The Court of Appeal recently handed down judgment in the case of Prince Eze v Conway, another case on agents and secret commissions.
The case revolved around whether an intermediary, Richard Obahor, acted as Prince Eze’s agent in the purchase of a property from Mr and Mrs Conway. At first instance, HHJ Keyser QC found that Mr Obahor was not an agent of Prince Eze, and therefore, Prince Eze could not rescind the contract for sale on the basis that Mr Obahor had agreed with the Conways, unbeknown to Prince Eze, that he would receive a commission from them for the introduction of Prince Eze. The Court of Appeal agreed with the judge’s findings and dismissed the appeal.
The case builds on the law around whether, in a transaction, an intermediary is an agent, or is imputed by the court to be an agent upon taking on fiduciary duties to a principal; and if so, whether the intermediary is liable to account to their principal for any commission or profit they made in the transaction. The case is relevant to art transactions because intermediaries are often involved. It is not unusual for art intermediaries (e.g. dealer, galleries, art advisers) to assume that they are simply putting a transaction together, without appreciating that depending on the facts of the case, as matter of law they assume fiduciaries duties to one party in the transaction, giving rise to a duty to account to that party for any profit or commission they make. It can come as a shock to art intermediaries when they are told that the law treats the commission they made as a secret commission that is not their but their principal’s, and that they risk having to account for any profit they made in all dealings with that principal, whether related to the transaction in question or not. It is only in very specific, and relatively uncommon situations, that the law will accept that an intermediary was not the agent of any party in the transaction, but merely a go-between or ‘transaction facilitator’.
The facts set out in the first instance decision of HHJ Keyser QC, and substantially repeated in the leading judgment of the Court of Appeal by Lady Justice Asplin, are long and detailed. In summary, Mr and Mrs Conway put their house in London up for sale, intending to move to Cambridgeshire. One offer was accepted but the sale fell through. Several months went by with little interest being shown in the house. Mr Obahor, described as a property developer, property manager and acquisition agent, visited the property and informed the Conways he was acting on behalf of a Nigerian purchaser. Over the next few days, Mr Obahor negotiated with Mr Conway a price of £5 million for the property, securing a reduction of £500,000 on the asking price. In fact, Mr Obahor agreed the price for the Conway’s property with the intention of seeking a purchaser for it.
HHJ Keyser found that Mr Conway probably first discussed a finder’s fee payable to Mr Obahor during the negotiations without agreeing a figure. The judge found that eventually, the fee was probably agreed as 1.5% of the purchase price (£75,000), a reduction from the initial level sought by Mr Obahor of 3%. We shall refer to the fee promised by Mr Conway to Mr Obahor as the “Finder’s Fee”.
It was only after this point that Mr Obahor found Prince Eze as a potential purchaser of the property. Neither knew the other, and the introduction was through a mutual friend. Mr Obahor sought a fee of 3% from Prince Eze for locating the property which Prince Eze was initially keen on acquiring. Although Prince Eze asked Mr Obahor to go ahead with the transaction, he asked his own advisor, Mr Howarth, to monitor the situation.
The sale process then dragged on, from the initial offer by Mr Obahor in mid-April 2015 through to 30 November 2015, when Prince Eze failed to complete the purchase despite having exchanged contracts and paid a deposit of £500,000.
The Conways eventually sold their London property to a third party for £4.2 million, exchanging contracts in May 2016 and completing in July 2017. However, as they had planned a simultaneous completion on 30 November 2015 of their new Cambridgeshire property, they took out a bridging loan to avoid losing the property and their own deposit.
The Conways then issued proceedings against Prince Eze for damages for breach of contract including the difference in the sale price of the property (£800,000) and refinancing costs including the bridging loan of over £1 million, amongst other costs.
During the course of the proceedings, the Finder’s Fee agreed between Mr Obahor and Mr Conway came in sharp focus. Prince Eze sought to rely on Mr Conway’s promise to pay the Finder’s Fee to Mr Obahor as a defence to the Conways’ claim and as the basis of a counterclaim for the return of his deposit. Prince Eze’s claim was the agreement for the Finder’s Fee constituted a promise to pay a secret commission to his agent, Mr Obahor; the effect of the agreement was to vitiate Mr Obahor’s authority to act for him; and therefore, the contract for sale was null; alternatively, the secret commission rendered the contract voidable in law or in equity and there was no basis for denying rescission.
