Agency 1.

DEFINITION An agent is one who is authorised to create legal relations between the principal and third parties: Scott v Davis 2. CAPACITY REQUIRED 2.1 Principal s capacity Generally Principal must have legal capacity to perform the act which they are performing through an agent: Christie v Permewan Whatever a person has capacity to do, they may do through an agent:Bevan v Webb Principal is an infant An infant can appoint an agent to do whatever they themselves could lawfully do: G(A) v G(T) G(A) v G(T): 17 year old dad authorised his own parents to pay child support on his behalf Principal is a corporation A corporation has the capacity and powers of an individual: s 124(1) Corporations Act (Cth) 2.2 Agent s capacity Generally An agent is not required to have legal capacity himself: Watkins v Vince If agent is an infant: An infant can bind a principal: Goode v Harrison The infant must have sufficient capacity to understand the nature of the agency and give its consent to act: Smally v Smally If agent is a solicitor/real-estate agent: If a solicitor/real-estate agent doesn t possess the requisite qualifications or licenses, their conduct will be unlawful and the agent may incur statutory penalties but the agent s act will not be invalid: Legal Profession Act; Property Agents and Motor Dealers Act 3. DOES AN AGENCY RELATIONSHIP EXIST? A principal will be bound by the agent s actions if the agent was acting within the scope of their authority: International Harvester Co Whether an agency arises is a question of law, approached objectively: Garnac Grain v HMF Faure There are various sources of an agent s authority: (1) (2) (3) (4) (5) Actual authority: Express Actual authority: Implied Ostensible authority Ratification Agency imposed by law

4.

EXPRESS ACTUAL AUTHORITY Actual authority arises when an agent is expressly authorised, in words or writing, to perform certain acts: Toll v Alphapharm Actual authority requires the express or implied consent of the principal and agent: Poulet Frais Whether an act is within the agent s express authority depends on construction of the terms of any instructions given by the plaintiff: Tobin v Broadbent Toll v Alphapharm: Alphapharm was distributor for vaccines in Australia and agreed that Richard Thomas Pty Ltd would look after collection and storage of vaccines. RT Pty Ltd signed an exclusion clause with Toll, and Toll damaged the vaccines in transit. Was RT acting as Alphapharm s agent when it signed the exclusion clause? On the terms of the contract, Alphapharm expressly authorised RT Pty Ltd to agree upon rates of freight, terms of payment and other standard terms of freight contracts. Was the act within the scope of Alphapharm s authority? The exclusion clause was a standard term so RT had acted within its authority.

5.

IMPLIED ACTUAL AUTHORITY Implied authority will not exist where it contradicts express directions: Fray v Voules Actual authority can be implied in a number of circumstances: (1) (2) (3) (4) 5.1 Incidental authority Usual authority Customary authority Course of dealing (on the circumstances of the case)

Incidental authority Arises where the agent s act was incidental to an act expressly authorised: ANZ v Ateliers

5.2

Usual authority Where an agent is appointed to perform a particular role, the agent is impliedly authorised to do anything which usually falls within that role: Hely-Hutchinson v Brayhead If managing director, authority impliedly includes: From Hely-Hutchinson v Brayhead: Employing others to provide services to the company Guaranteeing loans made to the subsidiary of the company Agreeing to indemnify other guarantors

From Crabtree-Vickers v ADMA: Borrowing money and giving security over the company s property Authorising agents to enter into contracts on behalf of the company

If ordinary director: May be impliedly authorised to carry out formal functions of the company such as executing documents on behalf of the company but whether these documents themselves are binding usually depends on authorisation by the board: Northside Developments If real-estate agent, authority impliedly includes: Finding a purchaser, but not making a binding agreement with a purchaser: Brien v Dwyer If solicitor, authority DOES NOT impliedly include: Making contracts on behalf of a client: Nowrani v Brown Receiving revocation of an offer: IVI v Baycrown

5.3

Customary authority A trade, custom or usage may for the basis for implied authority, however it must be shown to be notorious, certain and reasonable: Con-Stan Industries

