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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