Question: Explain the meaning of secret profit in agency and the actions the principal can take

against his agent who has received secret profit while discharging his duties.

Student's Name : Syazwani Binti Samsolnizam

Student's Number : 2016634362

Programme/Group : BM2501A1

Course : LAW416

Email : wani.ebizz@yahoo.com

Telephone Number : 010-8926875

Submission Date : 23 December 2016

Submitted to : Haji Ahmad Haji Suman

List of Contents

1. Introduction: Agency Generally

2. Definition of Secret Profit

3. Actions That May be Taken by the Principal if the Agent Received Secret Profit While
Discharging His Duties

3.1 If the Principal Consent

3.2 If the Principal Does Not Consent

3.2.1 Repudiate the contract (S.168 CA 1950)

3.2.2 Dismiss the agent

3.2.3 Recover the bribe from the agent (S.169 CA 1950)

3.2.4 Refuse to pay commission or remuneration to the agent (S.173 CA 1950)

3.2.5 Sue the agent and the third party for damages

4. Conclusion
1. Introduction: Agency Generally

An agent is a person employed to do any act for another or to represent another in dealings
with third persons. The person for whom such act is done, or who is so represented, is called
the principal

Based on Section 135 of the Contracts Act 1950, agency is the relationship which
subsists between the principal and the agent who has been authorized to act for him or
represent him in dealings with others

By GHL Fridman, agency is described as 'the relationship that exists between two
persons when one, called the agent, is considered in law to represent the other, called the
principal, in such a way as to be able to affect the principal's legal position in respect of
strangers to the relationship by the making of contracts or the disposition of property'.

There are two types of contract under agency:

a) Contract between the principal and the agent

b) Contract between the principal and the third party

Agency can be created through:

a) Express appointment

Happens when the principal expressly appoints a person to be his agent.

This can be done in oral or writing

b) Implied appointment

- When a person by his word or conduct holds out another person as having
authority to act for him.

- Relationship between husband and wife

- Relationship between partners

c) Ratification

Certification or acceptance by the principal for an act done without authority or

exceeding the authority given

d) Necessity

Agent may become an agent even though he is not appointed

e) Estoppel

Happens when the principal allows a third party to believe that a person is the
agent of the principal
2. Definition of Secret Profit

Bribe or any financial advantage that the agent received by the third party on top of the
commission agreed between the agent and the principal

As defined by Slade J. in Industries and General Mortage Co. Ltd v Lewis

"For the purposes of the civil law a bribe means the payment of a secret commission, which
only means (i) that the person making the payment makes it to the agent of the other person
with whom he is dealing; (ii) that he makes it to that person knowing that that person is acting as
the agent of the other person with whom he is dealing; and (iii) that he fails to disclose to the
other person with whom he is dealing that he has made that payment to the person whom he
know to be the other persons agent"

The difference between a bribe and a secret profit was explained by the Privy Council in
Attorney-General of Hong Kong v Reid as follows:

'A bribe is a gift accepted by a fiduciary as an inducement to him to betray his trust. A secret
benefit (or secret profit), which may or may not constitute a bribe, is a benefit which the fiduciary
derives from trust property or obtains from knowledge which he acquired in the course of acting
as a fiduciary. A fiduciary is not always accountable for a secret benefit but he is undoubtedly
accountable for a secret benefit which consists of a bribe.'

Thus, the difference between a bribe and a secret profit lies in their source. A bribe emanates
from a third party while a secret profit stems from the use by the agent of the principal's
property, which usage results in an unauthorized and undisclosed gain accruing to the agent.
3. Actions That May be Taken by the Principal if the Agent Received Secret Profit While
Discharging His Duties

3.1 If the principal consent, the agent is entitled to keep the profit since the profit is no
longer secret. This is based on S.168 of Contracts Act 1950,

"If an agent deals on his own account in the business of the agency, without first
obtaining the consent of his principal and acquainting him with all material circumstances which
have come to his own knowledge on the subject, the principal may repudiate the transaction, if
the case shows either that any material fact has been dishonestly concealed from him by the
agent, or that the dealings of the agent have been disadvantageous to him."

