Kelly v Cooper [1993] AC 205 is an appeal from the Court of Appeal of Bermuda to the

Privy Council (comprising Lords Keith Ackner, Browne-Wilkinson, Mustill, Slynn). The case raises issues about estate agents acting where there might be a conflict of interest. The plaintiff (Mr Kelly) instructed the defendants, a firm of estate agents (Cooper Associates), to sell his house ("Caliban") and agreed to pay them a percentage of the selling price as commission. Indeed Mr Kelly had been trying to sell Caliban through different estate agents for quite some time and was seeking $3.5M. The owner (Mr Brant) of an adjacent house ("Vertigo") subsequently instructed the defendants to sell that house. The two houses were separated by a ravine but fronted on a common beach which, though public was not much used by outsiders.



The defendants showed both houses to a prospective purchaser (Mr H Ross Perot), whose offer to purchase the adjacent house for $2M was accepted. He then offered to buy the plaintiff's house for $2.5M. The defendants did not inform the plaintiff of the agreement to buy the adjacent house. The plaintiff asked Copper Associates if the buyer might be persuaded to increase the offer but was told that this was unlikely The plaintiff then accepted the purchaser's offer. Sales of both houses were completed. After completion, the plaintiff discovered that Mr Perot and his family had bought both Caliban and Vertigo and took the view that his agents, the defendants, should have told him of the Perots' interest in both properties, being material information relating to his sale of Caliban. He refused to pay the commission of $125,000 due to the defendants and proceedings were started by the defendants for its recovery. The plaintiff in turn started cross-proceedings against the defendants claiming damages for their breach of duty in failing to disclose material information to him and placing themselves in a position where their duties and interests conflicted. The defendants counterclaimed for their commission on the sale of the plaintiff's house.



The trial judge found the fact that the Perots were negotiating to buy Vertigo was material since for all practical purposes Vertigo and Caliban were adjacent properties having "effective, if not exclusive, use of a common beach". Mr Perot was interested in the properties on behalf of himself and his family. Property is Bermuda is ordinarily available to expatriates with the approval of any sale by the Governor who does not usually approve more than one sale to the same individual. So it is perhaps reasonable to suppose that the plaintiff had no reason to suppose that there was or could be one wealthy purchaser interested in both properties. In the event that technical difficulty was overcome by one purchase proceeding in the name of one of Mr Perot's children. Although the two purchases were at no stage legally conditional the one on the other, the obvious inference was that the family was interested in acquiring houses side by side. The trial judge found as a matter of fact that "it was an unusual opportunity, to put it at its lowest, and that it is to be inferred from the evidence that it was one which was of particular interest to the Perot family".



In such circumstances, Mr Kelly might reasonably have felt that he would have been able to negotiate up from $2.5M some way towards the $3.5m which he had initially sought when he instructed the defendants. The judge held that the information was material and that the estate agents ought to have disclosed it to the vendor. That is difficult to reconcile with the evidence that the estate agents, as agents also for Mr Brant, owed him a duty not to disclose confidential information relating to his affairs to others. As to conflict of interest, the judge held that the defendants had put themselves in a position where their self-interest in obtaining commission on both sales might (not did) conflict with their duty to the plaintiff. However he exculpated the defendants from any charge of bad faith or dishonesty. The judge therefore awarded the plaintiff damages and declared that the defendants were not entitled to commission.



The Court of Appeal in Bermuda allowed the defendants' appeal and gave judgment for them on their counterclaim. Now on the plaintiff's appeal to the Judicial Committee of the Privy Counbcil:- Held, dismissing the appeal, that since it was the business of estate agents to act for numerous principals, several of whom might be competing and whose interests would conflict, a term was to be implied in the contract with such an agent that he was entitled to act for other principals selling similar properties and to keep confidential information obtained from each principal and that the agent's fiduciary duty was determined by the contract of agency; that since the plaintiff knew that the defendants would be acting for other vendors of comparable properties and would receive confidential information from them, the agency contract could not have included terms requiring them to disclose that confidential information to him, or precluding them from acting for rival vendors, or from trying to earn commission on the sale of another vendor's property; and that, accordingly, although the purchaser's interest in acquiring both properties was material information which could have affected negotiations for the sale price of the plaintiff's house, the defendants were not in breach of their duty in failing to inform the plaintiff of the agreement to buy the adjacent house, which was confidential to the owner thereof, and the defendants' financial interest in that sale did not give rise to a breach of fiduciary duty. Although not relevant, given that decision, the court also indicated that even if a breach of fiduciary duty by the defendants had been proved, they would not thereby have lost their right to commission unless they had acted dishonestly, and the plaintiff did not allege, nor did the judge find, any bad faith by the defendants.





