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1. |
To act in the best interests of the
principal |
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| a. |
When an agent is appointed to facilitate
or negotiate a transaction on behalf of the principal,
the agent owes a duty to the principal to act in
the principal's best interests within the authority
of the agent. |
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| b. |
In practice, the duty to act in
the best interests of the principal requires the
agent to use his due diligence and skill to negotiate
terms of a transaction on behalf of his principal
with a third party to the greatest advantage of
his principal in the circumstances. |
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2. |
No conflict of interest |
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| a. |
An agent who has accepted an appointment
to act for a principal ("A") should
not thereafter accept appointment to act for another
principal ("B") if the interests of
principal B conflict with the interests of principal
A. However, if the agent fully discloses to each
principal the agent's interests under the two appointments
and the fact that he acts for both principals at
the same time and obtains the consent of each principal
to the dual agency, he may still act for the two
principals. Accordingly, an estate agent who acts
for both the vendor and purchaser in a sale and
purchase property transaction must disclose the
fact to both the vendor and the purchaser and obtain
their consent for so acting.
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| b. |
The agent's duty to avoid conflict
of interest applies equally to cases where the interest
of the agent himself or that of his close relatives
conflicts or potentially conflicts with his duties
to the principal. However, if the agent fully discloses
such interests to the principal and obtains the
principal's consent, the agent may still act for
the principal. Failure to make full disclosure to
the principal is a breach of the agent's fiduciary
duty and the agent is liable to account for any
profit that the agent has made from such transaction
in addition to other remedies available to the principal
for the agent's breach of duty. The following
situations require more discussion: |
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| i. |
Purchase or rent from principal
– the general rule is that an agent
cannot purchase or rent property from his
principal without full disclosure of all the
facts to the principal. The agent has to show:
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How the terms and conditions
of the sale or tenancy to the agent
compare to a sale or tenancy to a third
party in the market; |
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He has disclosed all
the relevant facts to the principal
before entering into any agreement with
the principal; and |
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The principal has given
his informed consent to such a transaction. |
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| ii. |
Sale or rent to principal –
similarly, an agent may not sell or let his
own property to his principal without full
and frank disclosure and the obtaining of
his principal's informed consent. The agent
has also to show how the terms of the relevant
transaction compare to similar transactions
in the market. |
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3. |
No secret profit |
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| a. |
Common law requires that an agent
should not make any profit or acquire any benefit
in the course and in the matter of his agency without
the knowledge and consent of his principal. Such
profit, generally known as secret profit, is not
restricted to money but may include anything of
value, for example, an interest-free loan, a club
membership, etc. An agent who has made secret profit
is liable to account to the principal for such profit
in addition to any other remedies available to the
principal for the agent's breach of duty.
The following situations are some examples of secret
profit: |
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| i. |
Use of property
An agent who uses property entrusted to
him by the principal to make a profit for
himself and without the principal's consent
is in breach of his duty not to make secret
profit. For example, if an estate agent
is entrusted with the keys to a property
by its owner for the purpose of listing
while the owner is abroad, and the estate
agent lets the property to a third party
and receives and keeps the rent for himself
without the consent of the owner, the estate
agent will be, among other things, in breach
of his duty not to make secret profit.
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| ii. |
Use of
position
In some circumstances, an agent may obtain
a benefit simply through his position as
agent of the principal. For example, an
agent appointed to purchase goods for his
principal from a supplier obtains secret
monetary benefit from the supplier for placing
purchase orders with the supplier. Such
an act by the agent will amount to making
secret profit. Likewise, if a company director
is entrusted with the task of negotiating
a contract with a third party on behalf
of the company (that is, as the company's
agent), the director cannot subsequently
enter into that contract personally with
that third party, even if the latter is
willing to do so without the company's
consent. An agent who, without lawful authority
or reasonable excuse, solicits or accepts
any advantage in relation to his principal's
affairs or business in the course of his
agency shall be guilty of an offence under
Section 9 of the Prevention of Bribery Ordinance,
Cap. 201.
