Conflict of interest

by Thom Vaughan of E.A.D. Solicitors L.L.P.

An Agent must not allow a conflict
of interest to arise between his
agency and competing interests
or there may be expensive
consequences.

The recent Scottish Court of Session
decision in Samsung Semiconductor
Europe Ltd v Docherty (FE) & Anor [2011]
ScotCS CSOH_32 (17 February 2011)
served as a timely reminder that agents or
employees owing fiduciary duties to their
employer / principal should never forget
the requirement not to make a secret
profit from their elevated position.
In this case, Docherty was employed by
Samsung and advised and influenced it to
continue procuring services from DKV, a
technology testing company, to deal with
quality assurance issues raised by Dell, one
of Samsung’s most important customers.
Over the period of time that Samsung
contracted with DKV, one of its managers
queried with Docherty whether this
company was truly giving the best value
and whether alternative contractors
should be considered.

Docher ty cons i s tent ly reas sured
Samsung, sometimes via email, that DKV
represented the best alternative;
sometimes this was done by rubbishing
the performance or charging rates of
other potential providers, such as Axiom
and Flextronics.

In reality, part of the reason Docherty
favoured DKV was that he had a business
interest in it as a shareholder. He had not
disclosed this fact to his employer
Samsung in clear breach of an express
provision of his contract of employment.
The Court held that Docherty owed a
fiduciary duty to Samsung. He occupied a
position of great responsibility and had
“authority to represent SSEL in front of
Dell in regard to all QA related issues”.
Among other things, he obtained prices
from suppliers and potential suppliers and
carried out negotiations with DKV on
behalf of Samsung in relation to a number
of matters. In short, he undertook the
great bulk of the contact between SSEL
and DKV.
The judge found that there was potentially
a conflict between, on the one hand,
Docherty’s duties as a QA Manager and
Senior QA Manager for Samsung to act in
the best interests of his employer and, on
the other, his interest as, in effect, a 50%
shareholder in DKV.
As QA Manager, he was in a position to
influence decisions about the work to be
given to DKV and the payment for that
work; and as a 50% shareholder in DKV he
stood to gain if decisions made by
Samsung resulted in DKV’s services being
retained, or in DKV being given more work,
or in DKV being paid more generously for
its work than it might otherwise have
been.

Doherty actually accepted in cross
examination that his undisclosed financial
interest in DKV put him in a position where
he had a potentially conflicting interest.

As the judge found that Docherty was in
breach of his fiduciary duty to Samsung by
his involvement in DKV he was obliged to
account for the profits derived from that
interest. He was therefore ordered to pay
Samsung a total of €340,808.92, plus
interest at a rate of 8% p.a. until payment.
This is a cautionary tale for any employee
or agent owing fiduciary duties and
underlines the requirement to avoid any
conflict of interest situations arising and
the strong line taken by the courts in
relation to breach of this duty. It will be
prudent for agents carrying a range of
product lines or having an involvement in
other commercial interests to take stock
by analysing whether any conflict has
already arisen or is likely to arise.

Article written by Thom Vaughan of EAD Solicitors LLP,
specialists in agency and distribution law.

Head Office: Prospect House,
Columbus Quay, Liverpool L3 4DB
Tel: 0151 735 1000
www.eadsolicitors.co.uk

Disclaimer: This column does not contain legal advice and is for general guidance only. Agentbase, E.A.D. Solicitors, RSM Tenon and the writer accept no liability in connection with the general guidance given in this column.

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