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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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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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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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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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