5.4

Prior course of dealing Agent may gain implied authority from the prior conduct of the parties and the circumstances of the case: Hely-Hutchinson v Brayhead If agent is a director with a history of not seeking board sanction: Hely-Hutchinson v Brayhead: Mr Richards was chairman and de-facto MD and CEO of Brayhead Pty Ltd. The board allowed Mr Richards to enter contracts without the sanction of the board over an extended period of time. Mr Richards had actual implied authority to enter contracts with Mr Hely-Hutchinson of Perdio Electronics by virtue of the board s prior acquiescence. If agent ignores approval process when contracting: EFM v NZ Steel: Although the agent probably took advice from his superior on aspects of proposed agreements, he usually entered into such contracts without any approval process being followed because of his greater depth of knowledge and experience in the area. If agent steals money: Cousens v Grayridge: Agent had implied authority on the basis of a number of prior dealings to receive the net proceeds of a loan for the purpose of applying them to investments agreed upon between the principal and agent. The fact that the agent fraudulently misappropriated those funds is irrelevant.

6.

OSTENSIBLE AUTHORITY Ostensible authority arises if the principal induces a third party to believe by words or conduct that another person is acting as their agent: Crabtree-Vickers Ostensible authority is founded on estoppel and does not depend on an agreement between the principal and agent: Northside Developments Ostensible authority has three elements: Rama Corporation v Proved Tin: (1) Representation to a third party (2) Reliance on the representation (3) Detriment resulting from such reliance 6.2 Representation The manner in which the representation was made The representation can be made by words or conduct: Freeman & Lockyer Examples: (1) Appointing the agent to a particular position known by the third party (2) A course of dealings between the third party and principal through an agent (3) Principal standing by mute while someone deals with a third party acting as an agent Occupancy of a particular position If a person holds a position which would normally entitle that person to do certain acts, the third party is entitled to assume the agent actually had that authority: Robinson v Tyson Robinson v Tyson: The position of station manager did not usually give authority to sell cattle British Bank of the Middle East: The position of branch manager did not give authority to represent that another, more junior, employee had authority to make certain undertakings

If principal previously limited agent Irrelevant if the agent occupies a particular position but the principal previously restricted the agent s authority unless the third party knew of the limited authority: Bowman v Bacon Principal acquiesces to agent acting in certain capacity Freeman & Lockyer v Buckhurst Park Properties: Director acted as managing director to the knowledge of the board and engaged architects to apply for planning permission to develop an estate owned by the company. By permitting the director to act as managing director, the board impliedly represented he had authority to bind the company to contracts within the ordinary authority of MD. Entrusting means of completing a transaction/use of stamp and signature Pacific Carriers v PNB Paribas: Bank officer signed an indemnity on behalf of the bank but believed she was only verifying the seller s signature already on the document. Bank permitted its officer to use the bank s stamp and sign the document without indicating that she was merely verifying the seller s signature Bank placed her in a position which equipped her to deal with the indemnity requested by the seller. She was the one who dealt with the request and communicated the response. There was nothing in the bank s public documents inconsistent with the possibility that the officer had actual authority to bind the bank. No internal checks or qualification of the bank s participation in the transaction

As such, the officer had ostensible authority and did in fact bind the bank. Business cards, letterheads, etc. Derham v AMEV: Agent had official receipts, business cards and letterheads of the principal which amounted to a representation Prospect Industries v Anscor Pty Ltd: Agent used pre-printed business cards which identified the agent as an authorised representative of the principal. Just because the cards identified the principal as a financial planner didn t constitute holding out of the agent s authority to deal with financial planning matters. Entrusting deeds of title to an agent The mere entrusting of indicia of title to land (such as deeds of title) to a person for safekeeping does not create any ostensible authority to dispose of or mortgage the land: Daniell v Paradiso If the principal was negligent (such as by giving signed memoranda in blank to an agent who then completed them with the name of a purchaser to whom the principal would not sell), this may be sufficient to constitute a representation: Egan v Ross Possession of property for the purposes of sale Mere possession of another s property without authority to deal with the thing in question, other than for safekeeping, will not amount to ostensible authority to sell: Johnson v Credit Motor Finance v Brown: Property (a motor vehicle) was held for the purposes of sale which therefore gave the agent ostensible authority to sell: Motor Finance v Brown

