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

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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 A‘s 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 A’s 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 Ansell’s 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 plaintiff’s 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.