Fiduciary duties: repudiatory breach of contract?

A breach of fiduciary duty may justify terminating a contract with immediate effect, but this depends on the nature and seriousness of the breach.

Fiduciary Duties

A fiduciary duty arises where a person undertakes to act in another’s interests in circumstances involving trust and confidence. Company directors owe fiduciary duties to the company. Their general duties are set out in the Companies Act 2006, although common law and equitable principles continue to apply.

The concept of a fiduciary duty

Fiduciary duties arise in certain relationships where one party is required to act in the interests of another. Examples include:

• Company directors, who owe fiduciary duties to the company;
• Agents, who generally owe fiduciary duties to their principals; and
• Others in a position of trust and responsibility, depending on the nature of the relationship and the obligations undertaken.

Breach of fiduciary duty

A repudiatory breach is a sufficiently serious breach of contract that entitles the innocent party to terminate the contract and potentially claim damages. Not every breach is repudiatory. Where a breach does not meet this threshold, the innocent party may still have a claim for damages but may not be entitled to terminate the contract.

Whether a breach is repudiatory depends on the contractual terms, the nature of the breach and its consequences. We can help assess the position and advise on the available options.

Repudiatory breach applied to a fiduciary breach

A breach of fiduciary duty may appear serious, particularly where it involves a failure to act in another party’s interests. However, it does not automatically amount to a repudiatory breach of contract. The circumstances must be assessed to determine whether the breach is sufficiently serious to justify termination.

The position of the Court of Appeal

The Court of Appeal has considered whether an agent’s conduct justified termination of an agency agreement. In the case concerned, an agent published critical comments about the principal’s service levels on its website, including its customer order fulfilment process. Although the comments amounted to a breach of contract, the Court found that the breach was not sufficiently serious to demonstrate an intention to repudiate the agreement.

The decision illustrates why the nature of the breach and its impact on the contractual relationship must be considered carefully. Depending on the circumstances, there may be other grounds for a claim or termination. The contractual termination provisions and any applicable statutory requirements must also be followed.

Agency relationship

Agency agreements may be subject to the Commercial Agents (Council Directive) Regulations 1993, which can give commercial agents a right to compensation or an indemnity when the agency ends. Whether compensation is payable, and the amount, depends on the circumstances and the applicable legal requirements.

A principal should therefore consider the consequences of termination before acting. Incorrectly terminating an agreement may expose the principal to a claim for damages and, where applicable, compensation or an indemnity.

Ending a contract because of an alleged breach can have significant consequences if termination is unjustified or the required procedure is not followed. We help you assess your position, understand the risks and identify an appropriate course of action.