Commercial Slides from my time lecturing in 2013

1. Commercial Law
Law of Agency

2. Outline of the Law of Agency
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What is Agency?
Elements of an Agency
Commercial Significance
Relevant Terminology
Types of Agency
Case law relating to agency

3. What is Agency?
• An agent is a person who acts on behalf of
another person (“principal”).
• The agent is bound to act in the best interests
of the person who they are acting on behalf.
• An agent’s conduct if deemed to be within
their authority will bind the principal to third
parties that the agent engages with.

4. Agency defined
• “A relationship involving authority or capacity
in one person (the agent) to create or affect
legal relations between another person (the
principal) and third parties.” International
Harvester Co of Australia Pty Ltd
vCarrigan’sHazeldene Pastoral Co (1958) 100
CLR 644; Butterworths Concise Legal
Dictionary.

5. Elements of an Agency
• Agency – (per Dalpont, Law of Agency)
• (1) The key element is that the agent has
authority to act on the principal’s behalf,
• (2) There is an agreement between the
principal and agent
• (3) The principal has control of the agent to
act on their behalf

6. Commercial Significance
• Agency arrangements allow business to be
conducted where the principal is unable to
physically attend a matter.
• For example, directors of companies are
agents of those companies.
• Stockbrockers buy shares for investors.
• City/Town agents regularly used by lawyers.

7. Types of Agency
• Express/Actual authority: by
deed, verbal,written
• Implied authority – by the nature of the
agency
• By estoppel– apparent (ostensible) authority
• Ratification, outside actual authority at the
time the act was undertaken by the agent
• Operation of law - agency of necessity, or
agency raised by cohabitation

8. Agency by estoppel
• An agency where the principal holds out to a
third party that their agent has authority; and
• In reliance on those representations by the
principal, the third party enters into a contract
with the agent’s scope of authority; and
• The principal is estopped from denying that
they are bound by the agent’s conduct:
Lysaght Bros & Co Ltd v Falk (1905) 2 CLR 421.

9. Agency of Necessity
• Where an agency relationship is deemed to be
implied or necessitated by reason of
emergency: Bank of New South Wales
vOwston (1878) LR 4 App Cas 270; China
Pacific SA v Food Corp of India [1982] AC 939.
• The agent must have acted reasonably and in
good faith, without the opportunity to obtain
consent from the principal: China Pacific.

10. Actual Express Authority
• Actual Express authority – expressly given by
the principal in words or writing.
• Freeman & Lockyer vBuckhurst (DiplockLJ)(at
502) said: "An 'actual' authority is a legal
relationship between principal and agent
created by a consensual agreement to which
they alone are parties…”

11. Actual Express Authority (cont.)
• “…Its scope is to be ascertained by applying
ordinary principles of construction of
contracts, including any proper implications
from the express words used, the usages of
the trade, or the course of business between
the parties.”
• I.e. The authority is expressed in specific and
definite terms.

12. Actual Implied authority
• Hely-Hutchinson vBrayhead[1968] (Lord
Denning MR):
• “Implied authority by the agent by virtue of
their usual scope of that office. This means to
do additional tasks not expressly given by the
principal but implied in the agents course of
work”

13. Apparent (or Ostensible) Authority
• In Freeman Lockyer v Buckhurst [1964]
(Diplock LJ):
• “Authority of an agent as it appears to other
parties. If the agent represents to a third party
that they have the authority to act on behalf
of the principal then the agency relationship
will bind the principal to any agreement with a
third party.”

14. Hely-Hutchinson vBrayhead
• Hely-Hutchinson vBrayhead[1968] 1 QB 549
• Facts: Mr Richards, was the chairman and de
facto managing director (CEO) of a Brayhead
Ltd.
• He signed, purportedly on behalf of the
company, contracts of guarantee and
indemnity in favour of the plaintiff, Lord
Suirdale (who sued as John Hely-Hutchinson)
a director of the company.

