Topic 1 The Law of Agency PDF

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Commercial Law – The Law of Agency

1. NATURE OF THE AGENCY RELATIONSHIP (a) Definition1 

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Agency is a relationship in which one person (principal (P)) authorizes another (agent (A)), to act on his behalf in regard to another (third party (T)), and the agent agrees to do so.2 A acquires—a power to do acts which affect P’s legal position3. If A so acts, he often then “drops out” of the transaction4. Context of Agency:  making of contracts with third parties  law of property: an agent can transfer his principal's property, or acquire property on behalf of his principal  tort: defamation may be committed by an agent  evidence: the principal may admit something through an agent “Model” situation: P consents that A should act, and A consents to act: such consent gives A the authority to create the result (Garnac v. Faure: consent is the key, distinguishing agency from sale)

(b) Agency distinguished from other legal relationships These relationships often overlap. Trust.  A trustee is a person who holds property for another (the beneficiary) and trustee is the legal owner; the other is the owner in equity.  Some agents hold money or property for their principals as trustees, but in other circumstances, he may simply owe it to his principal.  Some trustees may also be agents: e.g. a guardian may hold property in trust for a minor, and also make contracts on behalf of that minor (e.g. for education).  Note that, in general, agents do owe to their principals fiduciary duties (i.e. duties to act in their principals’ interest) Bailment. A bailee is a person who holds goods for another, in effect he possesses goods which another owns (e.g. hirer of car, laundry).  An agent may hold goods for his principal on a bailment basis.  A bailee may sometimes perform an agency role, e.g. making contracts for the sale or repair of the article bailed 

1 Daily Life situation: dealing with others  

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Buying food in shops—from sale assistants (agents) Buying cinema tickets for your friend—you act as agents A group of people go to restaurant: one person do the booking

2 Contractual capacity (e.g. minor) is not a criteria for agency 3 The act must affect legal position: for example, NOT standing in the queue / representing another at an official opening of a company 4 There is no general principle in agency law that an agent must act as alter ego of the principal. So that there is a legal fiction that when the agent does an act that affects the principal’s legal position, he will then drop out and escape liability in the direct contract 1

Commercial Law – The Law of Agency

Employment. A person who works for another under a contract of employment.  The employer controls what work to be done and how it is done.  The employee may have an agency role as well (e.g. the manager of a business can make contracts affecting it); but may not (e.g. a messenger). 

An independent contractor. A person who works for another under a contract for services, the employer decides what to be done but the independent contractor decides how it is to be done.  The independent contractor may have agency powers, indeed be a professional agent (e.g. a stockbroker). But he do (e.g. an independent television repairman doing work for big manufacturers). 

(c) Analysis of particular occupations  

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Brokers (eg stockbrokers, commodity brokers) usually make contracts between two other persons (agent) Distributors (eg of cars) – may be agent to manufacturer, but more often, they buy goods from manufacturer and resell to customer (not agent). Nonetheless, may have some agency function, e.g. to repair the car. Travel agents – may act as agent for hotels, airlines etc (agent); or may actually provide a package holiday for which they are responsible (not agent)5. Freight forwarders – may act may act as agents for customers to create contracts with carriers; or may actually act as carriers (not agent) Real estate agents – usually do not do more than introduce customers to the premise; no power to bind their principals; agents in a limited sense (known as “introducing agents”)

2. CREATION OF AGENCY   

Consent6 of principal and agent (Garnac v Faure) The key is consent but not contractual (Yasuda Fire) 7 But no particular formality in constituting consent8. This is so even when he is appointed to make a contract which has to be in writing (e.g. sale of land) (Heard v Pilley). Sometimes, A formal document (called “power of attorney”) may sometimes be used

(a) Express authority  

e.g. power of attorney; letter of appointment; or simply informal instructions The scope of authority conferred is to be ascertained by principles of construction of contracts (Freeman and Lockyer)9

5 An illustration Chea Kum Wing: travel agent held not an agent because (i) it arranged the itinerary itself, (ii) decided the airline used, (iii) right to refuse any application, (iv) adjust price of accommodation before departure

6 Tan SC suggested that “meeting of minds” is necessary for the creation of agency 7 The main difference between a contract and a consent is: (1) consideration, (2) contractual right to remuneration. Note that the right to an indemnity arises irrespective of any agreement.

