Powers of attorney

This article examines the situation where a person is authorized to act on behalf of another person. Although this situation is largely governed by the law of agency (i.e. contract law) in most jurisdictions, this article focuses on a special type of agency in common law jurisdictions, namely, a power of attorney. It first explains how a power of attorney operates – and how it is treated differently from the law of agency in certain respects – and outlines the different types of power that can be granted to an attorney. It then considers whether lawyers can and should act as attorneys under a power of attorney. Finally, it considers whether similar arrangements are possible under Chinese law.

Common law jurisdictions

In common law jurisdictions, powers of attorney are recognized under both general law (i.e. case law) and also statute. Under case law, a power of attorney is defined as an instrument in the form of a deed by which one person (the principal) gives authorization to another person (the attorney) to act on behalf of the principal. A power of attorney may be granted either by an individual or by a company. In addition, either an individual or a company may act as an attorney.

A power of attorney may be granted in a broad range of circumstances and transactions. For example, a purchaser of a business or shares in a company may appoint an attorney to sign the business or share purchase agreement on its behalf. Alternatively, in a secured loan transaction, the borrower may grant a power of attorney in favour of the lender to enable the lender to register and enforce security that is provided by the borrower to secure its obligations under the loan.

Let me first clarify some terminology. The term “deed” describes an instrument – i.e. a written document – that is executed in a very formal manner, namely, “under seal”. (For a discussion about instruments and deeds, see “Contract or agreement: which is correct”, China Business Law Journal, February 2011. These and other articles referenced below are also compiled in China Lexicon.) The term “attorney” describes a person who acts on behalf of another person. In this context, the person is often referred to as an “attorney-in-fact” to avoid confusion with a lawyer or an “attorney-at-law”. (For a discussion about these and other terms, see “Terms used for describing lawyers and why they matter”, China Business Law Journal, June 2010.) Of course, lawyers often act as agents for their clients. However, a person who is authorized to act as an attorney under a power of attorney does not need to be a lawyer.

Although a power of attorney creates a relationship of principal and agent and is subject to the law of agency, there are various respects in which a power of attorney is special and is treated differently from the law of agency. For example, the law requires a power of attorney to be construed strictly. What this means is that the interpretation of the attorney’s powers is limited to what is necessary for their proper execution. In addition, the grant of a power of attorney is often a unilateral act by the principal and is not created by a contract, the basis on which agents are usually appointed and which requires consideration from both the principal and the agent except where the contract is executed as a deed. (For a discussion about the concept of consideration in common law jurisdictions, see “Consideration”, China Business Law Journal, December/January 2014.)

A related distinction is that a power of attorney must be in writing, whereas an agreement to appoint an agent can occur orally. In addition, it must comply with any formal statutory requirements and be in the form of a deed. This is consistent with the principle in common law jurisdictions that if a person is authorized to sign a deed on behalf of another person, the authorization must itself be in the form of a deed.

A further distinction is that under the general law – i.e. case law – an attorney was traditionally required to state that he or she was acting “in the name of” the principal and, when signing a legal document, was required to sign the principal’s name instead of the attorney’s own signature. Statute now provides that the attorney may sign their own signature and does not need to sign in the name of the principal.