Commercial Agency Contracts in Singapore

In Singapore, no specific legislation defines the relationship between the agent and the principal. However, this agreement is recognised under Common Law in Singapore and is referred to in the Commercial Law, chapter 15. In Singapore’s Common Law, the agent can be defined as a person who acts on behalf of another person (the principal) where the principal empowers the agent with the authority to affect the principal’s legal relationship with respect to one or more parties.

Even though there is a whole chapter (15) in the Commercial Law dedicated to the “Law of Agency”, there are no requirements imposed on the parties wanting to establish an agency agreement which shows the parties’ freedom of choice to establish such a contract.

There could be an Act which is considered applicable in this case, the Factors Act of 1889 which has provisions on “mercantile agents”. As a matter of fact, a mercantile agent is defined in the Act as one having the customary course of their business as such agent, authority either to:

• sell goods or consign goods for the purpose of sale;
• buy goods or raise money on the security of goods.

Therefore, agency agreements are regulated by chapter 15 of the Commercial Law but also by case law.

It is interesting to note that there is no express obligation, in Singapore, for the parties to act in good faith or fair dealings in a commercial agency agreement.

Commercial Agency

According to Article 15.2.1 of the Commercial Law, an agency agreement is defined as “the relationship which arises where one person known as the agent acts for another known as the principal. Through the acts of the agent, the principal and a third party may be brought into a contractual (sometimes tortious) relationship.”

And according to article 15.6.1, an Agent is defined as “an intermediary, generally, once the principal and third party are brought into a contractual relationship, the agent drops out of the picture, subject to any issues of remuneration or indemnification that he may have against the principal, and more exceptionally, against the third party. Generally, agents are entitled to be indemnified for all liabilities reasonably incurred in the execution of the agents´ authority.”

The operation of commercial agency contains 2 relationships:

• the first (contractual) relationship is between the agent and the principal (section 6 of chapter 15 of the Commercial law): “An agent is considered a fiduciary vis-à-vis the principal. As such, the agent should not, without obtaining the informed consent of the principal, place himself in a position where his duty to his principal may conflict with his own interests.” This goes to say that an agent, acts as a representative for the principal which means he shouldn’t act outside of the frame that the principal has given. As a matter of fact, “if the agent exceeds the authority conferred on him and this causes the principal loss, the principal may claim against the agent.”;
• the second relationship is between the principal and a third party.

However, there is a peculiarity under Singapore law regarding the relationship between an agent and a third party. The rule is that an agent should not be liable to the third party as playing the role of an intermediary between them and the principal. Nevertheless, there is a possibility for the agent to be held liable because it is possible for them to negotiate on behalf of the principal but on their behalf as well.

This is a very interesting option because it is not foreseeable in the EU Directive 86/653/EEC on the coordination of the laws of the Member States relating to self-employed commercial agents. In the EU Directive, the relationship with a third party only exists with the principal, never with the agent because the agent is just a representative. Nonetheless, in Singapore, the agent could act in their own interest.

Employees and workers in a principal

According to Section 3 (“Agency contrasted with other relationships”) of chapter 15 of Commercial law, there could be numerous relationships resembling an agency “but may not have the distinguishing feature of being able to affect the legal position of another”.

An employee or a servant are given orders by the entity that employed them (which gives them remuneration for executing their orders) but this does not give them the authority or power to bind their principal.

Another example is that of the finance manager. The finance manager, even though having the undeniably crucial role of properly managing and keeping up to date the principal’s accounts, does not have the power or authority to sign contracts on behalf of the principal and binding them.

There are some entities in the company which are allowed to bind the principal such as the director of the company.

They are frequently given wide powers to enter into transactions on behalf of their companies (and indeed have more powers than directors in Civil Law jurisdictions). Under Singapore Commercial Law, they are considered both agents and employees. The fact they play a double role, or have a “double casquette”, is quite interesting because under the EU Directive, an agent can also be “a partner who is lawfully authorised to enter into commitments binding on his partners”.

Bailment contract

According to Article 15.3.2, Commercial Law, “A bailee is a person to whom goods have been entrusted. Normally, bailees do not have any power to deal with the goods that have been entrusted to them. However, bailees can also be given authority to dispose of the goods entrusted to them, or such authority can sometimes arise by operation of law. In such circumstances, the bailees are also agents.”

• a bailee should only be entitled to keep the goods until the other party’s obligation is executed;
• a bailee does not, originally, have the right to dispose of the goods;
• there is a possibility for the parties to dispose of the goods, in which case, under Singapore law they are considered agents (but it should be reminded that this is possible only under the parties’ will, it is not a constant or default situation).

Trust

According to Article 15.3.2, Commercial Law, “A trustee’s role is to hold property for the benefit of another person. A trustee may have no authority to enter into contracts or dispose of the trust property. Nevertheless, trustees may sometimes be conferred with such power.”

• a trustee should only hold the property of the settlor for the benefit of the beneficiary;
• a trustee does not have the authority to enter into contracts on behalf of the settlor;
• it is possible for the settlor to give the trustee such power, in which case they will be considered an agent, only if the trustor gives them this “extra” power.
  

