When is an AR an agent?

A recent case looked at the extent to which there is an agency relationship between an AR and its principal. In the case, an AR entered into a client agreement  with the claimant under which it arranged an investment in a company. The client claimed the the AR gave incorrect and misleading information and breached COBS rules and that the principal was liable for the AR’s failures by virtue of s39 FSMA which states that a principal “is responsible… for anything done… by the representative in carrying out the business for which he has accepted responsibility”. The principal, however, claimed it was not liable to the client, saying, among other things that the AR had acted outside the scope of its appointment.

The court, unsurprisingly, confirmed the principal was liable to the client (and had not acted outside the scope of its appointment) and that, in terms of client safeguards, the principal could not rely on the AR’s agreement within the appointment not to breach applicable laws. The agreement regulates only the position between the principal and the AR. The judge said it would be an “impossible construction” of the law which would render worthless client protection, if the conclusion were anything other than that the principal was liable for the AR’s breach.

On a separate point, the judge also held that appointing a person as AR does not of itself mean the AR is an agent of the principal and that s39 FSMA has nothing to do with the law of agency. The AR can of course sometimes be an agent, but not in all cases.