TABL5543
Agency Law
Getting someone else to do it
• A business owner will have workers who, on their
behalf, deal with ‘third parties’ such as suppliers,
customers, other employees and other
businesses.
• A business owner will be legally bound by any
statements, contracts or payments made (and
possibly even torts and crimes committed) by a
worker authorised to act on the business owner’s
behalf. This is known as agency.
1
Particular types of agents
Agents with various amounts of authority:
Factors
• Agent employed to sell goods (with possession and control)
• Goods Act 1958 (Vic), ss 65-72
Mercantile agents
• Sell/consign or buy goods or raise money on security of goods
Brokers
• General agent who buys and sells goods (no possession, no control)
Partners
•Each partner is a general agent of the other
Directors
•Agent of the company
Estate agents
•Buying or selling land/businesses
•Auctioneers
27
Statutory regulation of agents
There are many statutes both state and
Commonwealth which directly or indirectly
regulating agents and transactions made by them
including:
• Corporations Act 2001 (Cth)
• Commonwealth National Consumer Credit Protection
Act 2009 (Cth)
• Partnership Act 1894 (NSW)
• Property Stock & Business Agents Act 2001 (NSW)
• Estate Agents Act 1980 (Vic), ss 49A, 50
• Auction Sales (Repeal) Act 2001 (Vic), s 3
• Travel Agents Act 1986 (Vic)
28
Definition of an agency
Relationship between two parties where:
– agent is authorised
– by the principal
– to do certain acts on the principal’s behalf
– with the general object of bringing the principal into
legal relations with third parties
Agent then drops out and is not a party to the contract
between principal and third party (and usually has no
liability under it).
• The principal may be an individual or a corporation.
The same is true of the agent and the third party.
2
Source: James, N, Business Law 6th Ed
3
What is an agent?
Two essential elements:
• Consent/assent of both principal and agent;
• Authority (express or implied) of the principal for
agent to act on the principal’s behalf.
There are 3 types of agents and classified according
to the amount of authority:
• Special agents = one who is authorised to do a
special act
• Universal agents = wide authority to do anything
the principal can legally do. Usually created by
Deed of Power of Attorney
• General agents = wide general authority to do a
variety of things within the scope of the Agency
4
How can agency be created?
Word of mouth
• Verbal offer with acceptance in writing or verbally
is sufficient
Writing
• Sometimes required by statute eg agents
employed to sell/buy land cannot sue for
commission unless appointment is in writing
Deed
• Necessary where agent is required to execute
instrument under seal on behalf of principal
Usually done by executing a Power of Attorney
5
How can agency be created?
Estoppel: Whether a person has led third parties to
believe another person is their agent is a question of
fact to be decided in the circumstances
• Crabtree-Vickers PL v Australian Direct Mail
Advertising & Addressing Co PL (1975) 133 CLR 72
Ratification:
• Howard Smith & Co v Varawa (1907) 5 CLR 68
• Cox v Mosman [1909] QSR 45
Operation of law:
• Sachs v Miklos [1948] 2 KB 23 (necessity)
• Debenham v Mellon (1880) 5 QBD 394
(cohabitation)
6
Example of agents and principals
Source: Turner, Trone and Gamble; Concise Australian Commercial Law 6th Ed.
7
Nature and scope of agent’s authority
• A principal is bound only by acts of agent within
scope of agent’s authority
• If agent acts in excess of authority:
– Principal is not affected unless principal
subsequently ratifies the unauthorised act
– Agent may be liable to the principal for breach
of agency contract or to third parties for breach of
implied warranty of authority
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004]
HCA 52 (freight/storage agreement flu vaccine)
8
Nature and scope of agent’s authority
• The authority of an agent may be:
actual authority;
or
apparent/ostensible authority.
