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Agent accountability

AS mentioned in last week's column, the Ministry of Commerce has recently published

an handbook on business and investment in Cambodia entitled Cambodia: The Reemergence

of New Opportunities that includes a number of draft laws which are in the process

of being completed.

Of primary interest to investors and local businesses will be the draft contract

law and business organization law which will serve as the primary focus of the future

Commercial Code of Cambodia. This column will focus on one of the sections of the

draft contract law - that dealing with agency.

In general terms "agency" refers to the legal relationship whereby an agent

is authorized to represent a principal in business dealings with third parties.

This is a common business practice, both as a general delegation of authority within

large corporations and between companies or individuals for specific purposes.

An everyday example of an agency relationship would be where you hire a real estate

company to sell your house after you have already moved to another city. In that

case, the real estate broker is acting as your agent for the specific purpose of

selling the house and forwarding the proceeds of the sale to you at your new location.

The draft law specifically defines an agent as "a person employed to do any

act for another person or to represent another person in dealing with third parties".

Although the term "employed" is used, an agent need not be paid by the

principal. The key to the establishment of an agency relationship is the simple consent

of both parties. Both the principal and the agent must have contractual capacity

in order for the agency to be valid.

Two types of authority that agents may possess are set out: express and implied.

Express authority arises through spoken words or through writing. Implied authority

will be found if it can be inferred from the circumstances surrounding a transaction

or from a usual course of dealing. Both of these are forms of "actual"

authority in Western jurisprudence and are focused on what authority the agent reasonably

believes they possess based on the principal's dealings with them.

This is contrasted with "apparent" authority which arises from the reasonable

beliefs of third parties in the agent's authorization based on their dealings with

the principal or "inherent" authority which arises from specific legal

protections afforded to innocent third parties by the judicial system. Neither of

these latter forms of authority are specifically addressed in the draft law.

The issue of authority is central to the concept of agency as a principal will be

bound by all acts done and obligations made on their behalf by the agent if the agent

has acted within the scope of the authority granted. Certain aspects of the extent

of an agent's authority are presumed by the draft law:

Agents who are authorized to perform a specific act will also have the power to do

all those things necessary for that act to be lawfully completed: If a general authorization

is given for the conduct of a business, the authorization will include all lawful

actions usually included in the conduct of such a business; in emergency situations,

agents will be considered authorized to take all actions reasonably necessary to

protect the principal from loss as if they were protecting their own interest.

The agent will not be liable to third parties unless they have expressly agreed with

the principal to accept such liability, or they have failed to disclose to third

parties that they are acting as an agent. In the latter case, the third party may

revoke any unperformed contract entered into by the undisclosed agent if they can

show that they would not have entered into such a contract directly with the principal.

In any situation where the agent is held liable to third parties, the principal will

also be liable.

Any unauthorized action taken by an agent may be ratified by the principal retroactively

within a reasonable time.

Such ratified actions will be treated as the acts of a properly authorized and appointed

agent. This is true even if there was no agency relationship existing at the time

that the action was performed. There are certain restrictions imposed on ratification

that are meant to protect both third parties and the ratifying principals.

If the agent chooses to engage sub-agents they may unless otherwise agreed with the

principal.

Actions taken by sub-agents will bind the principal as if they had been taken by

the agent. An agent will be responsible to the principal for all acts of the sub-agents

appointed by them.

The draft contract law provides for termination of an agency under the following

circumstances:

  • The principal revokes the authority of the agent;
  • The agent renounces the business of the agency;
  • The agent completes the business of the agency;
  • The principal or the agent dies or becomes of unsound mind;
  • The principal is declared a bankrupt.

These actions may either be express or implied by the conduct of either party.

The only time when the principal may not freely revoke the authority of an agent

is when the agent has their own interest in the property which is the subject of

the agency.

In such cases the agent must consent to the termination. Any authorized act which

has been performed by the agent prior to the revocation will remain binding on the

principal.

The use of agents enables business to be conducted more efficiently and practically.

However, as with most legal relationships, there is the potential for the misuse

and misconduct of agencies that can seriously damage the principal. This is especially

true when it is the issue of the implied authorization of an agent that is in question.

Eventually Cambodia will develop its own jurisprudence in this area which will enable

this and the other aspects of the contract law's provisions on agency to become predictable

and relied upon.

- Michael Popkin is a partner of Dirksen Flipse Doran & Le,

an international law firm with offices in Cambodia, Laos and Vietnam.

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