3.2 If the principal does not consent, he may

3.2.1 Repudiate the contract

The principal may repudiate the contract that has been entered by the agent on his
behalf. This is also based on S.168, and is illustrated as follows:

ILLUSTRATIONS

(a) A directs B to sell As estate. B buys the estate for himself in the name of C. A, on
discovering that B has bought the estate for himself, may repudiate the sale, if he can show that
B has dishonestly concealed any material fact, or that the sale has been disadvantageous to
him.

(b) A directs B to sell As estate. B, on looking over the estate before selling it, finds a mine on
the estate which is unknown to A. B informs A that he wishes to buy the estate for himself, but
conceals the discovery of the mine. A allows B to buy, in ignorance of the existence of the mine.
A, on discovering that B knew of the mine at the time he bought the estate, may either repudiate
or adopt the sale at his option.
 3.2.2 Dismiss the agent on the ground of breach of duty

If agent makes any secret profit out of the performance of his duty, the principal may
dismiss the agent for breach of duty.

In the case of Boston Deep Sea Fishing and Ice Co. v. Ansell (1888) 39 Ch D 339, Ansell
was a director of BDSFI, employed on a fixed-term contract. He was also secretly a director of a
boat-building company. He ordered many boats for BDSFI from his other company due to
incentives he received on sales. Ansell was dismissed because he was found incompetent. He
was being sued for wrongful dismissal. While preparing for their defense, Boston discovered
Ansells secret dealing. At court, Ansell proved that he was competent however the court held
that the dismissal was justified due to the secret dealing.

3.2.3 Principal may recover the amount of secret profit from the agent

This is based on S.169 of Contracts Act 1950 which states that,

"If an agent, without the knowledge of his principal, deals in the business of the agency
on his own account instead of on account of his principal, the principal is entitled to claim from
the agent any benefit which may have resulted to him from the transaction."

In the case of Tan Kiong Hwa v. Andrew S.H. Chong [1974] 2 MLJ 188, the defendant was the
managing director of house agency company. The plaintiff has bought a flat from that company.
The plaintiff later authorized the defendant as his agent to sell the flat for $45,000. However the
defendant sold the flat for higher price, which is $54,000. The difference of $9,000 was credited
to the company. The court held that the plaintiff was entitled to recover $9,000 from the
defendant as the defendant had breached his duty as an agent.

3.2.4 Refuse to pay commission or remuneration to the agent

This is based on S.173 of Contracts Act 1950 which states that

"An agent who is guilty of misconduct in the business of the agency is not entitled to any
remuneration in respect of that part of the business which he has misconducted."

In the case of Andrews v. Ramsay and Co [1903] 2 KB 635, where the principal successfully
recovered both the commission paid to the agent plus the secret commission received by his
agent from a third party. In that case, the plaintiff directed the defendant to sell property and
agreed to pay him commission of 50 pounds. The defendant received 100 pounds from a
purchaser as deposit for the property. The defendant paid 50 pounds to the plaintiff and kept the
other 50 pounds in payment of his commission with the plaintiffs knowledge. However the
plaintiff learnt that the defendant had also received another 20 pounds as commission from the
purchaser. He sued his agent to recover these 20 pounds and also the 50 pounds he had paid
the defendant initially. The court held that he could recover both of them.
 3.2.5 Sue the agent and the third party for damages

Principal may sue the agent and third party for damages or any loss he may have
sustained through entering into the contract

As in the case of Mahesan v. Malaysian Govt. Officers Co-operative Housing Society Ltd [1978]
1 MLJ 149, the appellant was a director and secretary of the respondent co-operative society.
He brought land at a price of $944,000 from the vendor who had earlier paid $456,000 for it.
The appellant knew of this fact however he failed to inform the society. The society discovered
the fact only after the sale was done and discovered the appellant had received $122,000 as
secret commission from the vendor. As a result, the Privy Council held that the respondent could
recover either bribe or the amount of the actual loss suffered by it as a consequence of entering
into the contract.

4. Conclusion

In conclusion, agency is a legal relationship that appears in many areas of the law. Agency,
which is the relationship between a principal and an agent, can be created through express or
implied appointment, ratification, necessity or estoppel. Among the duty of an agent is not to
make any secret profit out of the performance of his duty that if he does, the principal may
repudiate the contract, recover the secret profit, refuse the pay the agent's commission, dismiss
the agent or sue the agent and the third party.