Agency and Partnership Law

• Citation: (2016) 17 SAL Ann Rev 76
• Published date: 01 December 2016
• Publication year: 2016
• Date: 01 December 2016

[NB: The agency law section was contributed by Pearlie Koh; and the partnership law section was contributed by Stephen Bull.]

AGENCY LAW

Creation of agency

3.1 The question of whether an agency relationship existed between the issuing bank and the nominated bank in the context of a documentary credit transaction arose in Grains and Industrial Products Trading Pte Ltd v Bank of India.1 In brief, Indian Bank issued a letter of credit in favour of Grains and Industrial Products Trading Pte Ltd (“GRIPT”) which incorporated the terms of the Uniform Customs and Practice for Documentary Credits 600 (“UCP 600”). The Bank of India (“BOI”) was nominated to accept a presentation of documents and to effect payment on the letter of credit. Documents complying with the specifications under the letter of credit were tendered by GRIPT to BOI in good time. BOI did not pay the contract price but, eventually, transmitted the documents to Indian Bank a month after receipt, by which time the letter of credit had expired. Indian Bank rejected the documents and declined to honour the letter of credit. The Court of Appeal affirmed the decision of the High Court that Indian Bank was liable to do so. Under the terms of UCP 600, the issuing bank's liability to honour the credit at its maturity was triggered once the beneficiary made a complying and timely presentation to the nominated bank. Indian Bank claimed against BOI for an indemnity in respect of its liability to GRIPT. The question, as far as is relevant for present

purposes, was whether BOI was the agent of Indian Bank for the purposes of the receipt of the documents.

3.2 The Court of Appeal was not unanimous on this particular issue. The majority of judges, comprising Sundaresh Menon CJ and Andrew Phang Boon Leong JA, held that BOI was an agent of Indian Bank. Menon CJ (delivering judgment on behalf of Phang JA and himself) stated:2

… A nominated bank can be an agent of the issuing bank to the extent of the issuing bank's mandate. The agency relationship will arise in so far as the nominated bank accepts the authority granted by the issuing bank for it to transact with the beneficiary on its behalf …

An agency relationship will be found when a nominated bank acts on the issuing bank's mandate because when it does so, it has the power to affect the issuing bank's rights and liabilities as against the beneficiary on matters so authorised …

[emphasis in original]

3.3 Although BOI did not “accept” the nomination in the sense of honouring or negotiating the credit, the majority of judges found that the “separate matter of it receiving the documents when these were presented by the beneficiary” amounted to BOI acting on and, thus, accepting its nomination.3 Accordingly, by its conduct, BOI was “properly constituted as the agent of Indian Bank for the purposes of receiving the documents”.4 The majority of judges had accepted, at least apparently, that the mere fact that BOI had to receive the documents presented by the beneficiary was sufficient to constitute it an agent of the Indian Bank for that purpose.

3.4 In contrast, Chan Sek Keong SJ took the view that there was no agency on the facts as BOI did not “act on its nomination”. It did not honour or negotiate the documents presented and, therefore, did not perform any of the acts that it was “mandated” to do under the documentary credit.5 His Honour stated:6

… The rights and obligations of a nominated bank and the issuing bank are governed by and flow from the articles set out in UCP 600. The articles operate as contractual provisions between the parties to the letter of credit which has incorporated them. The articles make no mention of agency, and it is suggested that agency reasoning is not necessary to their operation as contractual provisions.

