procurement or
construction.

As always, any pointers, whether to cases or academic commentary would
be welcome, as well as any comments.
Many thanks

Kind regards

Ger