The key issues at trial were: (i) what was the nature of the relationship between Prince Eze and Mr Obahor (and whether the relationship engaged the law on secret commissions); (ii) whether the agreement to pay the Finder’s Fee amounted to a promise to pay a secret commission; and (iii) if it was a promise to pay a secret commission, what are the consequences.
On the first point, HHJ Keyser QC found that the relationship was initially one where Mr Obahor was a salesman acting in his own commercial interest and whose role was to provide a ministerial service to chivvy matters along. He found that there was no reason why Mr Obahor should not be paid by either side or both, a situation recognised in Bowstead & Reynolds on Agency in the context of an introducing agent. By the time Mr Obahor had been engaged by Prince Eze, the Conways had already agreed to pay Mr Obahor. Further, Prince Eze was looking to his own advisor, Mr Howarth, to oversee the transaction and advise him, as Prince Eze did not have any real knowledge of Mr Obahor. HHJ Keyser described Mr Obahor’s role in the later period of the transaction as, at most, an attenuated form of agency. This applied to the period after Prince Eze had signed the contract of sale and a letter of authority in favour of Mr Obahor, authorising Mr Obahor to give instructions to Prince Eze’s solicitors. Although it was unusual for this level of authority to be conferred on an acquisition agent, the judge found that Mr Obahor did not have the ability to affect Prince Eze’s legal position (with the Conways), and the authority was simply for the purpose of bringing the sale and purchase transaction to fruition.
The Court of Appeal dismissed the appeal on the basis that the judge was entitled to arrive at his conclusion regarding the relationship between Prince Eze and Mr Obahor. As this was the key issue on which the other issues depended, the Court did not need to decide whether the promise by the Conways to Mr Obahor was an agreement to pay a secret commission or whether Prince Eze had a right to rescind the contract of sale.
The facts of the case were unusual. The decision by HHJ Keyser that the relationship between Prince Eze and Mr Obahor was not one of agency in the usual sense meant that there was no legal obstacle to Mr Obahor being paid a commission both by the Conways and by Prince Eze, accordingly Mr Obahor did not have a legal obligation to account to Prince Eze for the Finder’s Fee. Had the judge found that Mr Obahor was Prince Eze’s agent, the judge may well have found that the promise by Mr Conway to pay Mr Obahor the Finder’s Fee amounted to a promise to pay a secret commission.
The case is a reminder that the analysis of whether a party took on fiduciary duties to another party is fact specific and requires a careful and detailed analysis of the nature of the transaction, the role of the parties, and the sequence of events.
The Prince Eze case is of interest to the art market in several respects. First, this is an example where an intermediary was found not to be an agent (with a fiduciary relationship) of either the seller or buyer, an unusual outcome if it had been in the context of the art market. Mr Obahor made the offer on the property to the Conways in his own interests (not having a buyer in place to act for at the time), and once he found a buyer in Prince Eze, he was given only a limited administrative role in ensuring the transaction progressed. The question is whether an intermediary in an art transaction could be found to be in the same position.
The case itself does not develop the law much further: first, the Court of Appeal repeating that the analysis of the key issue, whether a party owes a fiduciary duty to another, the nature and extent of those duties, is “extremely fact sensitive”; secondly, the law on secret commissions remains unchanged.
By way of reminder, an intermediary is an art transaction will generally act as agent of the seller or as agent of the buyer. If so, the intermediary will owe fiduciary duties to seller or buyer, including the obligation to account for any commission received in relation to the transaction. Occasionally, the intermediary can simply act as an introducer if his role is merely the introduction of buyer to seller or vice-versa. An introducer is typically not involved in the transaction itself, except possibly in order to play a relatively minor administrative role (an introducer would typically not involve himself in the transfer of ownership in the artwork, for example). If buyer or seller relies on the intermediary for advice, this will generally imply a fiduciary relation between the intermediary and the party being advised. Another structure not uncommon in the art market is where the intermediary does not act as agent but as principal. In effect, the intermediary buys the artwork from the seller and resells it to the buyer. There are two ‘back-to-back’ transactions that do not give rise to fiduciary obligations because each party acts in their own interest. The intermediary (buyer and re-seller) does not make a commission but a profit. He may set the level of that profit in his discretion with no obligation to account to either seller or buyer. Note that ‘back-to-back’ transactions must be structured carefully and should not amount to an agency sale in disguise which, if requalified by the courts, could result in a secret profit having been made.
Simon Yeung and Pierre Valentin
 Conway and another v Prince Arthur Ikpechukwu Eze  EWHC 29 (Ch)
 Prince Arthur Ikpechukwu Eze v Conway and another  EWCA Civ 88