Fiduciary Law in the murky world of the football agent

On 9^th February 2008, Kelvin Jack – a Trinidad & Tobago national team goalkeeper with 31 international appearances – suffered a “freak training ground accident”[1]  whilst on trial with Barnsley Football Club. He sustained a serious broken leg. Jack is presently without a club, but personal injury litigation does not appear to be imminent. Just over a year later, Jack finally received some good financial news at least when the Court of Appeal handed down it’s judgement in Imageview Management Limited v Jack.[2]   Jack had sued his former agent, a certain Mike Berry[3] of Imageview Management, in relation to Jack’s move to Dundee United in 2004.[4] By way of agency agreement, Jack agreed to pay Berry 10% of any wages received from Dundee Utd. Berry negotiated a 2 year deal at £700 per week for Jack, but unknown to him, Berry also struck a deal with the club whereby Dundee Utd agreed to pay Berry £3,000 for securing Jack (a non-EU national) a work permit. Not only did Berry not disclose this ‘side-deal’ to Jack, but the judge at first instance found that the “real cost” of this work was £750 rather than £3,000. When Jack discovered the undisclosed side-deal, Berry told Jack it was ‘none of his business’ but Jack ceased paying Berry. As a result, Berry, through his company, sued Jack for the balance of the commission.  Jack counterclaimed not only for a refund of the commission he had already paid over, but also for the £3,000 Barry had obtained from Dundee Utd. The Court of Appeal found for Jack on both counts.

As an agent, Barry owed Jack the fiduciary obligation of loyalty. It is trite law that fiduciaries owe their principal an absolute duty of altruism.[5] As Jacob L.J said in Imageview,

an agent’s own interests come entirely second to the interest of his client. If you undertake to act for a man you must act 100%, body and soul, for him. You must act as if you were him [emphasis added].[6]

By doing a deal with the football club, Barry was allowing his personal interest to conflict with his primary duty to his client. Although it is clearly arguable that it was in Jack’s interests to obtain a work permit (in order to play football for Dundee Utd), this was primarily ‘a matter for the club’ because Dundee Utd would still pay Jack irrespective of whether or not he played for them.[7] The conflict arises, it was suggested, because the more money the agent obtains for himself, the less he will obtain for his principal.[8] It follows from this that the interests that fiduciary law seeks to protect are therefore financial interests despite the terms of the agency agreement which referred to Jack’s “best interests”.

According to Jacob L.J, Berry had breached his fiduciary duty and thereby ‘disentitled’ himself to his commission. Commission in this context refers to the 10% cut of Jack’s wages as opposed to the £3,000 paid by Dundee for the work permit. Jacob referred to a series of old authorities to justify his conclusion that even if Jack had benefited from Berry’s services, Berry was not entitled to any remuneration. A combined reading of Boston Deep Sea Fishing v Ansell (1888),[9] Andrews v Ramsay (1903),[10] Salomons v Pender (1865)[11] and in particular Rhodes v Macalister (1923)[12] lead Jacob LJ to conclude that where an agent takes a secret payment from a third party with whom he is negotiating on behalf of his principal, equity will intervene on its traditional ground of unconscionability. The cases suggest that the taking of such a payment by the agent is bound to damage the confidence that the principal is entitled to expect from his agent having bargained for his ‘disinterested loyalty’. Of course, Jack may not in fact have included an express term of fiduciary loyalty in his agency agreement, but that equitable obligation is implied in all agency contracts. So by acting improperly in not disclosing the side deal, Berry effectively disentitled himself to any remuneration even though Jack arguably benefited from Berry’s work. In reaching this conclusion, Jacob LJ placed particular reliance on Scrutton LJ’s judgment in Rhodes who said:

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 [emphasis added].[13]

It follows from this that it matters not whether damage has been caused by the agent’s disloyalty, nor whether Jack would have entered the contract with Dundee in any event (in other words, causation also appears to be irrelevant). Put at its very simplest, the agent is held to a very high standard and his liability is strict. As Andrews v Ramsay suggests, the agent is effectively treated as if he is a volunteer. The overt policy concern appears always to have been a desire to encourage ‘commercial honesty’. This is an admirable policy goal, but the fact that the authorities relied on in Imageview go back to the nineteenth century and that Lord Stevens’s Quest report on corruption in football puts a sharp focus on football agents,[14] it would seem that the purported deterrent effect of fiduciary law has had little impact on encouraging commercial honesty in the football industry.

