Understanding Malaysian Agency Law: A Guide to the Principal-Agent Relationship
Introduction to Agency Law in Malaysia
Agency law in Malaysia is primarily governed by the Contracts Act 1950, which outlines the legal framework for relationships between agents and principals. An agency relationship arises when one party, known as the agent, is authorized to act on behalf of another party, the principal, to create legal relations with third parties.
Understanding Malaysian agency law is crucial for businesses, legal professionals, and individuals involved in commercial transactions, as it affects contractual obligations, liability, and rights in business dealings.
Definition of Agency Under the Contracts Act 1950
According to Section 135 of the Contracts Act 1950, an agency is a legal relationship where an agent has the authority to act on behalf of a principal in transactions with third parties.
The key elements of an agency relationship include:
- Principal: The party who grants authority to an agent.
- Agent: The person who is authorized to act on behalf of the principal.
- Authority: The extent of power given to the agent.
- Third Party: The party with whom the agent deals.
Types of Agency in Malaysia
There are several types of agency recognized under Malaysian law, including:
- Express Agency
- This occurs when an agent is appointed by a contract, either orally or in writing.
- Example: A company appoints a lawyer through a legal contract to represent them in business matters.
- Implied Agency
- An agency can be implied from the conduct of the parties or circumstances of the case.
- Example: A person managing another’s business affairs without formal authority, but the principal accepts their actions.
- Agency by Necessity
- This arises when unforeseen circumstances compel a person to act on behalf of another without prior authorization.
- Example: A ship captain selling perishable cargo to prevent financial loss.
- Agency by Estoppel
- Occurs when a principal’s actions lead a third party to reasonably believe that a person is their agent.
- Example: A company allowing an individual to act as its representative, even without an official appointment.
- Agency by Ratification
- When a person acts on behalf of another without prior authorization, but the principal later approves the actions.
- Example: A manager negotiates a deal without prior consent, but the company later accepts the contract.
Duties of an Agent Under Malaysian Law
Under Sections 164 to 178 of the Contracts Act 1950, an agent has the following duties:
1. Duty to Follow Instructions (Section 164)
An agent must act according to the instructions given by the principal. If there are no instructions, the agent must act in a way that is reasonable under the circumstances.
2. Duty to Act with Skill and Diligence (Section 165)
An agent must conduct transactions with reasonable skill, care, and diligence.
3. Duty to Avoid Conflict of Interest (Section 166)
An agent must not allow personal interests to conflict with the principal’s interest.
4. Duty to Account for Transactions (Section 166 & 167)
An agent must keep proper records and provide the principal with accurate financial accounts.
5. Duty Not to Make Secret Profits (Section 168)
An agent must not secretly profit from transactions conducted on behalf of the principal.
6. Duty to Pay the Principal Any Sums Received (Section 171)
Any money received on behalf of the principal must be paid to the principal, unless instructed otherwise.
Rights and Liabilities of a Principal in an Agency Relationship
A principal in Malaysia has certain rights and obligations, including:
- Right to Demand Accountability – The principal can demand financial records and transaction details from the agent.
- Right to Sue for Breach of Duty – If the agent breaches their duty, the principal can take legal action.
- Liability for Acts of the Agent – If an agent acts within their authority, the principal is bound by the agent’s actions.
Termination of Agency in Malaysia
An agency relationship can be terminated in several ways, as outlined in Sections 154 to 163 of the Contracts Act 1950:
- By Agreement (Section 154)
- Both the principal and agent mutually agree to terminate the agency.
- By Revocation (Section 155)
- The principal may revoke the agent’s authority at any time before the agent has completed the assigned task.
- By the Agent Renouncing Authority (Section 156)
- The agent may renounce their authority with reasonable notice.
- By Completion of the Task (Section 157)
- If the agent was appointed for a specific task, the agency ends once the task is completed.
- By Death or Insanity (Section 158)
- The death or mental incapacity of either party automatically terminates the agency.
- By Insolvency (Section 159)
- If the principal becomes bankrupt, the agency ends unless otherwise agreed.
Legal Remedies for Breach of Agency Duties
If an agent breaches their duties, the principal has legal remedies, including:
- Lawsuit for Breach of Contract – If the agent fails to perform their duties, the principal can sue for damages.
- Claim for Secret Profits – If an agent makes an unauthorized profit, the principal can claim those profits.
- Termination of the Agency Contract – A principal can immediately revoke the agent’s authority if there is a breach.
- Indemnity Claims – If a principal suffers losses due to an agent’s negligence, they may claim compensation.
Conclusion
Understanding agency law in Malaysia is essential for both businesses and individuals involved in contractual relationships. The Contracts Act 1950 provides clear guidelines on the duties, rights, and liabilities of both agents and principals. Whether dealing with commercial agents, real estate agents, legal representatives, or business managers, having a firm grasp of Malaysian agency law can help avoid legal disputes and ensure smooth business transactions.
By knowing the types of agency, duties of an agent, termination methods, and legal remedies, parties can better protect their legal interests and comply with Malaysian business laws.
For further clarification on agency law in Malaysia, businesses and individuals should consult us to navigate complex contractual matters effectively.
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Disclaimer: The above proposition is subject to actual facts and circumstances and shall never be referred as the actual law without seeking legal advice. Consult us for more information!