9
Actual authority
Actual express authority
• The authority the principal has expressly given
the agent in words or writing
• Authority is specifically created and limited by the
terms of the agency agreement
Actual implied authority
• Further implied authority to do what is
necessarily incidental to principal’s express
instructions
• If principal has not consented/ has specifically
limited authority, then an implication of implied
authority cannot be made
10
Ostensible or apparent authority
• Authority an agent appears to have
• “The authority of an agent as it appears to
others”: Hely-Hutchinson v Brayhead Ltd [1968] 1
QB 549 at 583;
Panorama Developments (Guildford) v Fidelis
Furnishing Fabrics [1971] 2 QB 711
• Can be more important than actual authority – is
a mechanism to protect third parties who are
often not aware of agent’s actual authority
• Must be reasonable to assume agent has
authority ie viewpoint of reasonable person
11
Ostensible or apparent authority
• Where principal represents by words/conduct that
agent has authority, principal is bound by agent’s acts
– principle applies whether or not agent has any
actual authority
• Representation of authority must be made by
someone with actual authority
- Crabtree-Vickers PL v Australian Direct Mail
Advertising & Addressing Co Pty Ltd (1975) 133
CLR 72
• Contract was one which a person in the position in
question would usually have actual authority to
make; Freeman and Lockyer v Buckhurst
Properties (Mangal) Ltd [1964] 2 PB 480
12
Ostensible or apparent authority case
example
Freeman and Lockyer v Buckhurst Properties (Mangal) Ltd
[1964] 2 PB 480
• Buckhurst was a company that was set up to purchase and
develop land – "K" the agent was never formally appointed as
managing director but he acted as if he was and the company
allowed him to act in this way.
• K engaged some architects (Freeman and Lockyer) to do
some work – their account was never paid – they sued the
company.
• The company denied that they had to pay the architect’s
bill because they said the agent did not have authority to
engage the services of the architects.
• The court held that whilst the agent did not have actual (express or
implied authority) to engage architects, he has apparent authority
as the board allowed the agent to act as an MD and an MD can
normally engage services of this kind
13
Ostensible or apparent authority case
example
First Energy (UK) Ltd v Hungarian International Bank
Ltd CA 16 April 1993
• First Energy (third party) run a company installing commercial
heating – they apply for a line of credit from a senior manager
(the agent) at the Manchester office of the Hungarian
International bank (principal).
• Senior manager said he would need to seek board approval
for the loan.
• Senior manager then sent a letter to First Energy stating the
loan had been approved.
• In fact, Board had rejected it.
• First energy argued that whilst the senior manager did not
have actual authority his letter of offer was binding on the bank
as it was an act that fell within his ostensible authority.
• Court agreed
14
Contracting with a company
A number of sources of law may apply to assist a
third party in contracting with a company:
• Law of agency;
• Indoor management rule; note Royal British Bank v
Turquand (1856) 119 ER 886.
• Statutory assumptions - sections128-130 Corporations
Act 2001 (Cth)
Section 126(1) CA provides the company is bound by
the acts of a person (known as an agent) who has
actual or apparent authority.
15
Capacity of agents of a company
under the Corporations Act
Execution of contract by a company
• Initially, at common law, a company could only
contract under seal
• It is now possible for a company to execute a
document without its common seal; Section 123
• Section 127 empowers a company to execute
documents and deeds in the prescribed ways:
• by the document being signed by two directors, or
• by a director and a company secretary: section
127(1)
• By fixing common seal, witnessed by same
parties: section 127(2)
16
Statutory assumptions of ss 128 and 129
• Enacted to incorporate aspects of the common law
corporate agency principles; and
• To repair certain perceived deficiencies in the indoor
management rule.
• Do not constitute entire/exclusive code.
• Do not purport to establish corporate contractual liability -
merely aids TPs in establishing that a company is liable on
a contract.
• Sections 128 and 129 provide a set of assumptions upon
which a TP may rely in enforcing obligations owed by a
company.
• Does not require that TP has actually made the
assumptions prior to contracting
• The company is not allowed to assert that the matters
entitled to be assumed were not correct
Brick and Pipe Industries Ltd v Occidental Life Nominees
(1992) 10 ACLC
17
Statutory assumptions of ss 128 and 129
• Section 129(3) - a person who is held out by the company to be
an officer or agent of the company has been duly appointed and
has authority to exercise the powers and perform the duties
customarily exercised or performed by an officer or agent of the
kind concerned
• Section 129(4) - the officers and agents properly perform their
duties to the company.