3.5 The divergence in views appeared to be centred on what precisely BOI, as the nominated bank, was “authorised” to do, and the point at which the nominated bank “acted” on this authority. According to James Byrne et al7 (“Byrne”), whose commentary is considered “one of the leading treatises on the construction of UCP 600”,8 “[t]he essence of the role of a nominated bank is that it is authorised to hono[u]r its obligation, or to pay, incur a deferred payment undertaking, accept or negotiate”.9 Whilst this was how Chan SJ saw the authority conferred by Indian Bank on BOI,10 the majority of judges were prepared to accept that the nominated bank's “authority” could mean acceptance of a presentation of documents (that is, the physical act of receipt) by the beneficiary without the nominated bank honouring the credit.11

3.6 Clearly, the majority of judges were, with respect, somewhat more generous in their conception of the scope of the nominated bank's authority. Arguably, this may translate into too low a threshold for the imposition of an agency relationship between the issuing bank and the nominating bank. This is especially since Art 12 of UCP 600 placed the decision whether to honour or negotiate the credit (what the nominated bank was “authorised” to do) squarely within the discretion of the nominating bank itself.

3.7 All the judges were agreed that, as a matter of law, agency is a consensual relationship characterised by the agent's power to affect the principal's legal position.12 As the majority of judges noted, “[a]t its core, agency connotes an agent being granted power or authority to affect the

principal's legal relations as against third parties” [emphasis added]. In the present case, however, the principal's liability to the beneficiary was not dependent on any act of the nominated bank, but wholly on the acts of the beneficiary (that is, the third party) itself. Thus:13

… If the issuing bank nominates a bank in accordance with UCP 600, then as between the beneficiary and the issuing bank, Art 7(a) of UCP 600 provides that the latter's liability is engaged as long as the beneficiary makes a valid and complying presentation to the nominated bank … [emphasis added]

3.8 In the circumstances, it is, with respect, difficult to appreciate how a nominated bank, invited on the terms of UCP 600, could have been an “agent” as defined. The majority of judges had made reference to the following statement in Canadian Agency Law,14 with emphasis placed on the word “agent”:

Agency is 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 by the making of contracts or the disposition of property.

3.9 With respect, the emphasis should perhaps have been placed on the manner in which the agent is able to “affect the principal's legal position”, and that is, according to Fridman, “by the making of contracts or the disposition of property”. It does not appear that BOI, as the nominated bank, was conferred any authority to contract with the beneficiary, GRIPT, on Indian Bank's behalf as such; indeed, the majority of judges had held that it was the letter of credit, issued by Indian Bank itself, that gave rise to the relationship between GRIPT and Indian Bank. As Byrne noted, “[u]nder the UCP, a nominated bank is independent of the applicant, issuer, or another nominated bank. It acts, if it acts, on its own behalf and in its own interest.”15 The finding of an agency relationship between the banks, therefore, sits somewhat uncomfortably with the nature of their relationship as defined by UCP 600.

Apparent authority

3.10 The locus classicus on what amounts to apparent authority is Diplock LJ's statement in Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd:16

[Apparent authority is established in a] legal relationship between the principal and the contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the ‘apparent’ authority, so as to render the principal liable to perform any obligations imposed upon him by such contract. To the relationship so created the agent is a stranger. He need not be (although he generally is) aware of the existence of the representation but he must not purport to make the agreement as principal himself …

3.11 It is, therefore, the principal's representation to the contractor that provides the basis of his liability. In order that the principal is made liable, the evidence must necessarily be sufficient to justify this conclusion. In Viet Hai Petroleum Corp v Ng Jun Quan17 (“Viet Hai Petroleum”), the High Court accepted that a business card that gave the alleged agent's designation as “Chief Operation Officer” was, if genuine, a representation from the employer-principal that the agent was indeed appointed as such. Therefore, the authenticity of the business card is crucial, for otherwise, the representation cannot be said to have originated from the principal. The court made reference to Martin v Britannia Life Ltd18 (“Martin”), a decision of the English High Court, and to the New South Wales case of Heperu Pty Ltd v Morgan Brooks Pty Ltd (No 2)19 (“Heperu”), in support of this proposition. Specifically, the court noted that in both of these cases, the business card bore, as would be typical, the principal's logo and address, as well as the agent's designation and telephone and fax numbers. In Viet Hai Petroleum, the alleged agent had handed to the contractor a name...