Agency and Partnership Law

Citation(2021) 22 SAL Ann Rev 72
Date01 December 2021

3.1 An agent is generally thought to stand in a fiduciary position vis-à-vis his principal because he wields the power to affect the principal's legal relationship. Thus, an agent is subject to fiduciary obligations independently of any contract that might subsist between the parties. Nevertheless, as Lord Browne-Wilkinson noted in Kelly v Cooper:1

[A]gency is a contract made between principal and agent; … [L]ike every other contract, the rights and duties of the principal and agent are dependent upon the terms of the contract between them, whether express or implied. It is not possible to say that all agents owe the same duties to their principals: it is always necessary to have regard to the express or implied terms of the contract.

3.2 The effect that contract terms have on the general fiduciary obligations imposed by equity on agents was considered in Tonny Permana v One Tree Capital Management Pte Ltd.2 As Chan Seng Onn J observed, much of the contemporary case law in agency law has been concerned with the question of an agent's authority. The case therefore gave the court the opportunity to “reiterate and clarify the law of agency in Singapore, specifically on how one should engage in an analysis of an agent's duties” [emphasis in original].3

3.3 The suit was brought by Permana, an Indonesian businessman and investor, against One Tree Capital Management Pte Ltd (“OTC”), a Singapore-incorporated investment fund manager, and GY, its director and sole shareholder. The dispute arose out of Permana's investment in a project to develop a shopping mall (“the Chinamall Project”) undertaken by Midas Landmark Sdn Bhd (“Midas”). Permana's investment was arranged by OTC. The investment was initially structured as secured convertible debt which was issued by Midas to Permana as well as

several other investors. The General Division of the High Court (“High Court (General Division)”) held that the relationship between OTC and Permana was one of agency and governed by the terms of an agreement which the court found had been accepted by Permana by conduct (“the agency agreement”). This finding was affirmed by the Appellate Division of the High Court (“High Court (Appellate Division)”). Interestingly, the High Court (General Division) appeared to have also considered GY to be Permana's agent even though he was not technically a party to the agency agreement.

3.4 However, subsequently and without first informing Permana, OTC agreed with the developers to convert the form of the investment into an unsecured shareholder's loan provided by OTC, which consequently became the shareholder and lender to Midas. Any claims out of the investment against Midas would, however, be held by OTC on trust for Permana on terms governed by a trust deed (“the trust deed”) which superseded the earlier agency agreement. On the evidence, Permana agreed to and did sign the trust deed. Both the General and Appellate Divisions of the High Court held that, in signing the trust deed, Permana had given his informed consent to the change in the investment structure. The Chinamall Project ultimately failed, and Midas was placed in liquidation. Permana submitted a proof of debt with regard to the shareholder loan, which was rejected by Midas's liquidator. Shortly thereafter, Permana commenced proceedings against OTC and GY asserting, inter alia, breach of “duties as agent” and of fiduciary duties.

3.5 Permana's claims were dismissed by the High Court (General Division). Although the agency agreement had been discharged by the trust deed, this did not terminate the agency relationship between the parties as OTC and GY had continued to advise Permana. OTC and GY therefore owed Permana and continued to owe him, after the discharge of the agency agreement, various duties as his agents. The High Court (General Division) held, however, they had not, on the facts, breached any of these duties.

3.6 The High Court (Appellate Division) dismissed Permana's appeal, agreeing with the High Court (General Division)'s conclusion albeit on different grounds. The appellate court held that the defendants were in “clear breach”4 of their duties to Permana when they agreed with the project developers to fundamentally alter the structure of his investment without first obtaining his consent. However, in signing the trust deed, Permana had “waived the breaches of fiduciary duties”5 committed by

the defendants and given his informed consent to the changes to his investment. Specifically, the appellate court held that Permana's informed consent “amounted to a ratification of the breaches committed by [the defendants]”.6

