Law of Agency Past Paper PDF

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 (Third-party). - Common examples: - Directors are agents of their comp...

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 (Third-party). - Common examples: - Directors are agents of their companies - Employees are agents of their employers - 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 - General: the agent acts as agent **within his ordinary course of business** - ie. brokers - 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? - ie. brokers: NO (can only be agent), factors: YES (has usual authority to act both as agent and as principal) - Depends on the business or the entity the agent is B. Types of Agency - 2 main types: Disclosed and Undisclosed - Disclosed agency: Agent deals with Third-Party as agent and third-party *knows* *this* - 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 - Agent has no liabilities under the contract - 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 - If T transacts with A, then he is actually transacting with P - A drop out after concluding the contract - P is party to the contract and bound to perform - 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 - 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 - P can step forward at any time to intervene and take the contract: *Siu Yin Kwan v Eastern Insurance Co Ltd* \[1994\] - if discovered by the third party, P can be held liable under the contract by third party - 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 - Bind to contract, change a legal standing - 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 - Acting according to the terms of the agency - According to what the P has allowed him to do - 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 - No power to bind the P - Oversteps the boundaries of what he's allowed to do - 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 - Without P's agreement or consent, it is the law that gives agent to bind - **Agent of Necessity** - power invested by operation of law - 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 - Property is not owned by the person who has possession - *China Pacific SA v Food Corpn of India (The Winson)* \[1982\] AC 939 - 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 - When the goods reached Manilla, the salvager became a gratuitous bailer - Allowed to claim for warehousing costs against the owner - *Sachs v Miklos* \[1948\] 2 KB 23 - 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 - Held that it was not an agency of necessity because it was not an urgent situation 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 - Mostly through agreement and contract - **Apparent** authority: what Principal holds out to others as the Agent's authority to do - Agent cannot hold himself out as having authority - 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 - Clerk behind the desk has usual authority to authorise sales of things - *Watteau v Fenwick* \[1893\] 1 QB 346: controversial case ---\> CAN UNDISCLOSED PRINCIPALS GIVE APPARENT AUTHORITY? - Not overruled - Through principle of usual authority, undisclosed principals can be bound - P was the owner of a brewery and appointed a manager - Manager had actual authority to only buy certain things from the P, the remit of his actual authority - 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 - Manager acting outside his usual authority -- power to bind not given by the principal - Only way to bind the principal is to rely on the power of the law - P in this case didn't say anything - Given usual authority by placing his name on the door and licence - 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 - Representation by Agent is not enough: *The Ocean Frost* - M appointed as managing director by the P but only had actual authority to authorise short charter parties - Tried to authorise a 3-year charter party and claimed to have authority to approve - Court refused as it wasn't a representation of the P but of the agent - Freeman v Lockyer -- establish apparent authority - Must show that there was a representation that the agent had authority to enter on behalf of the principal - Such representation made by someone who had actual authority to do so - Third party relied on the representation and induced by it to enter into the contract - 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 - *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 - **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 - 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 - 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 - 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 - 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 - 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: - Internal to the agency agreement -- P and A - External -- A, P, and T - Contractual - Reasonable care and skill (also a tortious duty) - Observe P's instructions (within reasonable limits) - implied term - Fiduciary - **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 - 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 - A compromise against commercial reality - 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) - 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 - Unfair Contract Terms - Cannot be unfair or unreasonable - Cannot exclude liability for fraud ---\> *HIH Casualty and General Insurance Ltnotd v Chase Manhattan Bank* - Can exclude for innocent or negligent actions 4. Duties of Principal to Agent - Contractual - P agreed to bind himself to - Common law - **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 - **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 - 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 - P must give the agent the means or the tools to be able to earn his commission - 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 - To **compensate** agent for **damage or loss of the value** of his agency - Way of quantifying from French law - 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 - 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 - 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 - 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 - 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: - 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* - 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 - 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 - 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) - Authority of agent comes from P - P saying I am not giving you power is effective -- comes with consequences if breached - 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 - *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? - Continuing benefit that they will no longer earn commission over - Cap of 1 year commission - *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