Within the ordinary scope of business or custom of the particular agent If it is customary for an agent to do certain things within the ordinary course of his or her business, this will provide foundation for ostensible authority:: London Joint Stock Bank Tobin v Broadbent: It wasn t within the ordinary scope of a sharebroker s business in Australia to raise money in his own name by mortgaging or pledging his client s interests in securities in his hands. Previous course of dealings Three elements from Robinson for ostensible authority based on agent s previous conduct: That the principal knew of the agent s previous conduct That the third party knew of the agent s previous conduct That the agent entered into the contract on the strength of that conduct

Provision in company s articles of association A third party who has no knowledge of company s articles of association cannot rely on them as conferring ostensible authority on the agent of the company with whom he dealt: Rama Corp Who can make the representation? The representation must be made by the principal or someone expressly authorised by the principal: Freeman & Lockyer Representation by someone with ostensible authority A person with ostensible authority cannot confer ostensible authority: Crabtree-Vickers Crabtree-Vickers: Company run by father and two sons: Bruce Snr (GD); Bruce Jnr (MD); and Peter (Exec) Actual authority? Peter signed an order to purchase a printing machine but did not have actual authority because only the board of directors could authorise such a purchase. Ostensible authority? Bruce Jr supplied Peter with a blank order form in the presence of the vendor. This amounted to a representation that Peter had authority. However, Bruce Jr did not have actual authority to make this representation (only the board of directors could do this) nor did he have actual authority to enter the contract. As Bruce Jr only had ostensible authority, he couldn t invest Peter with ostensible authority and the contract was not binding Representation by a company The representation must be made by some person or persons who have actual authorityto make the representation, actual authority to do the act concerned, or actual authority to manage the business of the company (generally or in relation to the contract): Crabtree-Vickers Self-authorising agents Agents cannot authorise themselves by making a representation to the third party that the agent has the requisite authority: First Energy v HIB Three exceptions (which amount to representation by the principal): Where the principal failed to interfere when such interference could reasonably be expected: Hely-Hutchinson v Brayhead Where the principal failed to take proper safeguards against a representation of authority by the agent: Pacific Carriers v PNB Paribas Where the principal expressly authorised the agent to hold himself out to have authority when there was no authority: Armagas v Mundogas SA

To whom must the representation be made? A representation can be made directly to the third party, or the public at large, provided it can be inferred to have reached the third party: International Paper Co v Spicer Case example: Essington Investments v Regency Property Group: Drummond took contract of sale to Regency who signed it as a demonstration of interest. Regency made clear that Drummond was not to forward the contract to Essington. Drummond forwarded the contract to Essington who signed and returned it. Essington alleged there was a concluded contract. Regency denied it. Drummond did not have actual or ostensible authority because Regency did not represent to Essington that Mr Drummond had authority to release the document to Essington with contractual effect. 6.3 Reliance Must be a causal connection between the representation to the third party and the dealing between the third party and agent: Hely-Hutchinson v Brayhead The third party cannot hold the principle liable where the third party was not aware of the representation, did not believe it, or where the third party knew or had the power to know the truth: Hely-Hutchinson v Brayhead But note Klement v Pencoal where it was not relevant that the contracting party could have discovered the lack of authority in relation to a forged signature because the principal intended the agent to conduct all necessary dealings with the third party (the agent s name was the only one appearing on documents, etc) so reliance was reasonable. Where the 3rd party knows there is a limitation of the authority of the agent, it is almost impossible to show reliance: Li Yau Sam But note authority indicating a more liberal approach 6.4 Detriment Third party must have suffered detriment. Sufficient to establish that the third party changed their position or entered a contract in reliance on the representation: Egan v Ross Egan v Ross: Engaging a solicitor and giving instructions for the completion of a contract sufficed. 6.5 Consequences The extent of the ostensible authority will depend upon the width of the representation made: Nowrani Pty Ltd v Brown - If representation that a person is a commercial manager, only acts which a commercial manager is ordinarily authorised to perform would have ostensible authority If ostensible authority is established: - Third party is able to sue the principal - Principal can sue agent for breach of duty (if applicable: see agent s duties below) A holding-out may exist where it would be inequitable to allow the principal to resile from that representation: Flexirent Capital v EBS Consulting