8 Some particular statutes may require special formalities; and a person who is to execute a deed for another usually requires to be authorised by deed.

9 For example, express terms, implied terms, trade custom, course of dealings. 2

Commercial Law – The Law of Agency

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The use of word “agency” is not determinative. But the court is more readily to give effect to words written by experienced commercial person

(b) Implied authority   

the consent may be obtained from parties’ conduct. But consent will not be implied from P’s silence, unless other factors indicate so (Burnside v Dayrell) But merely doing what the principal has requested may not give rise to agency10 (i) Incidental authority - to do things “necessary to facilitate the agent’s discharge of his role. E.g. solicitors can do things necessary for the legal formalities; stock brokers may do legal formalities necessary for the share trading11 (ii) Managerial authority12 - a person in charge of something (e.g. a managing director) can do what people in that position usually do1314 (iii) Professional authority15 - a professional (e.g. a solicitor) authorised to conduct a particular transaction can do whatever a professional of that type would normally do (iv) Customary authority - authority to act in accordance with the usages of particular markets (Bayliffe v Butterworth) E.g. the Stock Exchange. The custom must be reasonable, lawful, notorious (well known to those in the market) and certain. The custom or usage must not be unreasonable or change the intrinsic nature of the agency relationship 16 (Bostock v Jardine). Unless the principal has actual notice of such unreasonable custom (Perry v Barnett). The burden of proving such custom lies on the person asserting it (v) Apparent authority - authority inferred from the conduct of the parties and the circumstances (Hely-Hutchinson v. Brayhead)

10 Consider the situation where A asks B to buy a drink at $10. Later B may buy one just for himself. B’s conduct (buying one FOR A) must be capable of indicating his unequivocal consent. 11 In Nelson v Raphael, an agent who was authorized to hand over a car purchased from his principal was held to have an incidental authority to demonstrate to the purchaser how to use the car. Since the agent failed to do so without reasonable car, the car was destroyed. It was held that the principal was liable. In Mullens v Miller, a property agent has incidental authority to describe the property. 12 It should be noted that, the surrounding circumstances may give rise to implied authority, even where the authority in question does not usually attach to that particular office (Hely Hutchinson: chairperson of a company agreed to indemnify the plaintiff. That position does not usually give rise to such power. But the chairperson is also a de facto managing director) 13 For a managing director of a company, the power may include signing of cheques, borrowing of money, giving security over company’s asset, approving hiring of employees, signing of contracts, representation of company, etc. 14 Other examples include: general manager has implied authority to order medical attendance for employee (Walker v Great Western Railway), manager of estates has implied authority to contract for leases (Peers v Sneyd), landlord’s agent has implied authority to issue notice to quit (Papillon v Brunton)

15 Managerial authority and Professional Authority are sometimes referred to as "usual authority" (or "undisclosed agency”)

16 For example, when agents are instructed to purchase a certain quantity of cotton but made a contract to purpose a large quantity (a custom). The agent acted outside scope of authority. The principal is entitled to recover the recover the money. 3

Commercial Law – The Law of Agency

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No categories would apply if A has specifically been told not to do the thing in question (unless apparent authority: see Hely-Hutchinson v Brayhead17)18 Note that agents must not have acted for collateral purpose benefiting A only19(Hopkins v TL Dallas). Recall that agents own fiduciary duty to principals.

