Understanding Agency Law

• Agency is governed by common law and the Commercial Agents (Council Directive) Regulations 1993.
• An agency involves a person carrying out a transaction with a third party.

Key Parties

• Principal: The person on whose behalf the transaction occurs.
• Third Party: The person with whom the transaction is made.
• Agent: The person who carries out the transaction.
• A legal relationship exists between the principal & agent and the principal & the third party.
• No legal relationship exist between the agent and the third party.
• Exception: if the agent lacks authority or doesn't sufficiently disclose information.
• Agency can be described as a three-way relationship between a principal, agent, and a third party.
• An agent possesses the authority to act on behalf of a principal when establishing legal relations with a third party.
• It allows them create, alter, or discharge contractual obligations between the principal and third party.

Types of Agents

• General
• Special
• Mercantile
• Del Credere
• Commercial

Creating an Agency Relationship

• Capacity: Relates to the legal ability of an agency.
• Legal Age
• Sound Mind
• Authority
• Expressed
• Implied
• Apparent
• Ostensible
• Formalities & Key Elements
• Ratification
• Operation of Law

Capacity

• The principal must have sufficient legal capacity to enter into a contractual relationship for the contract to be valid.
• The agent's capacity is less pertinent than the principal's.
• Capacity usually involves legal age, as per the Age of Legal Capacity (Scotland) Act 1991, or mental capacity.
• A principal cannot expand their capacity by using an agent.
• Example: A person under 16 cannot enlarge their capacity through an agent, per the Age of Legal Capacity (Scotland) Act 1991, S 2(1).
• The validity of a company's act cannot be questioned due to lack of capacity, according to S.39 of the Companies Act 2006.
• Agents lacking capacity to contract on their own can still contract on behalf of a principal with the required capacity.

Formalities

• Generally, agency arrangements require no specific formalities and can occur orally, in writing, or via deed.
• Formalities are needed when the agent executes a deed for the principal, creates/disposes of land interests, or forms a commercial agency.

Key Elements

• Key elements to check when establishing a valid agency relationship include authority, ratification, and operation of law.
• The most important factor in determining the validity of an agency arrangement is the authority and its extent.

Express & Implied Authority

• Express authority comes from an clear agreement, written or verbal, except in a commercial agent appointment as per Heard V Pilley (1869) LR 4 Ch 546. and Commercial Agents (Council Directive) Regulations 1993, Reg 13 (1).
• Implied authority stems from the agency agreement itself via words or conduct of the principal or agent and can be incidental, customary, or usual.

Apparent or Ostensible Authority

• Apparent or ostensible authority can arise if the agent was previously authorized but has had their authority limited/terminated.
• Third parties may then believe in the agent's authorization if they continue acting as if they were authorized.
• The principal must give the impression of actual authority through words or actions.
• There must be a causal link between the principal's actions/inactions and the third party's belief in the agent's authority.
• The third party must have relied on the representation and suffered loss because of it as a result.

Ratification

• Occurs when the principal performs a unilateral act and either clearly or implicitly acknowledges the actions.
• This strengthens the authority of an agent, who may have been lacking authority at the time of dealing with a third party.
• Key Requirements for ratification:
• Principal in existence
• Legal capacity
• Agent in transaction as an agent
• Time limit
• Contract is not void or illegal
• Principal makes informed choices

Agency by operation of law

• Sometimes the parties involved in an agency arrangement did not intend or wish there to be such a relationship.
• This deemed when a relationship is imposed by the operation of law, and the consent of the parties is bestowed by law.

Necessity

• This is present when there is urgent need for action in order to protect the interests of another from an irreparable outcome.
• Necessary requirements:
• The actions must be necessary
• There is a communication impossibility.
• The actions reasonable, prudent and in good faith
• The principal was competent at the time of the agent's act
• China-Pacific SA v Food Corporation of India (The Winson) [1982] AC 939 (HL)

Imposition by Statue

• An agency relationship may be imposed upon certain parties by statue.
• Partners in partership. ( Partnership Act 1890, s.5)
• Limited Liability Partnership Act 2000, s.6(1)
• Directors of a company (Companies Act s.172)
• Administrator and receiver of a company (Insolvency act 1986, Sch B1, para 69, s.57(1))
• Negotiator in a consumer credit agreement (Consumer Credit Act 1974, s.56(2))

Agent's Duties

• Includes fiduciary duties and duty of good faith.
• The agent's own interest must take second place to the client.
• It should be undertaken with 100% commitment, body and soul.
• Imageview Management Ltd v Kelvin Jack [2009] EWCA Civ 63 [6]; [2009] All E.R.666 at [6].
• Duty to follow instructions
• Duty to act according to the terms of the agency and follow the principal's clear instructions.
• Duty of Skill and Care.
• Duty to perform agency activities with reasonable skill and care.
• Duty to keep accounts

Secret Profit

• There is a duty not to take a secret profit.
• This extends to all benefits beyond money, including the compensation given over the agent's remuneration.

Transacting Conflicts

• Duty not to transact between principal and agent to avoid profiting at the principals' detriment.
• Duty to fully disclose to the principal about the facts of transaction.
• The duty to not disclose confidential business information of the principals.
• A duty of good faith to the client.
• The agent cannot delegate their performance to another.
• Agent must relieve the principal from this liability where the duty has been acted in excess of authority.

Agent's Rights

• Right to remuneration, commission at common law, and under the Commercial Agents (Council Directive) Regulations 1993.
• Right to reimbursement, relief and lien.

Principals Duties

• Acting in good faith
• Providing commercial agent with the necessary documentation, inform the commercial agent, advise the commercial agent.

Agency Relationships with Third Parties

• The main effect of an agency agreement is generally the fostering of a contractual relationship between the principal and the third party.
• This relationship is not always created:
• When the agent for a named or disclosed principal.
• When the agent acts for a disclosed buy unnamed principal.
• When the agent acts for an undisclosed principal
• When the agent exceeds their authority.

Agent acts for disclosed

• When the agent discloses to the third party that there is indeed an agency in place, and the agent identifies the principal.
• Relationship is usually created between the principal and the third party, the agent is not liable

Agent acts for disclosed but unnamed principal

• The third party makes the choice of who they intend to deal with at the onset.
• The third party could take alternative actions against the principle and the agent and can select between both to hold accountable.
• Where the agent refused to identify the unnamed principal, then the agent is liable.

Agent acts for undisclosed principal

• If the third party has concluded the contract or informs themselves during the tenure of the contract with the agent, and the principal discloses himself.
• The principal can sue the third party directly.
• The third party on the other hand, may also sue the principal instead of the agent once the principal.
• The third party then could decide to sue the agent and the third party election could be express or inferred from conduct.

Agent exceeds their authority

• Where an agent has exceeded authority, there is no contract between principal and third party.
• Unless by necessity or operation of law or if ratified by principal.

Termination of an Agency Arrangement

• According to the Commercial Agents (Council Directive) Regulations 1993, minimum notice of termination is imposed by the regulations and both apply to the principle and third party.
• Termination at common law can be done with an agreement by parties, principals revocation of authority, and agent's renunciation of authority.
• Termination by operation of law:
• Death of Principal or agent, leading to a termination in agency.
• By frustration.