15. Hely-Hutchinson vBrayhead
• The plaintiff had another company Perdio
which went into liquidation.
• The plaintiff sued Brayhead for the losses he
had incurred.
• BrayheadLtd refused to pay on the basis that
Mr Richards had no authority to make the
guarantee and indemnity contract in the first
place.

16. Hely-Hutchinson vBrayhead
• Roskill J in the Queens Bench held, that the
chairman’s actual authority was to be implied
from the conduct of the parties and the
circumstances of the case.
• Mr Richards had ostensibly entered into the
contracts with the plaintiff, thereby binding
Brayhead to the guarantees.
• The company appealed (N.B. Brayhead is the
appellant despite not being BrayheadvHely).

17. Hely-Hutchinson vBrayhead
• Lord Pearson: Actual authority and ostensible
authority are not mutually exclusive, and
indeed, as Diplock LJ pointed out in Freeman
Lockyer, they generally co-exist and coincide.
• Therefore, the decision of the judge in the
present case that there was ostensible
authority does not preclude or stand in the
way of a decision by this court on the facts
found that there was actual authority.

18. Hely-Hutchinson vBrayhead
• Lord Wilberforce: Mr. Richards' general
position as Chairman, and his financial
conduct and management of Brayhead, in
particular transactions with Perdio that he had
implied authority from the board to enter into
the two documents in question.

19. Hely-Hutchinson vBrayhead
• Lord Denning MR:
• “Ostensible or apparent authority is the authority
of an agent as it appears to others. It often
coincides with actual authority.
• But sometimes ostensible authority exceeds
actual authority.
• Mr. Richards had no express authority to enter
into these two contracts on behalf of the
company: nor had he any such authority implied
from the nature of his office.”

20. Hely-Hutchinson vBrayhead
• He had been duly appointed chairman of the
company but that office in itself did not carry
with it authority to enter into these contracts
without the sanction of the board.
• But I think he had authority implied from the
conduct of the parties and the circumstances
of the case.

21. Apparent or Ostensible authority –
Freeman& Lockyer v Buckhurst [1964]
• Facts: Kapoor and Hoon formed the defendant
company to purchase and resell a large estate.
• Kapoorwas a director of the company, but not
managing director. Therefore he did not have
any actual authority.
• Kapoorpersonally, agreed to pay the running
expenses and to be reimbursed out of the
proceeds of the resale.

22. Freeman & Lockyer v Buckhurst [1964]
• Kapoorcontracted with the plaintiffs,
architects, who executed the work.
• The plaintiffs then sued for payment of the
work they performed for Buckhurst.
• The only question which remained was
whether Kapoor bound the defendant to the
plaintiff.

23. Freeman & Lockyer v Buckhurst [1964]
• Held: Willmer LJ, Kapoor did not have actual
authority as he was never agreed with the
other directors to have an office or position as
managing director.
• Lord Diplock: It is irrelevant whether the agent
had actual authority to enter into the
contract.”

24. Freeman & Lockyer v Buckhurst [1964]
• Lord Diplock: [at 502] An "actual" authority is a
legal relationship between principal and agent
created by a consensual agreement to which they
alone are parties.
• Its scope is to be ascertained by applying ordinary
principles of construction of contracts, including
any proper implications from the express words
used, the usages of the trade, or the course of
business between the parties.

25. Freeman & Lockyer v Buckhurst [1964]
• *at 503+ “An "apparent" or "ostensible"
authority is a legal relationship between the
principal and the contractor created by a
representation, made by the principal to the
contractor, intended to be and in fact acted
upon by the contractor, that the agent has
authority to enter on behalf of the principal
into a contract of a kind within the scope of
the "apparent" authority…”

26. Freeman & Lockyer v Buckhurst [1964]
• [503+ “The principal will be liable to perform
any obligations imposed upon him by such
contract. The agent must say they are making
the contract as agent.
• The representation, when acted upon by the
contractor by entering into a contract with the
agent, operates as an estoppel, preventing the
principal from asserting that he is not bound
by the contract.

