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THE UNIVERSITY OF HONG KONG LLAW2012 Commercial Law TUTORIAL Worksheet 2 – AGENCY (2) 1. Paul, a secretive and reclusive millionaire, wanted to set up a restaurant and hired Adam as its chef. Wanting to keep his involvement secret, the restaurant was named Adam’s Kitchen, and Adam was instructed to pretend that Adam was the owner of the restaurant. Paul instructed Adam to purchase only local goods as Paul wished to support local farmers. However, Adam placed an order for 30kg of pork per week from Tai Pao Food Industries in Hanoi for 6 months, commencing 2 months ago. The pork was to be paid for at the end of the 6-month period. Paul discovered this when rumours surfaced that some pig farms in Hanoi had been hit by a bout of porcine flu and Adam’s Kitchen was named by local newspapers as one of the Hong Kong restaurants serving pork imported from Hanoi. Advise Paul. Objectives of Paul: not to be bound by the contract Whether Adam act within his scope of authority. - Actual express: expressly instructed to purchase local goods from local farms - Actual implied: no - Apparent authority: irrelevant in the case of undisclosed agency - Ratification: undisclosed principle cannot ratify the contract (Keighley Maxsted v Durant) -

Landmark case: Siu Yin Kwan v Eastern Insurance Co Ltd o Requirement for undisclosed P to be sued or to sue: A works within his authority o lack of actual authority  undisclosed P doctrine will not apply  No authority for Adam to enter into the contract

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Usual Authority: Watteau v Fenwick o Different from the form of usual authority under actual implied category o Doctrine: P is liable for all the acts of the A which is within the authority usually confined to an agent of that character notwithstanding the limitation put on that authority as between the P and A o External perspective: the owner of the kitchen has authority to order ingredients  binds Paul o Internal perspective: Adam is a chief; usual authority to order pork o Academic and Judicial controversy:  Sign-O-Lite (Canadian case): Overruled Watteau v Fenwick  English court: not explicitly overrule; but tends to hold the A personally liable  Kinahan & Co v Parr: the court may not follow Watteau v Fenwick  Greatworth Industrial Ltd v Sun Fook Kong Construction Ltd And Another 1

(HKCA): doubts on Watteau v Fenwick; at para.10 – recited doubts of the doctrine in Bowstead and Reynolds and stated that “in circumstances where agency has not been established, this argument is clearly irrelevant”  Bonus Garment Co v Karl Rieker Gmbh & Co Kg & Another (HKCA): Watteau v Fenwick is irrelevant even if it is binding, the courts are reluctant to apply; at para.32 – “Nor could any of the principles laid down in Watteau v Fenwick have application to the present case even assuming that the case was still binding authority”  Paul should be advised to reject the pork order and be prepared to take a litigation from Tai Po Food Industrial  uncertain result: there are possibilities that Paul is bound by the contract due to the doctrine of usual authority; depend on how we interpretate Watteau v Fenwick 2. “The doctrine of undisclosed agency is unfair to third parties. Therefore, the scope of its operation should be confined as far as possible.” To what extent, if at all, do you agree with the above statement? Give reasons for your view. [1] Descriptive - Siu Yan Kwan: five requirements (1) Undisclosed P may sue and be sued on a contract made by A, within the scope of actual authority.  Apparent authority irrelevant  Ratification inapplicable - P’s should not have too much autonomy and discretion that he can remain undisclosed and ratified the contract. (Keighley Maxsted v Durant) (2) A must intend to act on P’s behalf when entering into the contract. (A’s subjective mindset; Problem of proving) (3) A may sue or be sued on the contract.  T has to choose to sue and recover from either A or P, but not double recovery. (Priestly v Fernie) (4) Any defence which T may have against A is available against P. (5) The terms of the contract may, expressly or by implication, exclude P’s right to sue and liability to be sued. The contract may show that A is the true and only P in the circumstances.  e.g.: the seller warrants that he is not acting as an agent for anyone [2] Normative Key components: - unfair to third party o Gives a lot autonomy and flexibility to P o e.g. TP does not want to thar particular P (maybe bad reputation and personal issue)  P can sue or be sued on the contract even if he hid behind the scene o Analogy with other branches of law o Contract law: Privity of contract and meeting of minds – only parties private to the contract will be bound  did not sit comfortably with the doctrine of privity 2

 counter argue: normal agency principle still applies to the unidentified principle; not so much difference between unidentified and undisclosed principle  counter counter argue: quiet different; under unidentified principle, TP knows the existence of P; if he still chooses to enter into the contract without insistence to know the identity of P; he has taken the risk that he may be contracting with someone he does not like o Not that unfair – there are restrictions inbuilt in the doctrine minimizing the unfairness e.g. express or implied terms to the effect that the contract should be confined to between the A and TP that undisclosed principle does not apply (Siu Ying Kwan) o Counter argue: not practical in real life; unequal bargaining power o Not that unfair – TP can choose to sue the A or P; not deprived of the chance of suing the A which is the original tended contracting party o More advantageable for TP to sue the undisclosed P who will normally have more resources than A; undisclosed P usually has more reputational risk  objectives: settle it in a more efficient way  generally willing to go to the negotiation table instead of a public (commencement document e.g. writ of summons and statement of claims are publicly assessable) and time-consuming legal procedure  good settlement and deal -

should be confined as far as possible o allow to take into other parties’ perspectives including the P, A and societal interest o reasonable restriction in the doctrine  reach the optimal point  not to confine o wider societal and economic interest  the doctrine provides commercial convenience for undisclosed P  A may want to work for undisclosed P more for the fear that he will be resigned if TP knows P and directly deals with P  earn commission o Scope of operation should be reduced to the extent that Watteau v Fenwick should be overruled as it is too controversial and problematic

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relationship – ‘Therefore’

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