Topic 2: Agency
Definition:
When legal rights and obligations between one party and another can be created or modified through an intermediary.International Harvester Company of Australia Pty Ltd v Carrigan’s Hazeldene Pastoral Company:
Agency according to Fisher and Fisher was defined or described as "a word used in law to connote an authority or capacity in one person to create legal relations between a person occupying the position of principal and third parties."
Common Situations with Agents:
• Dealings by incorporeal entities (entities that are a creation of the law rather than a creation of nature) e.g. board of directors, authorised officers or employees are agents of a corporation
• Geographical distance i.e. power of attorney
• Desire for anonymity i.e. undisclosed principal.
• Specialised expertise e.g. lawyer, auctioneer, stockbroker.
Employees and independent contractors are mutually exclusive classes.
Effect of Agency:
1. Dealing between agent and THIRD party creates a contract between principal and third party.
2. Principal also generally liable to third parties for improper conduct of agent (vicarious liability).
3. The agent acting within authority is not a party to any ensuing contract and the agent's personal interest is not affected by the dealings
Southwell v Bowditch: A person known to have acted in a representative capacity cannot be sued as if it was a party to the contract.
Classification of Agents:
1. Special Agent: One who is appointed for the performance of some special act, or to represent the principal in some particular transaction.
2. General Agent: An agent who has authority to act for the principal in all matters or has authority to do some act in the ordinary course of their trade, profession or business as an agent on behalf of the principal.
3. Universal Agent: One whose authority is unlimited to do such things which the principal may do through the instrumentality of another.
> Rare, but when they do exist they are appointed by extensive powers of attorney - Legal document in which one person nominates and gives legal authority to another to act on affairs on their behalf.
Creation of Agency:
1. Express Agency: Expressly appointed by principal.
a) By deed or by written or oral agreement
• power of attorney
a) must be in the form of a deed
b) any legal transaction that can be done by a person in their own behalf can generally be done by an agent endowed with that person's power of attorney
• written or oral agreement
b) Holding out or Estoppel: Relationship is created by the ‘principal’ holding out or representing that the ‘agent’ is their agent or permitting the ‘latter’ to do so.
2. Ratification: The subsequent adoption by the principal of the agent’s previously unauthorised actions. A retrospective confirmation of the agent’s actions. Where ratification is effective, the relevant act will be valid from the date it was undertaken.
Where the agent acts outside their authority, any agreement entered into on behalf of the principal is not binding. In these circumstances, the principal may retrospectively ratify the contract concluded with the third party. This can occur provided:
• at the time the subsequently ratified agreement was created, the agent represented to the third party that they were acting on the principal’s behalf AND
• the principal had contractual capacity at the time of the creation and ratification of the contract AND
• the principle ratifies the whole contract with full knowledge Keighley, Maxsted & Co v Durant (ratification)
Cox v Mosman (whole contract):
Agent for Cox instructed to buy horse from Mosman at price subject to vet inspection. Cox gave agent cheque for this purpose. Vet certificate not satisfactory, but agent informed Cox it was. Horse no good when arrived. Can’t just pick out the good bits if seeking to ratify. Cox had ratified, had action against agent but not Mosman.
3. Operation of Law: An agency can arise by operation of law in cases of:
a) Agency of Necessity: The common law recognises that an emergency situation may occur which allows one person to bind another without the authority of the other. In such a case, an agency of necessity arises from the relationship of the parties in the particular case. Four factors are essential to establish such an agency of necessity:
1. A person must have been entrusted with another’s property.
2. There must be an emergency. The situation needs immediate resolution to preserve the property of the ‘principal’.
3. It must be commercially impossible or extraordinarily difficult to communicate with the owner of the property. The situation needs resolution before communication with principal is feasible.
4. The agent must act bona fide in the interest of the principal.
Great Northern Railway Co v Swaffield
b) Agency of Cohabitation: Relationship of principal and agent exists between husband and wife living together.
