Lecture 3 Law of Agency

Lecture 3: Law of Agency 1. What is Agency? - Agency is whenever a party (Agent) acts on behalf of another party (Principal) to bring about changes between that party’s legal relationship with other parties (Thirdparty). - Common examples: o Directors are agents of their companies o Employees are agents of their employers o Solicitors are agents of their clients - —> in a typical agency scenario, the agent contracts with third-party and DROPS OUT of the transaction. - Agent and third party make an agreement and in law, it is between the principal and third party - Agent is a middle man, conduit for the contract A. Types of Agents - 2 main types: General and Special o General: the agent acts as agent within his ordinary course of business  ie. brokers o Special: the agent is appointed for a specific transaction which is outside his usual course of business - This distinction was used in The Ocean Frost [1986] AC 717 to determine the remit of agent’s apparent authority —> BUT not always helpful - —> better to ask: CAN the agent act in his own name? o ie. brokers: NO (can only be agent), factors: YES (has usual authority to act both as agent and as principal) o Depends on the business or the entity the agent is B. Types of Agency - 2 main types: Disclosed and Undisclosed o Disclosed agency: Agent deals with Third-Party as agent and third-party knows this o Undisclosed agency: Agent deals with Third-party as agent, but third-party does not know this  Undisclosed agency (aka undisclosed principal) is peculiar to English agency law and is not adopted in Civil Law systems - Affects the parties to the contract and each parties’ liability - In a typical agency scenario, agent concludes transaction with third party and drops out, leaving principal and third party o Agent has no liabilities under the contract o Undisclosed agency, agent is not concluding the contract as an agent and cannot drop out of the contract Disclosed Agency - Agent deals with Third-party as AGENT of Principal (whether named or not) - Principal is identified, named, or ascertainable - o If T transacts with A, then he is actually transacting with P o A drop out after concluding the contract o P is party to the contract and bound to perform o A is not party to the contract and cannot be held liable on it Agents cannot be held liable under the contract Undisclosed Agency - Agent deals with Third-party as PRINCIPAL, when he is actually dealing as an agent for the true Principal (undisclosed) - Agent is acting as the principal for all intents and purposes; cannot drop out because he is party to the contract - If T transacts with A, he is actually transacting with A o A does not drop out after concluding the contract —> contract is between T and A – agent can be held liable under the contract or opt to hold the principal o P can step forward at any time to intervene and take the contract: Siu Yin Kwan v Eastern Insurance Co Ltd [1994] o if discovered by the third party, P can be held liable under the contract by third party o P can opt to do the contract himself or let agent do the contract - —> These are the GENERAL principles of agency: there are exceptions 2. Power of Agents - Power = ability of Agent to commit his Principal o Bind to contract, change a legal standing o P bound after the transaction concluded – agent exercising his power to bind the P - If an Agent acts within his actual authority, he has power to bind his Principal o Acting according to the terms of the agency o According to what the P has allowed him to do o Power to bind the P comes from the P from acting within the boundaries - If an Agent acts outside of his actual authority, the Principal may ratify the action and so is bound by his ratification o No power to bind the P o Oversteps the boundaries of what he’s allowed to do o Ratification – P permits this and chooses to be bound by this unauthorised action  Given power to the agent to bind him to that contract - If an Agent acts within his apparent authority, the law invests him with the power to bind his Principal o Without P’s agreement or consent, it is the law that gives agent to bind - Agent of Necessity - power invested by operation of law o Arises when somebody has possession of someone else’s property and has to take action to either preserve or minimise the damage and loss to the property o Property is not owned by the person who has possession - China Pacific SA v Food Corpn of India (The Winson) [1982] AC 939 o Owner paid for the salvage but not for the storing of goods in the warehouse Salvager salvaged the goods separately from the vessel, there was a bailment relationship o When the goods reached Manilla, the salvager became a gratuitous bailer o Allowed to claim for warehousing costs against the owner Sachs v Miklos [1948] 2 KB 23 o Furniture left in a friend’s house and in attempt of returning it back, couldn’t get hold of the owner so they sold it o Held that it was not an agency of necessity because it was not an urgent situation o - A. Authority of Agents - Authority = what the Agent is authorised to do - Actual authority: what Principal has in fact, expressly or impliedly, authorised Agent to do o Mostly through agreement and contract - Apparent authority: what Principal holds out to others as the Agent’s authority to do o Agent cannot hold himself out as having authority o P allows third parties to believe that the agent has authority to do regardless of whether he has given actual authority - Usual authority: what persons in