7.

RATIFICATION Even if the agent had no authority at the time of the acts, it is possible for the principal to ratify the actions thereby granting authority retrospectively: Firth v Staines 7.1 Who may ratify? Only the principal on whose behalf the act was done may ratify: Keighley Maxted v Durant In Keighley Maxted v Durant, principal authorised agent to buy wheat on a joint account for the principal and agent at a certain price. The wheat was more expensive so the agent bought wheat in his own name, but intended that it would be for both the agent and principal. The next day, the principal agreed to take the wheat on the joint account. Held: The principal could not ratify a contract which wasn t in the principal s name. Ratification by incompetent principal The principal must have had contractual capacity at the time of the contract: Trident v McNiece Ratification by an undisclosed principal Doctrine of ratification does not apply to an undisclosed principal: Trident v McNiece Ratification by an agent The principal may ratify through an agent who has authority to ratify (but not necessarily authority to have performed the relevant act itself): Re Portuguese Consolidated Copper Ratification of pre-registration contracts s 131(1) Corporations Act (Cth) permits a company not in existence at the time of the contract to subsequently ratify a contract entered into on its behalf 7.2 Did the agent have full knowledge of all material facts? An agent can only ratify if he is aware of all material facts at the time of ratification: Taylor v Smith In Taylor v Smith, principal did not know that his solicitor had mistakenly overpaid a commission owed to third-party selling agents so his silence wasn t ratification An agent who is not aware of all material facts can ratify if he displayed an intention to ratify no matter what the circumstances: Bayley v Fitzmaurice In Bayley v Fitzmaurice, an agent included stables in a lease agreement without the principal s permission or knowledge. The principal ratified this in a letter which read: What he has done for me I know not but I must support him in all he has done for me Absence of the agent s fraudulent intent in making a withdrawal on behalf of the principal was held to mean that the principal could not be seen to have ratified: Fried Receipt of a secret commission in a sale is a material circumstance: Howard Smith v Varawa 7.3 When must ratification occur? Ratification must occur within a reasonable time of the act: Celthene v WKJ Hauliers Pty Ltd Strict approach from Bolton Partners is now subject to some limitations: Ratification occurring after withdrawal of offer unlikely to be allowed, despite Bolton Partners Ratification cannot take place after the time for performance has passed to the detriment of a party who has not begun to perform the contract: Lifesavers v Frigmobile Ratification cannot take place after a statutory time limitation has expired: Adams v Elphinstone Ratification cannot take place after a time limit prescribed for performance of some act, either by contract or statute, if ratification would extend that time limit: Dibbins v Dibbins A vested estate cannot be divested by the application of ratification: Hughes v NM Super. Where there has been a breach or loss under an insurance contract, it cannot be subsequently ratified: Grover & Grover v Matthews (note: this was rejected in Trident General Insurance)

7.4

Communication of ratification to the third party It is not necessary for the principal to communicate his ratification to the third party: Rowe If a contract is made subject to ratification There will be no contract until ratification is communicated to the third party: Watson v Davies If the principal does not wish to ratify If the principal does not wish to ratify, they should notify their dissent within a reasonable time: International Paper Co In Scots Church, the principal s conduct in not communicating dissent for over five months was acquiescence and a ratification of the agent s actions If the principal does not know who the third party is, they must make enquiries: Scots Church