Despite the weight of authority against him, Berry attempted to argue that he ought to receive his commission because the side-deal was ‘harmlessly collateral’ to his agreement with Jack.[15] The Court of Appeal held that Berry could not rely on a series of authorities[16] which suggested that an agent would still be entitled to his commission despite making ‘collateral’ or ‘purely incidental’ deals because the side-deal made with Dundee Utd “related to the very contract which was being negotiated for Mr Jack.”[17] Berry had only been able to make this deal because he was negotiating with Dundee Utd for a contract on behalf of Jack. Moreover, although there could be cases where an agent in breach of fiduciary duty might be entitled to remuneration, the breach would have to be as a result of an honest mistake.[18] Here, there was no honest mistake. The breach arose from the conflict of interest, and it was also noted that none of the authorities relied on by Berry involved payments made by the third party with whom the agent was negotiating for the principal. According to Jacob L.J, not only was this result justifiable by reference to the rules expressed in various authorities[19] but it also accorded with the policy behind those rules: “…the strict rule is there as a real deterrent to betrayal.”[20] This latter point has been critiqued in the preceding paragraph.

The side-deal not only disentitled Berry to his commission as it represented a breach of fiduciary duty, but formed the basis of Jack’s claim for disgorgement of Berry’s remuneration in relation to the work permit. Berry argued that he should be entitled to some remuneration to reflect his skill and care in obtaining the work permit along the lines permitted by the House of Lords in Phipps v Boardman.[21] Again, the Court of Appeal found against him. Jacob L.J quoted from Snell’s Equity[22] which states that “a fiduciary is bound to account for any profit that he or she has received in breach of fiduciary duty.” As a result, and essentially for the same reasons that justified the conclusion that the side-deal went to the very heart of the contract being negotiated on behalf of Jack, Berry was duty-bound to account to Jack for the profit. Moreover, because Berry had made a secret profit “surreptitiously”[23] or behind Jack’s back, by arranging a work permit in circumstances where Jack had not in fact ‘expected to have to pay for such services’[24], Berry was not entitled to deduct anything from the profit claimed by Jack to reflect his ‘care and skill’. Berry therefore had to account to Jack for the full £3,000 received from Dundee Utd as well. It is interesting to note that it appears that Berry was not even entitled to deduct anything in respect of his expenses. Echoing statements made in the late 19^th and early 20^th century agency cases, Mummery L.J concluded in these terms:

In our age it is more important than it ever was for the courts to hold the precise and firm line drawn between payments openly, and therefore honestly, received by agents, and undeclared payments received by agents secretly, and therefore justly liable to all the legal consequences flowing from breaches of an agent’s fiduciary obligations.[25]

As can be seen, the issue surrounding the work permit was dealt wit quickly and tersely. Arguably, it is also wrong in principle even if, perhaps, partially correct in result. Although it is undoubtedly correct to say that Jack did not expect to pay for the work permit, the claimant beneficiaries in Phipps did not expect to pay for the solicitors’ work either. The major difference between the cases was that the solicitor in Phipps at least attempted to be open and honest about what he was doing whereas Berry conducted his negotiations behind Jack’s back. Berry could not argue that he had obtained Jack’s work permit in good faith because his case at first instance (rejected by Recorder Walker) was that he had told Jack about it. In those circumstances, Berry had plainly made a secret profit in bad faith. Perhaps he even came to equity with ‘unclean hands’. On first principles, therefore, he did have to account for his profit. However, nowhere is it suggested that an agent has to disgorge everything received: presumably Berry would have incurred some expenses in obtaining the work permit which do not form a part of his profit. That said, one might speculate that it would not have been in Berry’s interest to recoup his true expenses as this might have ‘given the game away’.

It cannot be seriously doubted that the purpose of fiduciary law in cases such as these is more about punishment than compensation. As Imageview demonstrates, neither damage nor causation appear to be relevant to a liability that is very strict. But as the caselaw relied on in the judgement and the Lord Taylor report demonstrate, it is questionable whether fiduciary law in the murky world of the football agent can in reality do much more than punish individual agents who happen to be caught. Unless Jack had discovered the secret deal in the first place, he would now, of course, not only be without a club but also £76,000 or so worse off.