The importance of the Law of Agency – The true principle of the law of agency is

that a person is liable for his engagements even though he is acting for another -
Scarman LJ in Yeung Kai Yung v HSBC. The law interferes with the normal
principles of contract law in which someone who makes a binding legal contract is
bound by that contract. The law of agency can relieve agents of contractual
obligations and impose them on their principals. For example, when company
directors sign contractual documents for their company “for and on behalf of X
Company Limited", the obligations and benefits of the contract are the company’s.
Company directors act simply ass the agents negotiating and signing on behalf of the
company, their principal, and do not intend to accept liability.

Offer and acceptance

There is a contract of agency between the principal and the agent. There must be
offer and acceptance between the principal and agent, so that each side knows the
contractual obligations involved. Each may then sue and be sued on this contract.

Agency by estoppel
If there is no offer and acceptance there will usually be no agency. However, equity
has invented agency by estoppel to protect third parties who are entitled to assume
that an agency relationship exists.

The true legal agent

A true legal agent is one who has entered into a contract of agency with the principal.
A true legal agent is protected by the law of the agency and has explicit legal duties
towards the principal.

Commercial agency
There are many kinds of agencies which are not true legal agencies such as -
 sole agent who buys goods directly from the manufacturer and resells them to the
consumer,
 solicitor acting for his client unless he can settle without reference to the client,
and
 travel agent who owes different duties to different people at the same time.
Such agencies do not have the protection given to the true legal agent, nor the same
legal obligations or duties

The Mercantile agent

The mercantile agent has a special place in the commercial law. Third parties who
are innocent purchaser of goods in the possession of a mercantile agent are protected
and can sometimes keep goods for which they have paid, even though the mercantile
agent did not have legal title to the goods. The Factors Ordinance and the Sale of
Goods Ordinance have supplemented the common law rule that no one can give what
he has not got in relation to the special case of the mercantile agent in business.

Estate Agents
Estate agents are true legal agents in the sense that they represent the interests of
either the seller or the purchaser of property, but cannot represent the interests of both
the seller and purchaser at the same time with absolute loyalty and integrity. An
estate agent acting for both seller and purchaser in HK before 1997 is a classic
example of conflict of interest. (Richard Ellis Limited v Van Hong-tuon) The
Estates Agents Ordinance was enacted in 1997 to prevent potential abuse and there is
now an Estates Agents Authority overseeing the licencing of estate agencies so that
the industry is now operated with professional standards of integrity and competence.

The fiduciary relationship between the agent and the principal

This fiduciary relationship imposes the highest standards of loyalty and honesty on
the agent towards the principal. There should be no conflict of interest at any stage
during the relationship. An Agent -
 must exercise reasonable skill and care;
 must disclose any personal interest in a transaction;
 must not delegate his authority without authorization from the principal.
 must disclose all relevant information to his or her principal (Keppel v Wheller)
 must not disclose any information to other parties without the permission of the
principal;
 must not work for two principals with an actual or potential conflict of interest
without the explicit informed consent of both parties (Richard Ellis v Van Hong
Tuon);
 must account for all property and money received, and must keep proper
accounts of all transactions undertaken on behalf of the principal;
 must not make any secret profit from his or her capacity as agent or take a bribe
(Boardman v Phipps) and not to make a bribe (Prevention of Bribery Ordinance).

And as a result, the principal can

 Dismiss the agent
 Recover the salary or commission paid to the agent
 Recover the bribe or secret profit from the agent
  Regard the bribe as belonging to the principal as “held on trust” for the
principal
 Sue the agent or the person who made the bribe for losses resulting
 Rescind the contract made with the third party as a result of the bribe.

Personal liability of an agent

An agent can sometimes be personally liable on a contract, particularly where an
undisclosed principal does not choose to ratify a contract made on his or her behalf by
the agent. The best legal advice must be for the agent to use specific words to
exclude personal liability for the transaction. In common law, it depends upon the
intention of the parties. The words used by the agent when signing the contract “for
and on behalf of the principal XXX” would be enough to satisfy the test. In the case
of Stanley Yeung v. HSBC, Lord Scarman stated “The true position is that a person is
liable for his engagements even though he is acting for another, unless he can show
that by the law of agency, he is held to have expressly or impliedly negative his
personal liability”.

In an agency contract, the ideal commercial position is for the agent to withdraw,
leaving a valid contract between the principal and the third party. However, the
agent will be liable personally on the contract in the following situations –
 When the agent acts for an undisclosed principal who does not choose to perform
or ratify the contract.
 If the contract makes it clear that the parties intended the agent to be personally
bound.
 If the principal does not in fact exist at the time of contracting with the third
party.

The principal’s liability

Principal are liable for the contracts entered into by their agents and may sue and be
sued on agents’ contracts. The duties of the principal towards the agent include –
 Remuneration – most agents act in the course of business and they expect to be
paid for their services, whether expressly agreed or by implication in a contract.
 Indemnity – agents are entitled to be indemnified by their principal against all
liabilities and out-of-pocket expenses reasonably incurred.
 Lien – A lien is a right to keep possession of another’s property until all sums
due from that person are paid. Agents can protect their rights to be remunerated
or indemnified by keeping a lien on any property in their possession which
belongs to their principal.
Third parties
Third parties are by definition responsible on the contract, as they have made the
contract. However, the principal’s rights against the third party vary in the follwoing
situations-

 Disclosed principal – Where the agent has disclosed the name of the principal to
the third party, the general rule is that the third party must pay whatever is due on
the contract to the principal.

 Undisclosed principal – In this case, the third party’s liability is discharged by

payment to the agent, who is the contracting party. If the third party discovers
the existence of the principal, he may choose whether to pay the agent or the
principal. However, the principal may come forward and enforce the contract
against and could prejudice the third party. The question is who bears the loss
of the agent’s lack of authority or breach of contract?

Actual and Implied Actual Authority – Actual authority can be given in writing or
orally, e.g. power of attorney. Implied actual authority derives from the need for the
agents to perform their duties on behalf of the principals such as solicitor, company
secretary and director to do everything necessary to sign the contract with the third
party.

Apparent or Ostensible Authority – This is the authority which the agent appears to
have in the eyes of the outside world. Apparent authority depends on the
representation made by the principal to the outside world, and what agents say or do.
Diplock LJ put the problem succinctly in Freeman and Lockyer v Buckhurst “It is
upon the apparently authority of the agent that the contractor normally relies (upon
the apparently authority) in the ordinary course of business when entering into
contracts.” In order to succeed against a principal in such circumstances, the third
party must show that the representation was one of fact, not law, and the thir4d party
must have acted upon the representation.