27. Authority by estoppel -International
Harvester case
• International Harvester case (1958) 100 CLR 652
• Principle: where the agent holds out to having
authority and the third party believes that the
agent has authority.
• Facts: At the Sydney Agricultural Show a member
of a firm, being interested in hay balers, was
advised by a manufacturing company to see
Harvestor Co, its agent at Gunnedah.

28. International Harvester case
• After discussion with a salesman of Harvestor
Co, an order form for a hay baler made by the
manufacturing company, addressed to
Harvestor Co, was signed by a member of the
firm. Harvestor Co was referred to as "dealer"
and as "owner" and the name of the
manufacturing company was not mentioned.
There were problems with the machines.

29. International Harvester case
• Dixon CJ, McTiernan, Williams, Fullagar, Taylor JJ:
Agency is a word used in the 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.
• But in the business world its significance is by no
means thus restricted.
• The word "agent" is often used in business as
meaning one who has no principal but who on his
own account offers for sale some particular
article having a special name.

30. International Harvester case
• It is not to be implied from the fact that a
manufacturer appoints "distributing agents"
or "exclusive agents" in a particular "territory"
for a proprietary commodity or specific kind of
article or machine that in a sale by such an
"agent" the manufacturer contracts with the
ultimate buyer or "consumer" as vendor.

31. No Authority by real estate agent –
Petersen vMoloney
• Petersen vMoloney1951 84 CLR 91
• Facts: A real estate agent as such, was
instructed by the vendor "to find a purchaser"
for her house.
• The agent found a purchaser and received
from him the whole of the purchase price. A
contract of sale was executed.

32. Petersen vMoloney
• The vendor took action against the purchaser
for recovery of the purchase price, arguing
that they were not liable for the actions of the
real estate agent.
• The real estate agent argued that they had the
authority to receive the money because there
was an authority provided to the real estate
agent.

33. Petersen vMoloney
• Per Dixon, Fullagar, Kitto: that there was no
evidence to support a finding that the real estate
agent had authority to receive the purchase
money nor was there evidence of any ratification
by the vendor.
• Agency law relies on the maxim “Qui facit per
aliumfacit per se” – “He who acts through
another does the act himself”
• The authority conferred upon the agent gives him
the power to create or affect the legal rights and
duties between the principal and third parties.

34. Petersen vMoloney
• "When a person is employed to find a buyer of
property, he is commonly said to be employed
as an agent, and the term "estate agent" is a
common description of a class of persons
whose business is to find buyers for owners
who wish to sell property…”

35. Petersen vMoloney
• “…But the mere employment of such a person
under the designation of agent does not,
apart from the general rule that the employer
will be responsible for misrepresentations
made by him, necessarily create any authority
to do anything which will affect the legal
position of his employer…”

36. Petersen vMoloney
• “…He may, of course, be given any express
authority which the employer thinks fit to give
him, and estoppels may arise, but the law
does not imply from the mere fact of
employment to find a purchaser a general
authority to do on behalf of the employer
anything which may be incidental to the
effecting of a sale.”

37. Petersen vMoloney
• Similar views were expressed in the House of
Lords in Sorrell v Finch (1977) AC 728, 750,
753.
• Real estate agents do not have a general
authority to act on behalf of a vendor in
relation to a contract for sale of land: Brien v
Dwyer (1978) 141 CLR 378.

38. Breach of warranty of authority
• Where agent does not have authority ––
Gosling vGaskel[1897] A.C. 575, Lord
Herschell: Where the agent purports to have
authority to act but in actual fact does not,
nobody can be sued on the contract. However,
the agent may be subject to liability by way of
a breach of an implied warranty that the agent
purported to have authority.