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| iii. |
Use of
information or knowledge
An agent who acquires information or knowledge
which he has been employed by the principal
to collect or discover, or which he has
otherwise acquired for the use of his principal
should not make use of the same for his
personal gain. For example, in the course
of acting for a purchaser, an estate agent
looks for a property for investment in a
particular building specified by the principal
and becomes aware of a property in that
building which is being offered for sale
at below the market price. If the estate
agent makes use of this information, which
he is appointed to obtain on behalf of the
purchaser, and acquires that property himself
without disclosing the same to the purchaser
and makes a profit by reselling it, the
estate agent will, among other things, be
in breach of his fiduciary duty not to make
secret profit.
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| b. |
However, the duty not to make secret
profit may be discharged if the agent makes full
disclosure of all the relevant facts to the principal
and the principal consents to the making and retention
of such profit by the agent. |
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| c. |
An agent's duty to account to his
principal secret profits he has made in the course
of the agency continues even after the agency relationship
terminates. |
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4. |
Duty of confidentiality |
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| a. |
Owing to the fiduciary relationship
between a principal and his agent, the agent shall
not disclose any information concerning the principal
or any confidential information entrusted to him
by the principal to any third party in the absence
of the principal's consent. |
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| b. |
Information concerning the principal
may include his name, Hong Kong identity card number,
address, telephone number, etc. |
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| c. |
Confidential information entrusted
to an agent includes any information which is not
readily available to the public. Information readily
available to the public will usually include information
which is kept at government departments and is open
for inspection by the public, such as the Land Registry,
Companies Registry and the Birth and Death Registry.
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| d. |
Even if the agent has ceased to act
for the principal, the agent should continue to
keep confidential any information concerning the
principal or any confidential information entrusted
to him by the principal, unless the principal consents
to disclosure or unless the information has ceased
to be confidential. |
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| e. |
However, an agent has implied authority
to disclose information concerning the principal
if to do so is necessary for the agent to carry
out the duties entrusted to him by the principal.
For example, an estate agent may disclose to the
appointed solicitors of the purchaser (the estate
agent's principal) such information relating
to the purchase as will enable the solicitors to
handle the transaction on behalf of the purchaser.
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5. |
Duty to use care and skill |
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| a. |
Common law requires an agent to act
with due care and skill in performing his duties.
Agents who fail to meet this standard are prima
facie negligent. |
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| b. |
Generally speaking, an agent in a
certain profession, trade or calling who performs
his duty with the degree of care and skill expected
of a reasonable, average member of the relevant
profession, trade or calling meets the requisite
standard. |
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6. |
Duty to account |
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| a. |
An agent who receives any property
for his principal or from his principal is bound
to keep such property separate from his own and
he is to be treated as a trustee of such property.
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| b. |
For the reason stated in sub-paragraph
(a), an agent has a duty to keep proper accounts
of the property received by him in the course of
the agency and to render such account to the principal
on request. |
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| c. |
Even after the agency relationship
has ceased, the agent's duty to account to the principal
may continue. Hence, the agent is obliged to return
to his principal all documents and property originally
given to the agent by the principal and documents
prepared by the agent on the instruction and at
the expense of the principal. |
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7. |
Duty not to delegate |
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| a. |
The general rule is that an agent
may not delegate his authority or duty in whole
or in part except with the authority and consent
of the principal. |
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| b. |
Owing to the fact that an agency
agreement is privy to the principal and the agent
and that authority is normally given to the agent
personally, on account of his trustworthiness, skill
or experience, the agent is under a duty to the
principal not to delegate his duties under the agency
agreement to another person, but to exercise the
authority in person. Hence, an agent has normally
no implied authority to employ deputies or sub-agents
to carry out his duties. |
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| c. |
Where an agent is not authorised
to delegate, the act of a "sub-agent"
appointed by the agent will not be binding on the
principal. The agent who so delegates his authority
is also in breach of the duty not to delegate and
is liable to compensate for any loss which the principal
may suffer in consequence of the agent's failure
to exercise his authority in person. |
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8. |
Duty of obedience |
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| a. |
Generally, agents are under a duty
to obey the lawful and reasonable instructions of
the principal. Where the principal's instructions
are clear, the agent does not normally have any
discretion and must follow those instructions, unless
an agent is a professional and the principal relies
on the agent to exercise his professional skill
and discretion in accomplishing the tasks he has
been appointed to accomplish. |
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| b. |
However, if the principal's instructions
are ambiguous or if the agent is not certain as
to their meanings, the agent should clarify such
instructions with the principal before acting. |
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