Summary Notes – Law of Agency

Although we usually act for ourselves and are responsible for our actions, for various
reasons – lack of time or lack of expertise, inability to be present, etc. – we often engage
others to act on our behalf. Essentially, agency allows one person to authorize another
person to do any act that he or she has the capacity to do themselves.

Definition
• Precise Definition of Agency: a legal term used to describe a person (the agent) who
acts on behalf of another (the principal) in dealing with a 3rd party.
• The Agent, Principal or 3rd party may either be an individual or a corporation.
• A final concept: an agency relationship is a fiduciary relationship, one in which the
agent must always put the principal’s interests above their own and always act
under the control and direction of the principal (this will be discussed later in the
lecture).

Types of Authority
Ways in which an agent can be authorized to act on behalf of a principal include:
1. Actual authority
– Express actual authority; (what was actually said by principal)
– Implied actual authority; (what is necessary to carry out the express actual
authority)
OR
1. Apparent authority
- What a 3rd party would think

Express Actual Authority

The principal can expressly authorize the agent, in writing or verbally, to act on the
principal’s behalf.
• Express agencies may be created by:
1. Deed (called a “power of attorney”);
2. Other writing; or
3. Orally (just like any other contract – unless Statute dictates otherwise).
• Eg.) power of attorney is a written grant of express actual authority to an agent. It
empowers the agent to sign documents and make decisions on behalf of the principal.
Implied actual authority
In addition to express authority, is the idea of implied actual authority:
• Whenever an agent is expressly authorized to act on a principal’s behalf there is a
grant of implied authority to do all things necessarily incidental to carrying out the
principal’s express instructions (the main task).
See: Peterson v Moloney (1951)

Implied Actual Authority

Case Peterson v Moloney (1951)
FACTS:

HELD: Implied authority was not found here.

In other words, the principal can authorize the agent to act on the principal’s behalf by
implication:
• E.g.) By appointing an agent to a particular position, it is often obvious that the agent
will be required to enter into a contract with a 3rd party on the principal’s behalf.
• An agent may have implied authority to act on behalf of the principal in order to give
business efficacy to those instructions (the contractual arrangement).

• Implied authority is regarded as an aspect of an agent’s actual authority since

implied authority is made on the basis that the principal has consented to the agent
having authority to act in such a manner.
• E.g.) The implied authority of a company director to act on behalf of the company
will depend upon their position on the board. The general rule is that the more
senior the role, the greater the person’s implied authority is likely to be.horit
• See: Giltrap City Ltd v Commerce Commission [2004]

Apparent Authority
• If the principal allows a 3rd party to believe that the agent has authority to act on the
principal’s behalf – then even if the agent was not actually authorised by the
principal to act on their behalf, the principal will be bound to honour the agent’s
dealings with the 3rd party.

Apparent authority:
• Is conceptually distinct from actual authority.
• Is often more important than actual authority, because 3rd parties will often not be
aware of the actual authority of an agent.
• Is the authority of an agent as it reasonably appears to others

An agent will have apparent authority to act on behalf of the principal if:
1. The 3rd party did not know that the agent did not have actual authority;
2. The principal ‘held out’ the agent as having authority to act on the principal’s
behalf.
 E.g.) By appointing the agent to a particular position, or by having held the
agent out as having authority in the past;
3. The third party relied upon that holding out, and reasonably assumed that
the agent had actual authority. (Note some further issues to consider).

Apparent Authority
Case Panorama v Fidelis Furnishing Fabrics (1971)
Facts:
• Company secretary hired cars on behalf of FFF.
• Some cars were used for the secretary’s personal use.
• FFF refused to pay the car hire business the fees because the
secretary had no actual authority.
Held:
A company secretary is an officer of the company with wide
responsibilities. Entering into contracts like this is within their usual
authority and therefore within their apparent authority. Whilst a
company secretary may not have actual authority to do such things,
he/she has apparent authority.
Tooth v Laws (1888)

Summers v Solomon (1857)

Held: Supplier did not know that the agent’s employment had been
terminated and therefore agent had acted with the owner’s apparently
authority.