3.7 The judgments of both the General and Appellate Divisions of the High Court raise several points of note.

I. Defining “agency”

3.8 First, what defines “agency”? In the High Court (General Division), Chan J had observed that the legal term “agent” was neither homogenous nor monolithic, but that “in a general sense, [it] simply refers to a relationship, often undergirded by a contractual agreement, where one party is able to act for another party” [emphasis in original].7 However, merely being able to act for another is, of course, insufficient to constitute an agency relationship in the strict legal sense — what is crucial is the agent's power to affect the legal relations of his principal.8 It is because the agent is vested with this power that the law deems it necessary to protect the principal by subjecting the agent to fiduciary obligations. His Honour was clearly appreciative of this, stating:9

As a result of being able to act for his/her principal, and thereby influence his/ her principal's position and interests, the law imposes various duties on agents. These duties arise for the protection of the principal, who often reposes trust and confidence in the agent.

3.9 On the facts, the High Court (General Division) had concluded that the defendants clearly had the authority to “contract for and on behalf” of Permana.10 The court found that such authority was, however, limited as OTC was empowered under the terms of the agency agreement to bind Permana (as well as the other investors) as long as a majority of the investors agreed. Without such consent, OTC would require Permana's written approval before it could commit Permana to any act in connection with the investment. Such authority, however, did not extend beyond the duration of the agency agreement. The agency relationship that survived the discharge of the agency agreement was thus based on the defendants' authority to “[dispense] advice to [Permana] and [provide]

timely information on the status of his investment in the Chinamall Project”.11

3.10 The High Court (Appellate Division), however, took a different view of the ambit of the agency agreement. The appellate court held that, as Permana's agent, OTC certainly owed fiduciary duties to Permana but only in the context of its powers and duties under the agency agreement. These duties would appear, however, to be confined to the timely conveyance to Permana of any information received from Midas concerning the investment and to promptly notify Permana of any matter that might affect the latter's investment.12 Contrary to the High Court (General Division)'s view, the High Court (Appellate Division) held that the agency agreement did not, on its terms, impose any obligation on the defendants to dispense advice. The High Court (Appellate Division) noted that Permana was:13

… an experienced businessman … [who] made his own decisions and assessment of the investment prospects, and in so far as he relied on the [defendants], this was in the context of the roles and responsibilities dictated by the [agency agreement].

3.11 Both the General and Appellate Divisions of the High Court thus accepted that OTC was Permana's agent even though it had no authority to affect Permana's legal relations with others. Agencies such as these are termed “incomplete agencies”14 because there is no external aspect to the agency relationship. The agency is premised wholly on the internal relationship between the agent and its principal, but because such agents may act in a capacity which may involve the principal reposing trust and confidence in the agent, as in the present case, the agent may nevertheless be subject to the fiduciary duties of agents generally.

3.12 As noted above,15 the High Court (General Division) had, in its judgment, seemingly assumed that GY was also an agent for Permana even though the agency agreement explicitly provided for only OTC to be appointed “as the agent”.16 Although the High Court did not explain the basis of this assumption, the High Court (Appellate Division) explicitly stated that fiduciary duties were also owed by GY because the agency

agreement provided that “OTC shall ‘exercise its duties, responsibilities and powers’ through GY (there being no other person approved by the majority noteholders for this purpose)”.17 Without holding that GY was also Permana's agent, the appellate court opined that “GY owed fiduciary duties to [Permana] in the context of his role in exercising OTC's powers”.18

3.13 With respect, this is a difficult point. The party to, inter alia,19 the agency agreement was OTC and not GY. It is of course trite that even though GY was the sole shareholder and director of OTC, OTC was nonetheless possessed of a separate legal personality and legal existence. The fact that GY had to exercise OTC's powers was a function of OTC being a persona ficta,20 with no ability to act without the intermediation of human actors. In and of itself, therefore, that fact alone cannot be sufficient to impose liability on GY. To accept so would undermine the time-honoured Salomon principle,21 with significant consequences for directors and shareholders of companies involved in the business of providing intermediary or advisory services.

II. Agency and contract

3.14 Secondly, is agency more than...

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