Agent’s position usually has authority to do o Clerk behind the desk has usual authority to authorise sales of things o Watteau v Fenwick [1893] 1 QB 346: controversial case —> CAN UNDISCLOSED PRINCIPALS GIVE APPARENT AUTHORITY? o Not overruled o Through principle of usual authority, undisclosed principals can be bound o P was the owner of a brewery and appointed a manager o Manager had actual authority to only buy certain things from the P, the remit of his actual authority o Manager’s name was on the pub and the license, so the manager brought things from another supplier and the supplier tried to bind the principals to the contract o Manager acting outside his usual authority – power to bind not given by the principal o Only way to bind the principal is to rely on the power of the law  P in this case didn’t say anything o Given usual authority by placing his name on the door and licence o Usual authority of a manager of a pub is to authorise supplies and was upheld B. Apparent Authority - A representation by the Principal – words, actions, conduct o Representation by Agent is not enough: The Ocean Frost o M appointed as managing director by the P but only had actual authority to authorise short charter parties o Tried to authorise a 3-year charter party and claimed to have authority to approve o Court refused as it wasn’t a representation of the P but of the agent - - Freeman v Lockyer – establish apparent authority o Must show that there was a representation that the agent had authority to enter on behalf of the principal o Such representation made by someone who had actual authority to do so o Third party relied on the representation and induced by it to enter into the contract o Under memorandum articles of association, company was not deprived of the capacity  P has capacity to enter into contracts Detrimental reliance by Third-party on representation Third party is induced by the representation to enter the contract o Bedford Insurance Co Ltd v Institutio de Resseguros do Brasil  P were insurers selling insurance contracts in Hong Kong which was illegal  Sold to clients and they sought to bind the principal on the basis of apparent authority but was decided on illegality and overturned  There was evidence of apparent authority because the P encouraged the agent to tell people they were authorised to sell insurance contracts o T cannot know of A’s lack of authority: Criterion Properties plc v Stratford UK Properties LLC  Includes actual knowledge and constructive knowledge – should have known  Criterion – company with directors trying to get rid of managing director through a poison pill agreement with another company  Protect themselves from being dismissed  P company was to buy out Oak Tree on favourable terms at inflated price  Condition was if Criterion was to be taken over by someone else and facing a takeover bid or if directors were no longer in their post  Criterion found out and fired managing director  Judge said no because Oak Tree didn’t rely on apparent authority as the deal was so detrimental to Criterion that the managing director had no authority to do this  Apparent authority is about relying on that the agent has authority from the P to do this  If there is bad bargain, there is constructive notice that agent had no authority o T cannot fail to make reasonable inquiries: East Asia Co Ltd v PT Satria Tirtatama Energindo  Takeover case with directors trying to save jobs  Managing directors try to organise a buyout right but were side-lined by other directors  Do it behind their backs and brought PT Satria as a party in this buy out  Satria knew to authorise a big transaction, a board resolution was necessary to sign off this transaction but did not make further inquiries  Turned a wilful blind eye despite so many irregularities  Could not rely on apparent authority - Contract is within the capacity of Principal o If the P cannot bind himself to a contract, then an agent cannot bind the P C. Ratification - Principal may RATIFY a contract Agent concluded without authority - Gives authority to agent and bind himself to the contract o Principal must be disclosed and named: Keighley, Maxsted & Co v Durant  Only disclosed  Keighley – appointed Robert to buy wheat for a joint account at a certain price  Couldn’t buy at the price and mandate expired  Later, Roberts bought wheat for the joint account from Durant  Keighley agreed and ratified  When Durant tried to deliver, Keighley failed to take deliver and as the market had been declined, Durant had to sell at a loss  Court said there was no actual agency relationship, so Keighley wasn’t an undisclosed principal  Even if Keighley agreed to take on the contract, has no capacity as they weren’t principals  Only disclosed principals can ratify o Contract cannot have been made on behalf of another Principal: Jones v Hope  Voluntary corporation of made-up members  Contract made on behalf of this corp could not be ratified by individual members  Separate legal entities  Legal entity on whose behalf you made the contract is the only one who can ratify the contract o Principal must be in existence when contract is concluded: Kelner v Baxter  2 people set up a business and entered into several agreements with suppliers prior  Could not be bound by these contracts as at that time the company was not in existence, so P did not yet exist 3. Duties of Agent to Principal - 2 types of relationships: o Internal to the agency agreement – P and A o External – A, P, and T - Contractual o Reasonable care