Question:

Tom, a broker, solicits investment in a new company that he claims has a breakthrough technology.
He offers guaranteed returns on the investment, assuring his clients that the company has a proven
track record of success. Several of Tom's clients invested in the company, only to find out later that it
was a fraudulent scheme. The company never had a viable product, and Tom and the company's
promoters used the investment money for personal gain.

What legal claims can Tom's clients bring against him and the company? What remedies are
available to the investor?

Answer:

Topic: Duties of Agent

Issues:

1. Whether or not Tom has perform his duties according to the standard of care, skills, and
diligent under section 165.
2. Whether or not Tom act of having conflict of interest by using the investment money for his
personal gain is amounted to breach of agency contract under section 168.

Rules:

1. Section 165 of Contract Act 1950 – Care, skills and diligent by agent.
2. Section 168 of Contract Act 1950 – Conflict of interest.

Illustration:

1. In this case, several of Tom’s clients have suffered a loss from their investment towards Tom
and his company because of the investment made. The investors found out that investment
were made was a fraudulent scheme and made based on unviable products. The agent has
gain the investors trust without exercising his duty with care and diligent. This is
contradicting in Section 165 of Contract Act 1950 which by the agent shall use his skill he
possesses in conducting his client business and exercise his duty carefully and diligently.
Therefore, the failure to exercise skill and diligence required by the agent, Tom to
compensate Tom’s Client the principal for any losses suffered by them.

2. In this case, Tom without the knowledge of Tom’s client has made a conflict of interest out
of their investment money for his personal gain in the course of his duties as an agent. This
 is contradicting to the Section of 168 of Contract Act 1950. Apart from the contract act, the
common law also prohibit agent of having conflict of interest in the duties as an agent. In
this case, Tom’s Client can make a legal claim to Tom and his company because they have
used their investment money for their personal gain. It is important for the agent to
understand that his job is to benefit their client not himself. Tom cannot use his position as
an agent towards their client in order to gain advantages for himself. He must be able to
declare that all information he and his company have and received and cannot be a party to
a contract which is against the investor interest. The money Tom and his company received
from the investors should be beneficial to the investors itself. This is because they have
promised on the guaranteed returns from the investment that has been made based on the
technology breakthrough that Tom has claim.

Authority:

1. In Keppel v Veller case, where the plaintiff was employed by the defendant to sell his house.
Offer was made to the plaintiff. A few days after that plaintiff received another offer from
another interested buyer which was higher than the earlier offer. However, this new offer
was not communicated to the defendant. Held of this case is plaintiff was liable for the
principal’s loss because he had failed to use his skill and did not exercise care and due
diligent.
2. In Wong Mung Wai v Wong Tham Fatt, where the plaintiff employed the defendant as his
agent and instructed the agent to sell shares. The agent sold the shares to his own wife at a
lower price. Held of this case, agent breached his duty since he had let his interest conflicted
with that

Remedies:

There are two ways of termination of agency which are by act of parties and by operation of law. For
remedies that available to the investor is they can terminate the agency by operation of law. It is can
be made based on the agency unlawful act and due to frustration from the principal itself. Based on
this case, the principal may file termination of the agency through the operation of law because they
have suffered the unlawful act by the agency which they are not being truthful in their act and that
cause frustration to the principal itself by losing the investment that they made.
Conclusion:

Applying the law to the current case study, it is likely that Tom’s Client can recover the amount of
investment that they made from Tom and his company and also sue him for not exercise his care,
skill and diligent and having conflict of interest under the section of 165 and 168 of Contract Act
1950.