Regrettably the plaintiff conducted the litigation in Bermuda himself and the Privy Council found that the pleadings were confused and that the evidence adduced at trial was inadequate. However the plaintiff's case may be summarised as follows:

(1) The defendants were the plaintiff's agents for the sale of Caliban and as such owed him contractual and fiduciary duties to disclose to him all material matters concerning the sale so that he would be able to make an informed judgment as to what price to accept for Caliban. (2) The defendants were also under a fiduciary duty not to put themselves in a position where their duties to the plaintiff were in conflict with their own interests or those of any other of their clients.

(3) The fact that Mr Perot had made an offer and agreed to buy Vertigo (subject to contract) was of the greatest materiality. The opportunity to buy two outstanding adjoining properties in that location was extremely rare and the Perots had the opportunity to acquire them both as a family compound. Therefore Caliban had a special value to the Perots.

(4) In breach of their duties, the defendants failed to disclose that material fact to the plaintiff. (5) In breach of their fiduciary duties they put themselves in a position where there was a conflict between their duty to the plaintiff to inform him and their personal interest in ensuring that they obtained commission on both Vertigo and Caliban.

(6) As a consequence

(a) the plaintiff was entitled to damages for breach of contract and fiduciary duties;

(b) the defendants, being in breach of their fiduciary duties as agents, were not entitled to their commission.

The Court of Appeal of Bermuda allowed the appeal on the basis that the two sales were not legally interdependent and that there was no evidence to support the judge's finding that the Perots had a special interest in buying the two adjoining properties. They further held that, since the defendants were not in breach of their duty, there was no ground for depriving them of their commission. Their Lordships were unable to agree and considered that Mr Perot's interest in buying both the properties was a material factor which could have influenced the negotiations for the price at which Caliban was sold.. The basic principle of agency is that an agent is, in general, under a duty to keep his principal informed about matters which are of his concern. Can that be reconciled with an agency for a second principal? It is common ground that information acquired in discharge of the duties as agent for a second principal cannot be disclosed to a first principal or, indeed to anyone else. It might be arguable that an agent for principal A who subsequently chooses to act for another principal B even in circumstances of obvious conflict of interest be forced to divulge B's information to A but might be held liable in damages to A. Perhaps North and South Trust Co v Berkeley [1971] 1 WLR 470 (Donaldson J) might tend towards that outcome.



However on first principles, agency is a contract made between principal and agent and like every other contract, the rights and duties of the parties depend upon the terms of the contract between them, whether express or implied. But at that point one must move from the concept of a contract of agency to the content of the particular contract in the instant case. One should not assume or say that all agents everywhere and always owe the same duties to their principals: it is always necessary to have regard to the express or implied terms of the contract. This is to say that law (and ethics) are intensely practical activities, dependent on context, and that answers cannot be derived, logically from concepts as major premisses. I suspect that few in Oxford nowadays know much about Begriffsjurisprudenz.



Once that point is taken, it is easy to see that in a case where a principle instructs as selling agent for his property or goods a person who to his knowledge acts and intends to act for other principals selling property or goods of the same description, the terms to be implied into such agency contract must differ from those to be implied where an agent is not carrying on such general agency business. In the case of estate agents, it is their business to act for numerous principals: where properties are of a similar description, there will be a conflict of interest between the principals each of whom will be concerned to attract potential purchasers to their property rather than that of another. Yet, despite this conflict of interest, estate agents must be free to act for several competing principals otherwise they will be unable to perform their function. It is normally said that it is a breach of an agent's duty to act for competing principals.



In the course of acting for each of their principals, estate agents will acquire information confidential to that principal. It cannot be sensibly suggested that an estate agent is contractually bound to disclose to any one of his principals information which is confidential to another of his principals. The position as to confidentiality is even clearer in the case of stockbrokers who cannot be contractually bound to disclose to their private clients inside information disclosed to the brokers in confidence by a company for which they also act. Accordingly in such cases there must be an implied term of the contract with such an agent that he is entitled to act for other principals selling competing properties and to keep confidential the information obtained from each of his principals.



