Law For Everyone

Thursday, 18 May 2017

How secure are agents?

Whether such an appointment can be terminated or not depends on the agreement between that person and the principal.

PLENTY of activities are carried out by agents. Many agents have continued with the same principal for a long time and begin to feel a sense of security as to their continued engagement.

Even though the agent carries out his obligations with profit to his principal and with no wrongdoing on his part, can an appointment be terminated? The answer to this depends on the agreement between the principal and the agent.

In some cases, it may be that the duration is not specified. At the same time, there is no provision for termination.

Does it mean that it is an agency appointment which is permanent, like an employee? This cannot be. In such cases, the law is that the agency arrangement could be terminated with reasonable notice.

In most cases when things are going well, an agent could feel aggrieved by the termination of the agency. If the reinstatement of the agency is not possible, the agent would want compensation.

However, in such circumstances the agent will only be entitled to compensation based on the factual scenario, by way of two provisions.

One is where there is an express or implied contract that if the agency should be continued for any period of time, the principal must make compensation to the agent, or the agent to the principal, as the case may be, for any previous revocation or renunciation of the agency without sufficient cause.

The other is that reasonable notice must be given of such revocation or renunciation, otherwise the damage thereby resulting to the principal or the agent, as the case may be, must be made good to the one by the other.

In looking at these two provisions, what emerges is that there can be room for payment in some circumstances. For compensation to be payable, the revocation of the agency must be without just or sufficient cause. There also arises a question as to the whether the provisions are interrelated or they are independent of each other.

American International Assurance Co Ltd v. Koh Yen Bee was one such case where the scope, relationship and effect of these two provisions came up for consideration. Koh Yen Bee, the respondent, had been an agent of the American International Assurance Co Ltd, the appellant, since Dec 28, 1987. By a letter dated Jan 26, 1995, the appellant terminated her contract. In doing so, the appellant relied on clause 26(b) which read as follows:

“Subject to sooner termination of this agreement by the Company in accordance with cl 27 hereof this agreement may be terminated without giving any reason thereof. (b) By either party upon 15 days’ notice in writing.”

The respondent, who was the agent, was successful in her claim in the High Court where she was awarded a very substantial sum. The appellant appealed to the Court of Appeal against the decision.

At this stage, the main issue which was canvassed was whether clause 26(b) of the agency contract was valid and, in particular, whether the agreement could be terminated by giving 15 days’ notice, without giving any reasons.

The Court of Appeal felt it important to note that the provision applied to both parties, not just the principal. Just as the principal may, by giving a 15-day notice without giving any reason, terminate the agreement, so may the agent.

The Court went on to deal with the question whether clause 26(b) was inconsistent with provisions referred to earlier. The majority view was that these two clauses were not applicable and therefore clause 26(b) was valid and could be relied on by the appellant.

The Court first looked at section 158 and noted that it applied in cases where the agency was for a period of time and the other was that one party must make compensation to the other “for previous revocation or remuneration of the agency without sufficient cause”.

The Court therefore took the view that if the contract is for any period of time, compensation must be made if the contract is revoked or renounced prior to the expiry of the period and without sufficient cause.

Of course there was disagreement over what “period of time” meant. In this regard, the Court, while conceding the word “fixed” was not used, said the word “period” itself must have a beginning and an end. Otherwise, it is not a “period”. The Concise Oxford English Dictionary, which gives the meaning of the word “period” as “a length or portion of time”, was relied upon.

Next, the Court took the view that if the provision applied to all contracts of agency, the words, “where there is an express or implied contract that the agency should be continued for any period of time” would have no meaning. The drafters might just as well say, “Where a contract of agency is revoked or renounced without sufficient cause, the principal must make compensation to the agent, or the agent to the principal, as the case may be”.

In addition, it went on to say, “On these grounds, we do not see how the section can be read to cover all contracts of agency, whether or not there is a fixed period of time. In our judgement the words ‘continued for any period of time’, can only mean continued for a fixed or definite length of time, be it one year, one month or whatever. But there must be a beginning and an end, known to the contracting parties at the time of the contract.”

The Court then went on to examine the second provision of the Act. It took the view that “that reasonable notice must be given for such revocation or renunciation, otherwise the damage to the principal or agent must be made good”.

The question that arose was whether section 159 was independent of the earlier provision, meaning that in all cases of revocations and renunciations, reasonable no­­tice must be given, otherwise the da­­mage resulting thereby must be made good.

Eventually the Court took the view that section 159 could not be read separately from section 158. It therefore concluded since section 158 was not applicable, section 159 was also not applicable.

Clause 26(b) of the agent’s contract was not void as being inconsistent with the provisions of the two sections. Therefore the agency had been rightly terminated.

Any comments or suggestions for points of discussion can be sent to The views expressed here are entirely the writer’s own.

Tags / Keywords: Bhag Singh , columnist

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