Claims concerning breaches of duty by estate agents or investment agents usually relate to either (1) a failure or omission to act when the agent should have acted (usually to negotiate, buy or sell a property at a particular price) or (2) consist of several breaches of duty in order to obtain secret profits.
(1) Claims for a failure to act with reasonable skill and care (including omissions)
These claims can only be made where the fiduciary duty to act with the skill and care expected of an estate agent is breached and the breach results in a lost opportunity or a loss of chance. For more details please see our article: http://www.benchmark-solicitors.co.uk/the-duties-of-estate-agents-the-loss-of-a-chance/
(2) Claims for breach of fiduciary duty by an estate agent or investment agent to obtain some financial advantage
These claims are a broad group of claims made upon the basis of a number of fiduciary duties owed by the agent to its customer. These claims can often also involve some element of fraud or misrepresentation, because the ultimate aim of the agent is inconsistent with their customer and in such circumstances there is usually some element of dishonesty to obtain financial gain or a pecuniary advantage.
To understand these claims it is necessary to look at the legal framework behind them.
What is the legal framework within which claims against estate agents or investment agents are brought?
The relationship of the estate agent and their customer (or principal) is one which is usually governed by a contract, or as it sometimes referred to, retainer. The position at law as to the role of estate agents is however somewhat unusual when compared with the role of other contractual agents as they are not normally bound to act at all. The whole relationship is contingent upon the estate agent making a sale and obtaining a commission.
As a result of this imbalance of bargaining position, and the reliance and trust which the customer must place in their agent, at law, estate agents owe a number of additional duties to their customer, designed to protect the customer from any wrongdoing. These duties are called fiduciary duties, and where a breach of duty by the estate agent can be proven, a claim for breach of fiduciary duty will see the customer compensated for the breach.
What does fiduciary mean?
A fiduciary relationship is a legal relationship of trust between two or more parties. In an estate agency context, therefore, fiduciary duties at law consist of a number of principles designed to enforce the trust relationship between the agent and his customer.
What are an estate agent’s fiduciary duties to their customer?
Some of the common fiduciary principles which underpin the relationship are:
- the duty not to make a secret profit;
- the duty to keep accounts and to account to the customer or principal for any profit made;
- the duty to carry out the role with reasonable skill and care; and
- the duty of loyalty or fidelity.
Are any of the duties more important than others?
No, however, usually where there are multiple breaches these are done with one of two aims;-
- to obtain some secret profit or pecuniary advantage; or
- to do the minimum possible, which usually results in a failure to act with reasonable skill and care which causes the customer a loss.
Why are claims in respect of secret profits so common?
Put very simply, secret profits are the natural result of a breach of fiduciary duty in an estate agency situation. Whilst the agent may have breached many other duties, usually if a claim lies for breach of fiduciary duty against an estate agent the breaches which the customer has encountered will all have been with the ultimate aim of the estate agent trying to secretly obtain some pecuniary advantage.
This is most clearly demonstrated by the example of an agent who successfully obtains a secret profit (but must withhold accounts, or not produce accurate accounts, not account to the customer, and enter into an arrangement with a third party in conflict with the duties owed to the customer) all in order to obtain a benefit himself without the knowledge of the principal/customer. In such a case, although all of the duties listed above would have been breached, the ultimate aim was to obtain the secret profit without the customer finding out about it. Accordingly in most cases, where an estate agent is being sued by a customer, some allegation of secret profit will feature.