Similar considerations apply to the fiduciary duties of agents. There is a strict duty not to profit from a position of trust, or, as it is sometimes relevant to put it, not to allow a conflict to arise between duty and interest, is one of strictness. Phipps v Boardman [1967] 2 AC 46. The rule retains its vigour in all jurisdictions where the principles of equity are applied. But one can no more deduce an individual's duties in concrete circumstances from the concept of a trust than one can from the concept of a contract. The rule has different applications in different contexts. It applies, in principle, whether the case is one of a trust, express or implied, of partnership, of directorship of a limited company, of principal and agent, or master and servant, but the precise scope of it must be moulded according to the nature of the relationship. Thus "Rules of equity have to be applied to such a great diversity of circumstances that they can be stated only in the most general terms and applied with particular attention to the exact circumstances of each case" (Phipps v Boardman [1967] 2 AC 46, 123 per Lord Upjohn)



Now the next question is that of priority between contractual and fiduciary duties where these coincide in one relationship. Perhaps as a matter of first principles it is at least open to argument that if justice requires equity to trump law, then it also requires that fiduciary considerations trump contractual duties but thee is common law authority that "The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction" [Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 97, per Mason J (High Court of Australia)] On that basis, the scope of the fiduciary duties owed by the defendants to the plaintiff (and in particular the alleged duty not to put themselves in a position where their duty and their interest conflicted) are to be defined by the terms of the contract of agency. But the plaintiff was well aware that the defendants would be acting also for other vendors of comparable properties and in so doing would receive confidential information from those other vendors, the agency contract between the plaintiff and the defendants cannot have included either (a) a term requiring the defendants to disclose such confidential information to the plaintiff or (b) a term precluding the defendants acting for rival vendors or (c) a term precluding the defendants from seeking to earn commission on the sale of the property of a rival vendor. So it follows that the defendants committed no

breach of duty, whether contractual or fiduciary, by failing to reveal to the plaintiff Mr Perot's interest in buying Vertigo, since such information was confidential to Mr Brant. Nor did the fact that the defendants had a direct financial interest in securing a sale of Vertigo constitute a breach of fiduciary duty since the contract of agency envisaged that they might have such a conflict of interest.



If there is no general obligation in the contract to disclose to the plaintiff Mr Perot's interest in Vertigo, did the defendants come under some other duty to cease to act when they became aware of Mr Perot's interest in both properties. One possibility would have been to obtain the consent of both Mr Brant and Mr Kelly to reveal Mr Perot's interest to the other. But that was not pleaded and in any event the agreement of Mr Brant would have been necessary if any concrete step were to be taken and there was no evidence from Mr Brant or as to his attitude. So it was not open to the plaintiff on these pleadings to allege that Mr Brant would have agreed to the plaintiff being told of the offer for Vertigo. And that is why it is regrettable that he acted for himself in the proceedings in Bermuda because with better plesadings and fuller evidence it might have been possible to argue for the implication of different terms into the contract such as that if an obvious and serious conflict of interest arose the Mr Kelly was to be informed and steps would be taken to resolve it. Such steps might have included, for example, Mr Kelly taking his property off the market.



Now the reason for this detailed exploration is that much of what can be said about estate agents can be said about solicitors. So consider what the case would be if it related to a lawyer acting for both vendors.



That leads to the New Zealand case where the dissenting judgment of Thomas J is highly to be recommended as preparatory reading for next term's seminar. In addition, Lord Millet's judgment in Prince Jefri Bolkiah v KPMG . It is important to note that the House of Lords (in a unanimous opinion) rejects the reasoning and result of the majority in Russell McVeagh



My discussions with partners in London firms who confront this question daily is that they would not rely upon an implied term such as grounded the argument accepted by the Privy Council in Kelly v Cooper. What they do is to invite commercial clients to sign an express waiver whereby the client accepts not only that the solicitors will be acting for other players in the same economic sphere but also that not all information which the firm possesses will be put to the use of the client if it is confidential to another client. So the device that is invoked is not "Chinese Walls" but the express terms of the contract. The worry one has even making all due allowance for the sophistication of commercial clients is that the consent which is given is not a sufficiently informed consent. Of course there should restraint on ethical grounds in acting in a conflict situation and there is a case for caution even in circumstances where conflict is only potential and not yet real. However there is a serious problem in solicitors acting for clients A and B where a conflict may arise because there is widespread agreement that should matter deteriorate to the extent that litigation involving A and B actually commences then the firm must cease acting for either. But then it is in the firms interest that no such litigation arises. That may call for skilful client management but the independence of the solicitors must be compromised if it is in their financial interests to advice one or other of its clients not to sue, a fortiori if an independent firm of solicitors, or counsel, would take the view that the most cost-effective course for that client to follow is to initiate proceedings. So the conclusion remains that some firms are manipulating the law and ethics of lawyering to an unacceptable degree. Prince Jefri's case is not popular with city firms but so far none have come up with a satisfactory argument against its ethical implications.





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