and skill (also a tortious duty) o Observe P’s instructions (within reasonable limits) - implied term - Fiduciary o No conflict rule: self-interest and multiple principals —> EXCEPT real estate agents  Agent cannot put themselves in a position where their self-interest or interest of another party take precedent or interfere with the agent doing what’s best for its principal  Applies to acting for more than one principal – priority Exception is for real estate agents whose business is to act for multiple P at a time – cannot do their business Looks after interest and property of another person Kelly v Cooper; Rossetti Marketing Ltd v Diamond Sofa Company Ltd  Real estate agent that took 2 different sellers and one P was unhappy that if they knew information, they could’ve gotten a better price  Court said because the nature of real estate agents means they must act for multiple parties  With the proviso that they keep transactions separate and act in good faith Rossetti – Diamond Sofa had an agent marketing their furniture in a market and gave permission to act for 2 other disclosed P on the condition that they do not come into competition with each other Agent sold the agency and appointed another agent and Diamond terminated it saying it was on the basis of conflict of interest Court said as long as they agree and abide by condition that they could act for 2 other disclosed principals and don’t come into competition No profit rule: either disgorge or hand over property  Unauthorised profit from relationship  Disgorge – personal remedy by giving back money  Boardman v Phipps; FHR European Ventures LLP v CedUar Capital Partners LLC; Angove’s Pty Ltd v Bailey  Trustees found a business opportunity through acting as trustees, but other trustees did not agree so they brought it themselves and made a massive profit  Were sued and had to hand over the profit – should not have taken the opportunity  FHR – disgorgement was the usual remedy – funds were dissipated or mixed with other funds; common law says it is difficult to get them back, also if agent went bankrupt  Shouldn’t be a personal remedy but a proprietary remedy; P go after any property the agent has  To strip the P of everything that they might gain from being disloyal  o o o o o o - - Agents used for economically efficient purposes Some principles must act for agents because they are not natural persons – agents Impossible for agents to conform to the no conflict and no profit rule since everyone is in it to make a profit – want to maximise commission Fiduciary duties can be relaxed with Principal’s INFORMED CONSENT o A compromise against commercial reality o Rossetti v Diamond Sofa – P able to relax the 1 agent, 1 principals’ rule (no conflict) by giving express informed consent to their agent acting for 2 disclosed P Agent must disclose all material information —> Law Commission Consultation Paper Fiduciary Duties and Regulatory Rules (Const. Paper no 124, 1992) - o If agent holds back information that prevents the P from making a fully informed consent, that consent will not be effective Limitation/exclusion of duties must be reasonable —> UCTA 1977 o Unfair Contract Terms o Cannot be unfair or unreasonable Cannot exclude liability for fraud —> HIH Casualty and General Insurance Ltnotd v Chase Manhattan Bank o Can exclude for innocent or negligent actions 4. Duties of Principal to Agent - Contractual o P agreed to bind himself to - Common law o Remuneration: agents are entitled to reasonable remuneration —> usually provided for in the contract, but if not, then a reasonable amount for the work A does  Despite nothing stated in the contract  If it is that type of relationship where remuneration is expected, courts will imply a reasonable rate of deliberation into the contract o Indemnification: agents are entitled to be indemnified by the principal for any expenses incurred in the performance of his duties  P’s gains from agent’s performance  Includes legal liability if in proper performance – cost of defending himself or paying damages fall to the P o Agent has common law right of lien (proprietary) and personal claim for these amounts  Agent has proprietary and personal claim against the P for those costs  Personal – P owes agent money  Lien – agent has access to possession of P’s assets  Security over the P’s goods  Agent can take possession and keep them until they pay 5. Commercial Agents Regulation - Commercial Agents Regulation 1993 — enacts EU legislation - Imposes duty of good faith on both agents and principals —> this is a change from common law as principals are not usually subject to fiduciary duties to agents —> Reg 4 o P must give the agent the means or the tools to be able to earn his commission o Good faith prevents the P from acting in a way that impedes or stops the agent from achieving the commission - Entitles agents to remuneration —> Reg 6 - Entitles agents to compensation or indemnification upon termination of agency —> Reg 17 o To compensate agent for damage or loss of the value of his agency  Way of quantifying from French law o To indemnify agent for benefits he gained for his principal Common law indemnification is different – P reimbursing agents for the costs that they’re put to in the course of their duties  This indemnification is indemnifying the agency for bringing benefits to the principals after the agency ended and cannot earn commission on those benefits This legislation only applies to commercial agents i.e., not employees  - 6. Positions of Third Parties - External relationship between third party and agent and principals - Whether the agency is disclosed or undisclosed – third party knew agent was acting on behalf of someone else - Disclosed agency: contract is between P and T o It is theoretically possible that a contract can be stipulated as between A and T despite a disclosed principal: Filatona Trading Ltd v Navigator Equities Ltd [2020]  Russian minister but did not want to be publicly associated so he nominated someone to act on his behalf  Everyone knew he was the true principal but, on the document, he was not named  Court said because it is disclosed, it is difficult to exclude the P  Theoretically, if used in such clear words on the face of the document explicitly, that the P is not party to this contract, they were successful in excluding P  If agent signed on his own behalf and is clear on the document o If agreement is signed and A signed in his own name, he is liable unless it is clear he signed in agent capacity: The Swan [1968]  Owner of a fishing vessel hired it to JDR who then instructed claimant to undertake repairs  JDR could not pay the claimants, so they sued  Held that JDR was acting as an agent for their principal JDR Co.  When an owner of a ship contracts for repairs it is usual to assume they are the principal  JDR were signed as an agent of the owner of the ship which is JDR Co.  Apply to directors signing a document in his own name without noting representative  Look at the context to see if he was acting in representative capacity of himself - Undisclosed agency: contract is between A and T o T may elect to sue P instead: Browning v Provincial Insurance Co of Canada  Made part of the contract or choose to become  Browning – third party discovers that there was an undisclosed principal behind the agent, they can opt to sue the P instead of agent  Useful as P has more resources o P may intervene in contract made on his behalf: Siu Yin Kwan v Eastern Insurance Co Ltd  P can step forward to take the contract if the contract does not exclude on the face of document   Different from Filatona – trying to use the contract to exclude P – Judge said explicitly clear words is needed If the contract on the face of it, excludes the P - contract is constrained to the people whose names on the contract, P cannot intervene - Undisclosed agency principles do not apply if: o Only named persons on the document can sue: Filatona Trading Ltd v Navigator Equities Ltd  Contract only enforced by named people and undisclosed P is not one of them, cannot use law of Siu Yin Kwan o T only intends to contract with A: Said v Butt  Difficult in commercial contract – happy to deal with whoever no matter the identity  Adduce evidence to say identity matters then court gives effect  Said v Butt – person was blacklisted from number of London theatres for being a nuisance  Asked a friend to go buy it for him and when he turned up, he was thrown out  Court said identity was material and them not wanting to contract, cannot use undisclosed agent o A did not make contract on behalf of P: Teheran-Europe Co Ltd v S. T. Belton Ltd  Ratification – agent didn’t make on behalf of disclosed P then that P cannot ratify o P did not give A authority to contract on his behalf: commission agency  Actual authority – P does not give agent the power to bind contract, agent and third party cannot force P to be involved 7. - Termination of Agency By mutual agreement according to terms of contract Ending authority and power Principal unilaterally revoking authority —> if this is in breach of contract agent has claims for damages: Walsh v Whitcomb (1797) o Authority of agent comes from P - P saying I am not giving you power is effective – comes with consequences if breached o Irrevocable agency —> where the authority is coupled with an interest of the agent: Angove’s v Baileys; Frith v Frith; Smart v Sandars  Authority is given to the agent in order to protect an interest of the agent  Authority cannot be revoked unless and until the interest has been fulfilled  Cannot be interest to earn commission – arises from the agency  Interest first then agency is given to protect the interest to ensure that the agent manages to fulfil this interest  E.g., debt  Angoves – wine distributor selling on behalf of P and collecting debts  They would take commission and send the rest back to P Agent went insolvent and P unilaterally revoked their authority to act as agent with immediate effect  Money from clients still outstanding – agent went to collect these debt  Was never to protect interest of the agent therefore, P can revoke authority  Only interest is to earn commission Commercial Agents (Council Directive) Regulations 1993: Reg 17 compensation and indemnification for agent upon termination o Lonsdale v Howard & Hallam Ltd [2007]; W Nagel v Pluczenik [2018] —> compensation = loss of future value of agency  Quantify remedy  Lonsdale – French court looks at 2 years’ worth of remuneration  HoL disagreed and stated value of the agency should be used to calculate compensation  Nagel – diamond dealer and terminated his agency Indemnification – will the P still have benefits accruing to him after agency? o Continuing benefit that they will no longer earn commission over o Cap of 1 year commission o Semen v Deutsche Tamil GmBH Case C-348/07 [2009] —> indemnification = value of benefit gained for principal  - - - Compensation viewed as more generous English law allows both Must specify that the agent is limited to indemnification or compensation