Commercial law agency

Commercial Law

Law of Agency

Outline of the Law of Agency

• What is Agency?• Elements of an Agency• Commercial Significance• Relevant Terminology• Types of Agency• Case law relating to agency

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.

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 v Carrigan’s Hazeldene Pastoral Co (1958) 100 CLR 644; Butterworths Concise Legal Dictionary.

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

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.

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

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.

Agency of Necessity

• Where an agency relationship is deemed to be implied or necessitated by reason of emergency: Bank of New South Wales v Owston (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.

Actual Express Authority

• Actual Express authority – expressly given by the principal in words or writing.

• Freeman & Lockyer v Buckhurst (Diplock LJ)(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…”

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.

Actual Implied authority

• Hely-Hutchinson v Brayhead [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”

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.”

Hely-Hutchinson v Brayhead

• Hely-Hutchinson v Brayhead [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.


• The plaintiff had another company Perdio which went into liquidation.

• The plaintiff sued Brayhead for the losses he had incurred.

• Brayhead Ltd refused to pay on the basis that Mr Richards had no authority to make the guarantee and indemnity contract in the first place.


• 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 Brayhead v Hely).


• 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.


• 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.


• 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.”


• 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.

Apparent or Ostensible authority – Freeman & Lockyer v Buckhurst [1964]

• Facts: Kapoor and Hoon formed the defendant company to purchase and resell a large estate.

• Kapoor was a director of the company, but not managing director. Therefore he did not have any actual authority.

• Kapoor personally, agreed to pay the running expenses and to be reimbursed out of the proceeds of the resale.

Freeman & Lockyer v Buckhurst [1964]

• Kapoor contracted 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.


• 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.”


• 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.


• [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…”


• [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.

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.

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.


• 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.


• 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.

No Authority by real estate agent – Petersen v Moloney

• Petersen v Moloney 1951 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.

Petersen v Moloney

• 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.

Petersen v Moloney • 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 alium facit 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.

Petersen v Moloney

• "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…”

Petersen v Moloney

• “…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…”

Petersen v Moloney

• “…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.”

Petersen v Moloney

• 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.

Breach of warranty of authority

• Where agent does not have authority –– Gosling v Gaskel [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.

Undisclosed principal

• Keighley, Maxstead & Co v Durant [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.

Keighley, Maxstead & Co v Durant

• 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.


• 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…”


• 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.

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: Maynegrain v Compafina [1982].

• See also breach of warranty of agency.

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.

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.

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.”

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: Dargusch v Sherley Investments [1970] Qd 338.

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.

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: Fullwood v Hurley [1928].

• Lawyers acting in this scenario must be aware of the more stringent requirements under the Legal Profession Act.

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.

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.

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