(c) By subsequent ratification of the agent's acts  

If a person (A) acts without authority, or exceeds his authority, his actions cannot bind his principal (P). Subsequently, however, P may ratify A’s acts Ratification validates A’s actions with effect from the time those actions took place (i.e. retrospectively)

What amounts to ratification? Express or implied from P’s conduct (e.g. Hogan v Rugby Football Trading: P were held to have ratified the oral agreement between football coach (A) and director of rugby (T) by allowing them to continue to represent the clubs in competitions)

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Requirements A must have purported to act on behalf of P (Keighley Maxsted) (cf. Re Tiedemann)  But A need not actually name his P20 (National Oilwell)

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Keighley Maxsted  P instructed A to buy wheat at a certain price  P could not buy at this price. Instead, he agreed to buy from TP at a higher price  A bought it in his own name without informing TP that he was acting for a P (i.e. undisclosed principal scenario)  Held: P cannot ratify the act if A did not purport to act for a P (despite A intended so)  Rationale: if ratified, the agreement would bind TP who did not know the existence of a P Note: contract existed between A and T Re Tiedemann  where A says he is acting for another, it is irrelevant that A actually intended to act for himself. P can still ratify 

P must have full knowledge of the facts at the time of ratification  However, a principal with incomplete knowledge may be held to have ratified the unauthorized acts, if it is shown that P took the risk as to the actual circumstances (Marsh v Joseph)

17 If the director was told not to order goods worth more than $500, and he orders such amount with another company which did not know the rule. The company is still bound by that dealing.)

18 Apparent Authority is a very different doctrine from other types of authority, which are sometimes collectively called “actual authority”

19 For example, a managing director who borrows money on behalf of company with the intention of using that money to repay personal debts is not acting within the scope of his implied authority. 20 This is an “unnamed principal” situation. Rationale: e.g. in policies of marine insurance, they may be signed by A (e.g. charterer) “for and on behalf of any person interested”. If such person cannot ratify, it will defeat commercial convenience / parties’ wish (it is a normal practice that the insured persons are identified later) 4

Commercial Law – The Law of Agency

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Must be clear and unequivocal, e.g. accepting repairs the ordering of which had not been authorized  Silence or inactivity generally is not a clear and unequivocal ratification (Crampsey v Deveney)  But silence or inactivity coupled with other facts (e.g. when P appreciates that his silence will amount to ratification) may suffice (Suncorp Insurance)

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The act must be one that could, when done, have been authorized  P must in existence when act was done ( Kelner v Baxter: a newly incorporated company cannot ratify a prior contract made by its promoters21)  P must be competent when act was done (Boston Deep Sea : P who was an enemy at the time of A’s act could not ratify)

Ratification need NOT to be communicated to A or T No need communicate to T: because there is likely many third parties (need to communicate via newspaper)  No need communicate to A:  Because ratification is a retrospective manifestation of assent that cures the initial lack of authority.  Arguably, there is no necessity to communicate assent when the act was first done. 

Effect of ratification Ratification validates the act retrospectively as regards to T (Bolton Partners).

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Bolton Partners T made an offer to A which is accepted by A on behalf of P (exceeding A’s actual authority)  T withdrew the offer before P ratified A’s acceptance  Held:  P’s ratification has the effect that the contract was valid once A has accepted it  Since there had already been offer and acceptance, a valid contract is formed.  A withdrawal of offer after contract is entered into is a breach of contract  Comment: unfairness to TP 

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Limitation of the rule in Bolton Partners  Ratification must take place within a reasonable time after acceptance of offer (Matropolitan Asylum Board)  Where T’s offer was expressly made subject to ratification (Matropolitan Asylum Board) General Limitation: cannot ratify if unfairly prejudicial to T

Ratification is not effect if it is unfairly prejudicial to T, especially where For agent’s act to be valid, it must be ratified within a reasonable time (not necessarily)

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Presentaciones v Secunda A solicitor issued a writ within limitation period but without client’s authority  Client later ratify the solicitor’s action even though the limitation period has been expired Held: ratification was effective 

21 Contract existed between those promoters and third party 5

Commercial Law – The Law of Agency

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Ratification may not be recognized if it will affect proprietary rights which have arisen in favour of T (Dibbins v Dibbins) (Bird v Brown)