Exceptions
• Section 128(4): A person cannot make an assumption if at the
time of the dealing they knew or suspected that the assumption
was incorrect.
• The knowledge or suspicion must exist at the time of the
dealings with the company, - did the person themselves form
an opinion that there was something wrong about the
appointment or the scope of the person’s authority? Sunburst
Properties Ltd v Agwater
• A third party will not lose the benefit of the assumptions in s
129 merely because their suspicions should have been
aroused
18
Duties of an agent
Agents have various duties under contract and based on trust:
1. Follow instructions & exercise skill and care in agency work:
Provincial Insurance Australia Pty Ltd v Consolidated Wood
Products Pty Ltd (1991)
2. Act in person (not to delegate unless approved)
3. Act in good faith (must act in the best interests of principal at all
times): Lintrose Nominees PL v King [1995] 1 VR 574 at 576
4. Make full disclosure of personal /conflicts of interest: Dargusch v
Sherley Investments PL [1970] Qd R 338; Walden Properties Ltd
v Beaver Properties PL [1973] 2 NSWLR 815
5. Not to make any secret profits or commissions: Jones v Canavan
[1972] 2 NSWLR 236; Corporations Act 2001 (Cth), ss 191, 183
6. Keep proper and separate accounts
7. There are also other duties including taking care of principal’s
property and not disclosing any confidential information:
Boardman v Phipps (1967)
19
Duties of an agent
Source: Turner, Trone and Gamble; Concise Australian Commercial Law 6th Ed.
20
Rights of an agent
Agents have certain rights under the agency:
1. Rights to remuneration
• Commercial transactions: Remuneration is
often a percentage of the commission
• Right to commission depends on terms and
circumstances of the appointment.
• Agent must be effective cause of sale
• Luxor (Eastbourne) Ltd v Cooper [1941] AC
108
• L J Hooker Ltd v W J Adams Estate PL
(1977) 138 CLR 52
21
Rights of an agent
2. Right of Indemnity & reimbursement
• Indemnified against all losses and liabilities
sustained
• Reimbursed for all expenses lawfully incurred
3. Right of lien
(to retain possession of something until paid)
• Particular lien
• General lien
22
Liabilities of an agent to the principal
Agent incurs liability:
• Where the agent disobeys the principal’s
instructions
• Where the agent is negligent in carrying out their
duties
Mitor Investments PL v General Accident Fire &
Life Assurance Corp [1984] WAR 365
• Where agent uses or makes available to third
parties confidential knowledge acquired during
agency
23
Liabilities of agents to third parties
Agent’s liability to third parties depends upon agent’s
method of contracting and whether agent:
• Discloses principal’s name
• Does not disclose principal’s name but does
disclose principal’s existence
• Does not disclose the existence of any agency ie
acts as if they were a principal
Relevant cases include
• Maynegrain PL v Compafina Bank [1982] 2 NSWLR
141
• Keighley, Maxsted & Co v Durant [1901] AC 240
• Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC
199
24
Breach of warranty of authority
• If agent does not exceed authority, agent will not be
personally liable
• Where agent expressly/impliedly represents they
have authority to enter into a transaction and third
party relies, agent is taken to warrant the
representation is true
– If untrue: Damages for breach of warranty of
authority
•Agent liable even though other party had no
knowledge their authority had come to an end:
Yonge v Toynbee [1910] 1 KB 215
•Agent not liable where other party knew of agent’s
lack of authority: Weigall & Co v Runciman & Co
(1916) 85 LJKB 1187
25
Termination of an agency
Agency arrangements may be terminated for various
reasons:
•Performance/completion
• Impossibility of performance
• Termination by later agreement
• Revocation - Trollope (George) & Sons v Martyn
Bros [1934] 2 KB 436
• Death of Principal
• Insanity of Principal /agent - Yonge v Toynbee
[1910] 1 KB 215
• Bankruptcy
• Renunciation