7.5

What constitutes ratification? Whether there has been ratification is a question of fact with regard to the whole of the circumstances: Borg v Northern Rivers; Crabtree-Vickers The act of ratification can be express or implied: Cox v Isles Implied ratification Usually will be implied from words or conduct, where conduct of person in whose name act was done indicates that he or she adopts or recognises that act: Cox v Isles Can be implied from mere inactivity or acquiescence: Cox v Isles Commencement of legal proceedings is ratification: Celthene v WKJ Hauliers Acceptance of benefits amounts to ratification: Australian Blue Metal

Implied ratification must be unequivocal: Forman v Liddesdale In Forman, ship owner had no choice but to receive back his ship on which unauthorised repairs had been performed. Did not amount to ratification. In Australian Blue Metal, receipt of money, even with knowledge of its source, was not conclusive evidence of ratification. Ratification of a part A principal cannot just ratify the favourable parts of a contract: Sydney Commercial Bank v Mann In Mann s Case, a partner misappropriated trust money by using unauthorised cheques, and used them to acquire bank cheques from ANZ. Innocent partner tried to sue in conversion against the bank. He argued that the cheques were his property because he ratified their withdrawal. This failed because if he ratified their withdrawal, then he must also ratify their exchange with the bank for cheques. 7.6 Limitations Forgery A forgery is not capable of ratification because the forger has not purported to act as agent but simply produced the document and pretended the signature was the principal s: Brook v Hook Fraudulent agent Irrelevant if the agent has fraudulent intent in assuming to act for the principal: Re Tiedemann 7.7 Effect of ratification A valid ratification places the parties in the positions they would have been in, if at the time of the act, the agent had been duly authorised: Bolton Partners v Lambert (see diagram but note that Bolton Partners has been heavily criticized: refer to Adams v Elphinstone for example )
Unauthorised acceptance by B

8.

AGENCY IMPOSED BY LAW The law imposes agency irrespective of the parties intentions in two situations: (1) In an emergency to enable the preservation of the principal s property or interests; (2) In cases of cohabitation, to enable the female partner to purchase necessaries 8.1 Agency of necessity An agency of necessity arises where three elements are satisfied: (1) Where it is necessary to incur expenditure to preserve the principal s property; (2) A commercial impossibility, or extreme difficulty, in communication with the principal; and (3) The agent acted bona fide in the interests of the principal. Case example: Sims & Co v Midland Rly Co: If cargo is in danger of perishing, or the ship needs repairs, the shipmaster may sell or otherwise deal with the cargo, or the ship itself. Also extends by analogy to carriers and bailees (in charge of perishable goods): Sachs v Miklos 8.2 De-facto or married couples A married (or de facto) woman may pledge her husband s credit for necessaries. Necessaries covers reasonable supply of goods and services for the use of the husband, his wife, children and household. Presumed agency is rebuttable if it can be shown the wife had no authority because the husband had forbidden her to pledge his credit, or she was adequately provided with the necessaries or with sufficient funds to purchase them.

9.

AGENTS DUTIES Agent is a fiduciary relationship with the Principal: Fiduciary duties include duty to: act bona fide in principal s interest avoid conflict between principal s interests and interests of a third party, without full disclosure to principal act in accordance with their appointment perform lawful instructions of principal, providing they are reasonable, in respect of performance of their duties perform agency with due care and skill

10. PRINCIPALS DUTIES/AGENTS RIGHTS 10.1 Remuneration Agent has no right to remuneration other than from their principal, unless there is a contract expressed or implied to that effect: Smith v Stallard & French 10.2 Indemnity Agents are entitled to be compensated and indemnified in respect of losses, liabilities and expenses incurred in performance of duties: Re Clune 10.3 Agent s Lien If an agent is not compensated they are entitled to exercise a lien over principal s property in respect of obligations incurred in respect of that property: Re Clune A particular lien unless an agreement (express or implied) gives rise to a general lien: Re Clune Usually lien cannot be exercised over money: Re Clune