Dibbins v Dibbins: option to purchase Bird v Brown  Agent of consignor of goods, acting without authority, give notice of stoppage in transit  When goods arrived at their destination, they are demanded by the trustee in bankruptcy of the consignee  Held: consignor could not later ratify the stoppage in transit  

Common law seems to make a general rule that the ratification must not cause unfair prejudice -Smith v Henniker-Major & Co [2005] Ch 182 at [71] But note that an insurance policy can be ratified after a loss that would be covered by it (special rule of insurance law) (Davy Offshore case p. 606 – 608)

Implication of ratification on principal-agent relationship  There is usually an implied term between A and P that A promises not to do unauthorized things on P's behalf  A ratification is a waiver of the breach of this promise, unless P reserves rights against A when ratifying to T(Suncorp v. Milano Assicurazioni (only)) (d) By operation of law: "agency of necessity". Nature of agency of necessity Emergency situation: e.g. in a maritime accident, the shipmaster (agent of ship owner) has the authority to commence salvage or repair operations  The agent of necessity must not be one (1) that has been expressly conferred, (2) that was implied as incidental to the express authority  Effect of the agency: (1) enforceable obligations between P and T, (2) give rise to A’s right to reimbursement and indemnity, (3) full defence to claim by principal for exceeding authority 

Requirements (in the context of shipmaster—ship owner relationship)  Absolute necessity is required (Lapraik v Burrows: shipmaster did not have authority to sell the ship simply because he believed that the sale was advantageous to ship owner)  Great inconvenience is not sufficient (Sachs v Miklos)  For sufficient necessity to arise, communication between agent and principal must be practically / commercially impossible (Springer v Railway Co).  Test: what a reasonable person would have thought in the circumstances  It is not enough if agent subjectively thinks so  The action that the agent takes must be bona fide to the benefit of the principal (Prager v Blatspiel)  It is not enough if the chosen action is already the best of all Doctrinal Basis? There is a difference between: (i) Where agent has entered into a legal relationship binding his principal, which can be regarded as agency; and (ii) where agent has acted for someone without authority, and hopes to recover what he has spent (this is actually the law of restitution or unjust enrichment)

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Commercial Law – The Law of Agency

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Some cases treat agency of necessity (case (i) only) as:  Implied actual authority (e.g. The Unique Mariner: salvage near Singapore: authority to act for ship)  A separate doctrine (e.g. The Choko Star: salvage by Greek salvors in River Parana: concerns authority to act for cargo)

3. APPARENT (OR OSTENSIBLE) AUTHORITY (a) Nature of Apparent Authority Quotation from Freeman & Lockyer "Where a person, by words or conduct, represents…that another person has authority to act on his behalf, he is bound by the acts of such other person with respect to anyone dealing with him as an agent on the faith of any such representation” [to the same extent as if such other person had the authority that he was represented to have, even though he had no actual authority] 

Apparent authority can operate to (i) Create authority where there were none before (e.g. Barrett v Derre)

Barrett v Derre:  A entered P’s counting house and acted as if entrusted with P’s business  Payment of debt to A was held to be good payment to P Pacific Carriers:  Illegible signature on guarantee by unauthorized employee who had company stamp (chop) (ii)

Enlarge an agent’s actual authority (First Energy)

First Energy A senior regional manager of a bank was held to have apparent authority to convey head office’s approval of a certain type of loan  Although he neither had actual authority to (1) approve the loan or (2) convey head office’s approval 

(iii)

Clothe an agent with authority where he would usually have but for a restriction unknown to T (Manchester Trust v Furness)

Manchester Trust v Furness Charterparty provides that the ship master (agent) could sign bill of ladings as agent of charterers (not shipowners) only  TP, unaware of the restriction, was entitled to assume that ship master could sign as agent of ship-owners (usual situation) 

(iv)

Extend agent’s authority beyond termination of the agency relationship (AMB Generali)

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Commercial Law – The Law of Agency

AMB Generali H resigned as a director of company  H was held to have apparent authority to bind the company to arbitration proceedings because of a general representation from his appointment 

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Apparent authority is merely a form of estoppel: (1) representation, (2) reliance on the rep...