Essington v Regency (2004)

• The court decided that the agent had not acted with the
principal’s apparent authority.
• The principal had done nothing to “hold out” the agent
to the 3rd party as having authority to make changes to
the contract on the principal’s behalf.
Principal has a duty to inform 3rd party
• The principal can terminate the agent’s apparent
authority by expressly informing the 3rd party that the
agent is not authorised to act on the principal’s behalf.

If all 3 requirements are satisfied, the principal will be legally bound by the agent’s actions,
even if the principal expressly told the agent that they were not to enter into such a
contract or act in such a manner on their behalf.

Personal liability of Agent

Consider the authority of the agent to act first.
• Then (if there is no authority) consider whether:
  An agent will be personally liable to the 3rd party for breach of warranty of authority
if all of the following requirements are satisfied:
1. The agent claimed that they were making the contract on behalf of the
principal.
2. The agent did not in fact have authority to act on behalf of the principal.
rd
The 3 party relied upon the agent’s representation, and would not have entered into the
contract in the absence of the representation

Fiduciary Duties of an Agent

• The relationship between the agent and the principal is a fiduciary one.
• The agent is in position of trust and responsibility, and the agent therefore owes a
range of duties to the principal under the law of equity – these duties are often
replicated in the contract of agency and can become contractual obligations as well.
• In practice, an intelligent principal will ensure that these duties are placed firmly
within the contract itself.

The duties include the duty to:

• Follow the principal’s instructions;
• Exercise due care, skill and diligence;
• Act in person;
• Act in the principal’s interests;
• Disclose conflict/s of interest to the principal or the confidential information about
the principal to others;
• Keep and render correct and appropriate accounts.

1. To follow instructions:
• An agent is obliged to obey the lawful instructions of the principal – failure to do so
makes them personally liable to the principal for any harm caused to the principal as
a result of the agent’s breach of duty – they will not be liable if they do not carry out
instructions that are unlawful.
See: Bertram Armstrong v Godfray (1830)

2. To communicate information:
• An agent owes a duty to the principal to communicate to the principal information
relevant to the agency – anything they learn that a reasonable agent would consider
relevant in the ordinary course of business such as anything about secret
profits/commissions, bribes, or potential or actual conflict/s of interest.
See: John D Wood v Knatchbull (2002);
See: Hewson v Sydney (1968)

3. To act in person:
• An agent is not permitted to delegate the task to another person, or appoint a sub-
agent, unless the principal gives them permission to do so.
See: John McCann v Pow (1975)
- Agent appointed another agent to sell property.
- Held: Agent breached duty to act personally
 4. To exercise due care, skill and diligence:
• An agent owes the principal a duty to carry out the principal’s instructions with due
care and skill.
• An agent who fails to do what a reasonable agent would have done in the same
circumstances will be liable to the principal in the tort of negligence.
See: Provincial Insurance v Consolidated Wood (1991).

5. To act in the principal’s interests:

• An agent has a fiduciary obligation not to exercise their authority in a way contrary
to the interests of the principal – they must not put themselves in a position where
the interests of the principal are in conflict with their own personal interests – such
as when they receive a secret commission from a 3rd party, make a secret profit or
give or take a bribe;
See: Hewson v Sydney (1968)

6. Confidentiality:
• An agent has an obligation to maintain the principal’s confidentiality.
• They should not disclose to others or use for their own benefit information about the
principal or the principal’s affairs without the permission of the principal or use for
their own benefit information acquired during the course of the agency.

7. To keep and render correct and appropriate accounts:

• The agent is obliged to keep proper records of any funds that are spent or received
on behalf of the principal, and to produce these records when asked to do so by the
principal.
• The agent must also keep any money and property belonging to the principal in their
possession separate from their own money and property.

Principals rights and obligations

• The principal’s duties include the duty to remunerate, reimburse and indemnify the
agent for expenses incurred in the proper course of the agency.
• Whether the principal will be liable for any torts or crimes committed by their agent
depends on the extent of the control exercised by the principal over the agent: if the
agent is an independent contractor and not subject to direct control by the
principal, the principal is unlikely to be liable for the agent’s actions.
• If the agent is an employee of the principal, the principal is more likely to be held
vicariously liable for the agent’s torts and crimes, provided they were committed by
the agent while carrying out the principal’s instructions.