11. TERMINATION OF AGENCY 11.1 Expiry of time If agent to perform task, once task has been completed If agency for a specified time, then at expiration of that time 11.2 Consensual agreement Parties can consensually agree to terminate the relationship prematurely 11.3 Renunciation Either party can unilaterally terminate the agreement by giving notice to the other 11.4 Revocation of authority A principal can revoke an agent s authority but should notify the relevant third party that the authority has been revoked to avoid being estopped from denying authority: Klement v Pencoal 11.5 Operation of law In case of death (Farrow v Wilson), automatically by insanity of either principal or agent (Drew v Nunn), or automatically by bankruptcy of either party (Bankruptcy Act) 11.6 Limitations Cannot terminate an agency if it is coupled with an interest Smart v Sandars: Agency could not be terminated where the principal confined goods to the agent for the purposes of sale and the agent loaned money to the principal on security of the goods confined to sale. Cannot terminate an agency if the agent incurs an obligation on behalf of principal Read v Anderson: The agent s role was to make bets for the principal and pay his losses when the bets were unsuccessful. The principal was unable to revoke the agent s authority after one such loss in order to avoid payment. If timeframe in which agency can continue Just because there is a time frame in which the agency can continue, it does not necessarily mean that the agency is irrevocable, but the principal may be liable to damages for breach of contract: Barraclough v Hellyer

12. DOCTRINE OF UNDISCLOSED PRINCIPAL 12.1 Disclosed and named principal If the principal was disclosed and named (eg, Ben, for and on behalf of Hot Froth Pty Ltd ), contract is between the principal and the third party and will be binding if the agent had authority: Universal Steam 12.2 Disclosed but unnamed principal If the agent makes the existence of a principal clear, but does not name the principal, then the agent will not generally be liable on the contract: Marsh & McLennan v Stanyers 12.3 Undisclosed principal Note: does not apply to agency arising from ostensible authority: Trident v McNiece If agent has entered into a contract in its own name without revealing the agency but is acting with actual authority, agent can sue or be sued on the contract: Siu Yin Kwan v Eastern Note: If agent sues, must hold any damages on trust for principal: Allen v F O Hearn Once disclosed, the principal is liable under, and can enforce the contract, provided the agent acted with actual authority: Keighley v Durant The third party, on learning of the existence of the principal, can elect who to hold liable- the agent or the principal: Kendall v Hamilton Commencement of proceedings against one party does not constitute an election, but the entry of judgment against either the principal or agent will constitute an election: Priestly v Fernie Note: election by judgment may be reversed on appeal: Bain Securities v Curmi If the word agent accompanies the signature Agent will not be personally liable as this is a conclusive assertion of agency and a rejection of the responsibility of a principal: Universal Steam If the terms of the contract imply that the parties were the real and only principals Where the express or implied terms of a contract provide that the actual parties are the real and only principals, evidence proving that someone else is liable as principal is not admissible: Humble v Hunter If identity of the principal is material to the third party If the identity of the parties is material to the contract, the principal will not be able to enforce the contract: Carberry v Gardiner In Carberry v Gardiner, landlord thought he was leasing to the agent. The lease provided that there would be no subletting and it was contemplated that the agent would be the lessee and nobody else. As such, the doctrine of undisclosed principal did not apply.

13. BREACH OF WARRANTY OF AUTHORITY Breach of warranty of authority is a cause of action against a party who has professed to act as agent for another where there was no actual authority: Yonge v Toynbee Three elements from Leggo v Brown: (1) An express or implied claim of authority; (2) An inducement (reliance on the assertion, but not necessarily belief in it); and (3) A consequent transaction Applies to fraudulent, negligent and innocent representations of authority: Collen v Wright In Collen v Wright, a land agent innocently professed to act as Gardner s agent and agreed to lease Gardner s farm to the plaintiff. Signed: Robert Wright, agent to William Gardner, lessor Remedy The warranty of authority creates a collateral contract between the third party and the professed agent so damages are contractual in nature: Brownett v Newton The measure of damages for breach of warranty of authority is the loss which the parties should reasonably have contemplated as flowing from the breach.