Tutorial 3 Questions - Law of Agency PDF

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Commercial 3

Tutorial 3 – Questions The Law of Agency (1)

What is the relationship between express authority and implied, actual authority?

Authority: Authority in this sense refers to the scope of the agent’s ability to affect the legal position of the principal. Express actual authority - in many situations, the agent’s authority may be defined in very narrow terms and specific instructions. 

This type of actual authority is reinforced by that of implied actual authority.

Freeman and Lockyer v Buckhurst Park Properties Ltd [1964] 2 QB 470. Lord Justice Diplock said: “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 principals of construction of contract, including any proper implications from the express words used, the usages of the trade, or the course of business between the parties”. Robinson v Mollet [1875] LR 7 HL 802.   

May be contractual May be gratuitous Straightforward – interpretation of agreement

Implied actual authority - gives the agent the ability to do whatever associated tasks are necessary to ensure that the instructions of his principal are met. 

The actions associated with implied actual authority are not expressly permitted under the principal’s instructions, yet would be implied as the tasks are reasonably connected to, and necessary for the fulfilment of the principal’s instructions.

Implied actual is subservient to express actual – deals with things which aren’t express, but necessary in order to enable express intentions to be fulfilled. Choko Star: No agency agreement, not right to talk about implied actual authority – usual authority boundary. Need to identify an agency agreement to be able to then use implied actual authority to expand and explain boundaries of actual express authority.

Implied actual authority - gives the agent the ability to do whatever associated tasks are necessary to ensure that the instructions of his principal are met. 

The actions associated with implied actual authority are not expressly permitted under the principal’s instructions, yet would be implied as the tasks are reasonably connected to, and necessary for the fulfilment of the principal’s instructions.

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Implied actual authority cannot be employed contrary to the express actual authority granted by the principal. Thus even if the agent’s actions are reasonably required by the principal, if the act is expressly prohibited within the express agreement, the notion of implied actual authority will not be applicable.

Hely-Hutchinson v Brayhead Ltd [1968] COA Held: The Company was liable since Mr Richards had actual authority to enter into the guarantee implied from the conduct of the parties and the circumstances of the case. 

Lord Denning MR: ‘It is implied when it is inferred from the conduct of the parties and the circumstances of the case, such as when the board of directors appoint one of their number to be managing directors. They thereby impliedly authorise him to do all such things as fall within the usual scope of that office.’

The Choko Star [1990]  

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Whether a ship’s master was able to make salvage contracts acting as an agent for the cargoowner. It was clear that the ship’s master was, at all times, acting as agent for the ship owner and it was equally clear that he could also be the agent for the cargo-owner where the concept of agency of necessity applied. What was not clear, however, was whether the master had implied actual authority to act on behalf of the cargo owner in salvaging the cargo in the absence of some compelling and immediate situation which invoked the rules of necessity.

Court of Appeal, however, disagreed and reversed the decision since there was no basis to establish a relationship of agent-principal between the ship’s master and the cargo-owners. 

That being so, it was not possible to consider any implied actual authority of the ship’s master since there was no agency relationship or authority by implication or otherwise.

(2) How might an agent-principal relationship be established by the courts in the absence of an express agreement?

Usual authority – Agent will be deemed to have the authority that an agent in his position would normally have. 

Even if the agreement between the principal and the agent does not expressly authorise such actions, the principal will be bound where the court is satisfied that they fell within the usual or customary authority of the agent concerned. o Overlap between the two (Usual and Implied)

Apparent authority – By virtue of this concept, an agent who acts outside his actual authority, will still be able to bind his principal where the principal has made a representation to the third party that the agent is acting within his authority.

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In such a situation the court is able to use estoppel to bind the principal to the actions of the agent even where the agent knew that he was acting outside his authority.

Agency of Necessity: Much narrower, so won’t be of significance anymore – can almost always take instruction from the Principal due to modern communications (3)

Why was the company bound by the acts of its secretary in Panama Developments v Fidelis Furnishing Fabrics Ltd (1971)?

Usual Authority: whether usual authority emanates from the other types of authority an agent may possess, particularly actual implied authority and apparent authority, or whether usual authority can exist in its own right as an independent category of authority.’ Panama Developments:   

A company secretary hired cars purporting to do so on behalf of the company. However, the secretary was hiring the cars for his own purposes. When the charges were not paid, the third party (car Hirer Company) sued the company – which denied liability.

COA held: That a company secretary had the usual authority to enter into contracts in respect of the administrative operation of the company and that by appointing a person to such a position, the company had clothed the agent with apparent authority to enter into such contracts. 

Consequently, the company was bound by the contracts made by the secretary – estoppel.

(4) Why could the Court in Wateau v Fenwick (1893) not rely on implied actual authority in order to bind the principal to the acts of his agent? An independent category of usual authority? ‘Can an agent bind his principal to a contract where the act is outside both express and implied actual authority (where the act is specifically prohibited by the agency agreement) and the principal has not held out the agent to have the authority to act and so apparent authority is not applicable?’ Contrary to the express agreement. Wateau v Fenwick [1893] 1 QB 346.    