Authority:
Except where the principal ratifies the agents act, a principal will be liable for only what the agent does within their authority.
Express actual authority: Agent actually conferred the authority to carry out a particular act on the principal’s behalf. Evidence of actual consent by both the principal and the agent must be found.
Implied actual authority: Agent told expressly to carry out an act but in order to do that, it is implied agent may carry out ancillary acts.
• Business efficacy – A person is appointed to a position or given responsibility for a job which cannot be effectively accomplished unless that person has the authority in question.
Incidental to the principal’s instructions.
• Customary authority – Powers of representation that are customarily attached to a particular job or position, even if not essential.
• Past dealings – If principal has previously allowed this agent to do this type of conduct, and from the objective viewpoint of a reasonable agent circumstances have not changed.
ANZ Bank Ltd v Ateliers de Constructions Electriques de Charleroi (business efficacy)
Ostensible authority: The authority of an agent as it appears 1. Representation has to be made
2. Representation comes from someone with actual authority
3. Reasonable reliance – Third party is required to focus on the relationship between the principal and the agent
Both ostensible authority and implied actual authority can arise from the same set of circumstances appointed to a particular position. Implied actual authority can be negated by contrary intent among agent and principal whilst ostensible authority can only be negated by actual or constructive notice to third party about the special limitation on authority
Freeman & Lockyer v Buckhurst Properties (Mangal) Ltd
Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd
Duties of Agent to Principal:
Every agent owes certain duties to their principal that varies in degree according to the nature of the agency or according to the express terms of the contract of agency. Duty of care of agent to principal as there is usually a contractual, fiduciary relationship. These duties include the:
• duty to follow the principal’s instructions – not exceed authority
• duty to account
• duty to act in person
• duty to act in good faith
• duty of confidentiality
• duty to make full disclosure of all material information and any personal interest Dargusch v Sherley Investments Pty Ltd
Industries & General v Lewis (secret profits)
Secret commission to an agent raises an "irrebuttable presumption" that it was given and received for a corrupt motive, and that it influenced the agent to the detriment of the principal.
• duty to exercise reasonable care and skill
• no conflict of interests
• owes the principal a duty of care
Rights of Agents:
• Right to renumeration (fee/commission/salary)
• Right to reimbursement or indemnity for any costs or liabilities reasonably incurred on behalf of principal while acting within scope of authorised agency and not in breach of duties.
• Lien on personal property of principal in possession of agent to enforce right to remuneration or indemnity.
Liability of Agent to Principal:
Liability to Principal: Generally, the agent incurs no liability to the principal in regard to the contract EXCEPT
• Where the agent disobeys the principal’s instructions (liable for loss suffered by the principal as a result of the breach of the contract of agency)
• Where the agent is negligent in carrying out their duties (liable to make good the damage suffered by the principle)
1. Principal may withhold or recover fee or commission (and loss of agent's right to reimbursement and indemnification from principal or principal's property).
2.Principal can claim any bribe or secret profit whether or not they can prove they suffered any loss.
Andrew v Ramsey and Co (secret commission)
3.If principal can prove damages, may recover damages from agent.
4. Principal can terminate agency contract.
Liabilities of Agents to Third Parties:
An agent may incur liability to:
a) the principal b) to third parties
An agent creates or modifies the legal position of its principal vis a vis third parties (usually by way of a contract or legal document), but the agent is not deemed a personal party to the transactions.
The agent’s liability towards third parties depends upon the agent’s method of contracting and whether:
1. The agent discloses the name of the principal.
2. The agent does not disclose the name of the principal but does disclose the existence of the principal.
3. The agent does not disclose the existence of any agency.
Name of Principal Disclosed: Where the agent discloses the name of the principal, the contract is deemed to be that of the principal, and the agent is not liable on the contract except:
• Where the agent contracts outside the scope of their actual or apparent authority
• The agent agrees to be liable
• Usage or custom makes the agent liable