Under Singaporean Law, there are no registration requirements specifically for agency agreements. Nevertheless, there are regulatory requirements for every person that wants to “carry on business” in Singapore, for example, registering their name and their business name in advance, section 5, Business Names Registration Act 2014.

Furthermore, if a foreign principal wants to conduct business in Singapore, they should have a registered business entity, which could be in various forms, such as:

• an incorporated company;
• a registered branch of a foreign company;
• a limited partnership;
• a limited liability partnership.

There are no ownership requirements under Singapore legislation for these business entities that apply generally. However, there are some restrictions for foreign ownership in specific fields.

There is no legislation in Singapore that prescribes the formalities for the execution of an agency agreement. There are no language requirements other than English to be valid and enforceable.

If the agent is to be authorised to execute documents as deeds on the principal’s behalf, the grant of this authority must be contained in a deed executed by the principal. This execution must be done in accordance with the laws of the jurisdiction in which the principal is incorporated (if the principal is a Singapore company, in accordance with the principal’s constitution and the Companies Act 1967 (Companies Act) (section 41B, Companies Act). As a matter of Common Law in Singapore, a deed must be signed, sealed, and delivered. Under section 41B(1) of the Companies Act, a company incorporated under the Companies Act can execute a document described or expressed as a deed without affixing a common seal onto the document by signature on behalf of the company by any of the following:

• a director of the company and a secretary of the company;
• at least two directors of the company;
• a director of the company in the presence of a witness who attests the signature.

According to Section 4, chapter 15, Commercial Law, an agency agreement can be formed through 3 forms:

• express authority (Article 15.4.1) : “Express authority arises where the principal expressly by words consents to the agent acting for the principal in a certain way and the agent agrees. The principal and agent will be held to have consented if they have agreed to what amounts in law to such a relationship, even if they did not recognise it themselves and even if they had professed to disclaim it”. The only condition is for consent to be given by both of them;
• implied authority (Article 15.4.2) : “In cases of implied authority, the principal does not expressly say to the agent that the agent has been conferred authority to act in a certain manner. Instead, the acts of the principal and the agent are such that it is clear that the principal has consented to the agent having some authority, and the agent has agreed. Such agreement, in other words, is inferred from the conduct of the party and the circumstances of the case.”;
• apparent authority (Article 15.4.3) : “It should be noted that express and implied authority are regarded as actual or real authority. In other words, the authority actually exists. However, even where no authority has been expressly or impliedly conferred, an `agent´ may still be able to bind the `principal´. In such cases, it is said that the `agent´ has apparent authority. Although the authority is not real, to the extent that the `agent´s´ acts are capable of binding the `principal´, an agency relationship is created.”;
• article 15.5.1, section 5 gives an additional possibility of creating an agency agreement through ratification “Ratification is a means by which the agency relationship is created retrospectively. Where the agent does not have actual authority, the principal cannot rely on the acts of the agent since the agent was not authorised to perform those acts. If the principal wishes to enforce the contract that the agent has entered into, the principal must adopt what the agent has done. The doctrine of ratification allows a principal to adopt his or her agent’s past acts. By so doing, the principal retrospectively clothes the agent with authority and the law then proceeds on the basis that the agent had authority from the outset”. This possibility is quite intriguing because it does not seem to exist in the EU Directive. However, because of the particularity of this way of agency agreement’s creation, there is are some limits due to the impact it could have on third parties.
  

Both of them are possible. Nothing in the Commercial Law or in Singapore’s legal framework says otherwise. Being a Common Law country, the parties’ will is at the core of any contractual relationship, meaning that the parties can agree to any applicable law or competent jurisdiction.

The termination is one of the crucial points which are required to be contractually agreed upon by the parties. Therefore, the agent and the principal should determine wether the agreement has a fixed term or is indefinite, the termination notice period, the grounds for termination.

There is no legislation in Singapore that regulates these matters; in other words, the parties are free to choose the terms of termination of an agency agreement. However, the practice in Singapore shows structures often used. For example, a fixed term is terminable by notice in writing from a party to the other.

Nonetheless, if there is no legislation regarding how the agency agreement should be terminated, Common law rights of termination could be applied. Under Common law, these are approximately the reasons for which a contract could be terminated:

• the contract clearly and unambiguously provides for the events according to which the innocent party is entitled to terminate the contract:
• the contract does not clearly and unambiguously refer to the right to terminate the contract, but:
• a party, by its words or conduct, renounces the contract by clearly conveying to the other party to the contract that it will not perform its contractual obligation at all;
• a party breaches a fundamental term of the contract (that is, a term intended by the parties to be so important that any breach, regardless of the actual consequences of such a breach, would entitle the innocent party to terminate the contract); or
• a party’s breach of the contract gives rise to an event that will deprive the innocent party of substantially the whole benefit that it was intended that it should obtain from the contract.
  

In Singapore, there are no requirements for indemnity in case of termination of an agency agreement, unless the parties agree to otherwise in the contract itself. The amount and right of compensation of the agent should be agreed upon by both parties in the agency agreement.

If there are no express provisions, the non-defaulting party can claim damages for breach in case the termination of the agreements comes from a breach of the agency agreement or if the discontinuation constitutes a breach of the agency agreement.

But it is important to note that parties can choose, expressly in the contract, to discard the application of these provisions.