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

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.

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 person’s 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