The owner of a beerhouse sold it to a firm of brewers who retained the former owner as the manager of the business. The manager had no authority to buy any goods for the business except bottled ales and mineral waters – exception. The manager entered into contracts with a third party to supply the beerhouse with, amongst other things, cigars and Bovril. The third party sued the principal for payment under the supply contracts in respect of the cigars and Bovril.

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The court held that the principal was liable under the contracts made by their agent even though: i)

They were of a type expressly prohibited in the agreement between the parties and;

ii)

Since the principal was undisclosed there was no apparent authority extended to the agent

[Cannot rely on implied actual authority if the agent goes against the wishes of the principal] Wills J: “the principal is liable for all the acts of the agent which are within the authority usually confided to an agent of that character, notwithstanding limitations, as between the principal and the agent, put upon that authority. It is said that it is only so where there has been a holding out of authority - which cannot be said of a case where the person supplying the goods knew nothing of the existence of a principal. But I do not think so” -

Wills J was very much influenced by the fact that in Watteau, the principal was undisclosed. In order to prevent a ‘secret limitation’ on the liability of all undisclosed principals, Wills. J was happy to extend the application of usual authority. This is justifiable on the grounds of public policy, but has been strongly criticised in subsequent cases and has been followed only once – Rhodian River Shipping Co SA [1984]

[Bad law] (5)

How can a principal protect themselves from the decision in Wateau?

Terms in contract is ineffective No need for principal to protect against the decision in Watteau – public policy, the foundation for the approach in Watteau. Self-limiting principle to do justice between the parties Only ever been followed once – Criticised in Rhodian River – LJ Bingham, weary of applying it Canada - Sino-O-Lite plastics – extremely critical [Even if facts point to Watteau, it would be unusual for the Court to follow it – Problem questions] (6) How do the duties owed by a contractual agent to his or her principal differ from those owed by a non-contractual agent? Performance of Contractual Undertaking: Obligation is strict:  

Where there is an express contract the obligations between the principal and agent will be governed by that agreement. Where the principal’s instructions are clear and unequivocal, the agent is duly bound to comply with them precisely.

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If not, he will be liable in damages

Turpin v Bilton [1843]   

An agent was instructed to insure a ship. The agent failed and as a result, when the ship was lost, the principal was unable to claim on the insurance. The agent was liable in damages for the value of the lost ship – did not complete his contractual duty.

Bertrom, Armstrong & Co v Godfray (1838)  

An agent was instructed to sell certain shares when their value reached a precise amount. The agent was required to sell those shares as soon as the specified price was reached and had no discretion to wait in order that the share price might increase beyond the figure specified by the principal.

[Clear that the agent’s duty of performance extends both to cases of non-performance and also to those of misperformance] Gratuitous Agent: A gratuitous agent will not be liable for non-performance since to hold otherwise would in effect find there to be a contract where there is none. The situation is different, however, where a gratuitous agent miss-performs under the agency agreement. Wilkinson v Coverdale [1793]  

An agent agreed to arrange, without payment, for insurance on behalf of his principal. Due to the agent’s negligence in effecting the insurance contract, the principal was unable to claim on the policy when his house was destroyed by fire.

The court held: The agent was in breach of his tortious duty in performing on behalf of the principal. This decision raises a clear difficulty since we have already discussed the fact that a gratuitous agent cannot be liable for failing to perform his agreed function. 

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The distinction is said to be where a gratuitous agent performs (to whatever degree) his functions under the agency agreement, he must carry them out without negligence in order to comply with his tortious duty – Misfeasance Where however, the agent fails to act whatsoever under the agency agreement, he will not be in breach of his tortious duty – Nonfeasance

The issue of misfeasance by a gratuitous agent will also by definition raise questions over whether such an agent will face liability for breach of a tortious duty of care – this may be contrasted with the contractual (statutory) duty of skill and care: Chaudray v Prabhakar [1989] 

The plaintiff argued that: o The car dealer was in breach of the implied term that the car was of merchantable quality under s. 14 SGA 1979 and;

Commercial 3 o

The agent had breached his duty of care by not taking steps to ensure that he found her a car which met her stipulation that it should not have been in an accident

Stuart Smith L.J stated that: ‘When considering the question of whether a duty of care arises, the relationship between the parties is material. If they are friends, the true view may be that the advice or representation is made upon a purely social occasion and the circumstances show that there has not been a voluntary assumption of responsibility.’ The question is therefore how to determine whether or not the relationship in question was a ‘purely social occasion’ or whether there was something more, i.e. a ‘voluntary assumption of responsibility’ Smith L.J suggested that the relationship of agent and principal ‘is powerful evidence that the occasion is not purely a social one’  

Further supported by the fact that the principal clearly relied on the advice and skill of the agent Moreover, the agent knew that the principal was relying upon his recommendation and even told her she need not inspect the car.