39. Undisclosed principal
• Keighley, Maxstead& Co vDurant [1901] AC
240:
• K & Co authorized Roberts, a corn
merchant, to buy wheat on a joint account for
himself and them at a certain price.
Roberts, on his own behalf and without
authority of anybody else, bought wheat at a
higher price than the authorized one, from
Durant.

40. Keighley, Maxstead& Co vDurant
• The intention that he was acting for K& Co. as
well as himself was not disclosed by Roberts
to Durant. K M &Co.
• However, K M & Co later agreed with Roberts
to buy the wheat at that (high) price but
eventually failed to do so.
• Durant resold it at a loss and sued K M & Co
for loss.

41. Keighley, Maxstead& Co v Durant
• Lord Lindley: There is an anomaly in holding a
person bound to another of whom he knows
nothing and with whom he did not in fact
intend to contract.
• “What Roberts intended was never disclosed
to Durant & Co., and cannot be inferred from
the nature of the transaction itself. His
intention, therefore, cannot be allowed to
affect the rights of the parties…”

42. Keighley, Maxstead& Co v Durant
• Earl of Halsbury: noted that “civil obligations
are not to be created by, or founded
upon, undisclosed intentions.”
• The undisclosed principal cannot arise by
ratification.
• The agency relationship must exist at the time
the contract is formed.

43. Failure to disclose principal
• If the agent fails to disclose that they are
acting on behalf of the principal, then the
third party contracting with the agent can sue
the agent as the agent has contracted
personally: MaynegrainvCompafina[1982].
• See also breach of warranty of agency.

44. Duty to act in good faith
• An agency relationship is a fiduciary
relationship.
• This means that the agency must act in good
faith and in the best interests of the principal.
• The fiduciary relationship gives rise to the
equitable jurisdiction and remedies.
• However, principles of agency law exist within
this legal framework.

45. Duty to act in good faith – Lintrose
Nominees v King
• The respondent purchaser had brought
property from the appellant vendor on the
advice of the agent.
• The purchaser had paid for the advice.
• Unknown to the purchaser, the agent had
been retained by the vendor to sell the
property.

46. Duty to act in good faith – Lintrose
Nominees v King
• The Supreme Court of Victoria held that the
purchase was entitled to rescind the contract
of sale with the vendor.
• “The vendor could not properly sell the
property through the agent, knowing that the
agent was retained the advise the purchaser
who did not know of their dual allegiance to
the vendor.”

47. Duty to make full disclosure of any
personal interest
• An agent must disclose any profit that they make
out of the relationship. This means that the agent
should not take advantage of the agency
relationship.
• If the agent has a personal interest may mean
that the agent is not able to act in the principal’s
best interest, and will not be entitled to profit
from the relatioship: DarguschvSherley
Investments [1970] Qd 338.

48. Duty not to make a secret profit
• Agents must not make profits from
relationships they have with their principals.
• Directors of companies are agents and are
under a duty not to make secret profits: Regal
Hastings v Gulliver [1967].
• Regal Hastings dealt with directors taking
commercial advantage of information made
privy to the body corporate.

49. Conflict of Interest
• Where an agent acts for both vendor and
purchaser and intends to obtain a commission
from both, the agent must disclose this to
both parties: Fullwoodv Hurley [1928].
• Lawyers acting in this scenario must be aware
of the more stringent requirements under the
Legal Profession Act.

50. Duty to exercise reasonable care and
skill
• The agent is employed for remuneration for a
presumed level of skill, care and diligence. If
agent breaches their duty, they will be liable.
• Where an insurance broker fails to obtain
appropriate cover for a client, they may be
found to have breached their duty of care:
Mitor Investments v General Accident Fire &
Life Assurance Corp [1984] WLR 365.

51. Independent contractor –as an agent
for the employer
• The employer does not have control over the
independent contractor
• But if they are under control by the employer
then they are an employee, there is a similar
vicarious liability as in tort where they are in
the position of an employee: Deatons Pty Ltd v
Flew (1949) 79 CLR 370.