Fiduciary Duties: (apply to both, yet more useful in a non-contractual sense) Examination Style Q: Brown was an amateur yachtsman and the owner of the Greenways Motel. On 2nd January, he left it in the charge of Williams with instructions to ‘manage it in his absence’, and agreed to pay him a commission of half a percent of the annual turnover. He also instructed Williams to sell his Rolls Royce for ‘£30, 000 or near offer’. The next day, Brown set off on a ‘round the world’ race. He has now returned and seeks your advice, saying: 

‘I find that Williams arranged for a new roof to be installed at a cost of £40, 000 and the contractors are pressing me for payment.

Necessity: In certain, strictly controlled, circumstances, the law will impose an agency relationship or, where such a relationship already exists, extend an agent’s authority to act by virtue of an emergency. Springer v Great Western Railway Co [1921] 

A consignment of tomatoes was delayed in transit due, in part, to a strike by dock workers – tomatoes could not be unloaded upon their arrival at the port.

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They were starting to decompose, so the agent sold the entire cargo and sought to rely on his position of agent of necessity in order to effect a sale before the goods became unmerchantable.

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COA held: Whilst the doctrine of necessity could potentially apply to these facts, it did not in fact do so, since the ‘agent’ had the opportunity to contact the owners of the various consignments of tomatoes and take instructions on how to proceed. Lord Diplock in China-Pacific SA v Food Corporation of India, The Winson [1982] AC 939 suggested a twofold division of agency of necessity: I.

Where an agent enters into a contract with a third party on behalf on the Principal, consequently binding the principal contractually to the third party; and

II.

Where a person acts for another and subsequently seeks reimbursement or an indemnity from him.

The agent must act bona fide in the best interests of the principal. This requirement is exemplified by the case of Prager v Blatspiel, Stamp and Heacock [1924]  

Hostilities prevented the sellers from delivering a consignment of furs to their buyer. The sellers resold the furs and argued that the condition of the goods was deteriorating and therefore they were agents of necessity in effecting a resale of the goods.

Duty to account:    

Duty to produce accounts, to explain profits etc and To keep the money of the principal separate from the agent’s own. If it exists in the contract – then pursue it that way If not, then it can be pursued as a general duty

It is clear now that the duty of an agent in this regard does not cease to exist by virtue of the termination of the agency agreement: Yasuda Fire & Marine Insurance Co. of Europe Ltd. v Orion Marine Insurance Underwriting Agency Ltd [1995] 

Agents refused to comply with requests to provide records held in respect of transactions entered into on behalf of the principal by the agents.

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Court disagreed - principal will have the right to inspect records to any transactions related to him. o Court say that principals are allowed to – under this duty to account o Duty extends beyond the nature of that relationship

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He bought large supplies of wine from Central Wine Stores, although I told him that he was in no circumstances to purchase wine from them as I had a row with the managing director in December.

Wateau v Fenwick 

Williams ordered supplies of stationary from Universal Paper Ltd for the use of the motel guests, at a cost of £2,500 and their bill has not yet been paid.

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Would be ok? 

He sold my Rolls Royce to Henry for £29,000 after getting it overhauled first at a cost of £450. Rolls Royces have gone up in value and I should like mine back.

Duty to Act with Reasonable Skill and Care: Keppel v Wheeler and Another [1927] 

COA held that an estate agent was generally employed to effect the sale of the principal’s property at the highest price achievable.

[£29,000 is close to his desired figure. The expenditure needed to overhaul the vehicle may have been necessary in order for the sale to take place – so Williams would have implied actual authority to do this] [Brown’s argument that he would like his car back as they have gone up in price is invalid – he instructed his agent to sell the car for a figure near (or at) £30,000 – which is what he did]

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Henry gave him £200 to clinch the deal – (secret payment)

The agent cannot obtain any such profit unless he makes full disclosure to the principal of all facts and the principal consents to the agent retaining the profit. Rhodes v Macalister (1923) – Irrelevant whether the principal suffers any damage as a result of the agent’s secret commission or indeed, whether the principal is in fact advantaged by the secret commission. Murad v Al-Saraj [2005] – Clarke L.J explained the position clearly in stating that liability accrued merely by the agent having made a profit without the informed consent of the principal. 

The fact that the principal makes a profit or avoids a loss that he would otherwise have sustained by the agent’s activity is irrelevant.

Imageview Management Ltd v Jack [2009] The fact that the principal avoids loss or makes profit through the agent’s activity is irrelevant: The COA had little difficulty in finding the agent liable to account for both the secret profit and the commission already paid under the agency where he, a football agent, had received a secret payment of £3000. FHR European Ventures LLP v Mankarious [2011]   

Agent failed to disclose a conflict of interest when he acted on behalf of the principal to secure the purchase of a hotel. Unknown to the buyer the agent was also retained as an agent of the seller. Accordingly, the agent had to account for the secret profit, i.e. commission from the seller.

[So, Williams must give Brown the money – or hold it on trust for him?] 

Williams sold my caravans, which were in the motel car park, at a price of £2,000 each, as he wanted more space for guests’ cars.

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Advise Brown as to the legal position. [Distinction ...