Agency 1

While there is no precise definition for an agent or even an exhaustive list of what may amount to an
agency relationship, a starting point can be:

1. Any person who happens to act on behalf of another (The Queen v Kane) (1981)

Textbook definition: An agency is a fiduciary relationship that arises when one person (principal)
manifests assent to another person (agent) that the agent shall act on the principal’s behalf and subject
to the principal’s control, and the agent manifests or otherwise consents.

Example: If P instructs A to act in the purchase or sale of goods from or to T, the contract of sale that
arises is enforceable between P and T. In general, A has no liability to either P or T on that contract

Hence, both P and T can hire agents of their own, and the agents then enter into the contract on their
behalf. Under certain circumstances, one party may be simultaneously both agent and principal
(Aluminium Industry v Romalpa) (1976)

An agent who acts outside the authority granted by the principal will be in breach of the contract by
which the agent was appointed. Where on the other hand, someone represents to the third party that
they have the authority to act as an agent for another person. There is neither actual nor apparent
authority (IE., False representation), and the principal will not be liable. The third party is left only with
an action against the agent for breach of warranty unless the principal adopts the transaction (IE.,
Ratification).

Types of Agents

General agents:

A general agent acts for a principal in the ordinary course of that agent’s business.

Special Agents: A special agent is appointed to act only for a particular type of transaction that is not
part of that person’s ordinary course of business.

A solicitor would be a general agent if authorized to undertake a range of legal work for a client but a
special agent if only authorized by the client to sell a house.

Creation of agency

An agency may be created:

1. By express or implied agreement between the principal and the agent

2. Where there is a representation by the principal to the third party that the agent has authority
(agency by estoppel).
3. Where the principal ratifies an act by someone who, without authorization, purported to
undertake that act as an agent of the principal
4. By necessity (agency of necessity)
5. Where the agency arises under the statute

Typically, an agency is established by consent of both the principal and the agent but no formalities are
normally required. Although the agreement will usually be by contract, this is not necessary: someone
who acts out of friendship without payment may be an agent. (Chaudhry v Prabhakar). The appointment
may be made orally or inferred from the conduct of the principal and agent showing consent as to the
establishment of the agency. The agent’s acceptance can be expressed or may be inferred, as where
actions on behalf of the principal can only be explained by the existence of an agency. If, however, the
parties do put their agreement into a contractual document, it is likely to be decisive in forming a court’s
view of the party’s intention.

Agent must have some degree of autonomy; otherwise, the agent performs merely ministerial
functions:

The degree of control exercised by one party (the alleged principal) over the other (the alleged agent)
may suggest the existence of an agency. That the parties did not intend to create an agency may be
suggested by the fact that the person carrying out the functions is paid through profit earned in trading
rather than through commission or is entitled to fix the price of the goods being sold or retains money
received from the sales.

Actual Authority of the Agent

The principal is bound by only those acts of the agent that are within the scope of that agent’s authority.
(Jacobs v Morris) (1902). If the principal has given prior consent to the agent acting on his behalf, then
the agent can be said to have actual authority. The actual authority will be conferred on the agent by
the principal under the terms of the agreement or contract between them. (Freeman and Lockyer)
(1984)

Express Actual Authority

Express Actual Authority is the authority which the principal expressly gives to the agent, for example,
where the agent is instructed to sell a particular property for the principal. The authority may be
contained in documents and/or conversations between the parties (e.g. Aviva life and pensions UK ltd v
Strand street properties Ltd (2010)) In determining the express authority of an agent, the normal rules
for construing contracts will apply (SMC Electronics Ltd v Akhter Computers Ltd (2001))

Ambiguous instructions:

An agent who adopts a reasonable interpretation will not be in breach of its mandate. (Ireland v
Livingston) Midland bank ltd v Seymour) however, a more modern approach is that the critical question
is not limited to whether the agent’s interpretation was reasonable; it is whether he behaved
reasonably in acting upon that interpretation. (Patel v Standard Chartered Bank (2001)) for example,
with the speed of modern communication methods, it is unlikely that an agent would be deemed to
have a reasonable excuse to adopt one interpretation of patently ambiguous instructions without first
clarifying those instructions with his principal. (European Asian Bank AG v Punjab & Sind Bank (No 2)
[1983]).

Implied/ Accidental Actual Authority

In addition to express actual authority, the agent may have implied actual authority. It is important to
recognise that implied authority cannot contradict express actual authority. Implied actual authority is a
way of filling in the gaps in order to make sense of the agency agreement. It is not a means of altering
that agreement or of making it in some sense fairer. The agent will have implied actual authority to do
those things that are necessarily incidental to the execution of the actual express authority. For
example, in one case an agent instructed to sell a house was held to have incidental authority to sign the
agreement of sale (Rosenbaum v Belton)- had authority (Bryant, Powis, and Bryant Ltd v Law Banque du
Peuple) [1891-94]- no authority

The agent may have authority to undertake that which is implied from the particular circumstances of
the relationship between this principal and this agent (e.g. previous course of dealings)
The agent may have the authority of someone in this agent’s position, trade, business or profession
[Haley-Hutchinson v Brayhead Ltd]

The agent will have such authority as is customarily enjoyed by someone dealing in the particular
market. To imply a custom, it must be uniform, certain, notorious (that is, generally known), recognised
as binding and reasonable (Robinson v Mollett) (1875) A broker employed to transact business in a
market is authorized to deal according to the usage of that market (Nickkals v Merry) (1875). However,
customary authority will not be recognised where it contradicts the express agreement between the
agent and the principal or the normal duties owed by the agent to the principal or mandatory statutory
provisions (Robinson v Mollett) (for instance, such custom cannot be admitted to undermine the
fundamental nature of the agent-principal relationship

Test for implied actual authority

The test of the content of the implied actual authority will typically coincide with the test of the content
of apparent or ostensible authority (Smith v Butler) (2012)

An agent cannot have actual authority when he exceeds and express limit on his authority or when he
does something which his principal has expressly prohibited. However, the principal will continue to be
bound by prohibiting acts of his agent if:

1. Those acts fall within the authority which as agent of that time would usually possess (usual
authority), and
2. The third party dealing with the agent is not aware of restrictions which the principal has placed
on the agent’s authority.

Apparent Authority

Third-party dealing with an agent will not have knowledge of the terms of the contract between the
agent and principal and so will not know the scope of the agent’s actual authority. Apparent authority is
‘the authority of an agent as it appears to others. (Lord Denning in Haley-Hutchinson v Brayhead Ltd)

The third party, therefore, relies on a perception of the authority of the agent as represented by the
principal. The representation creates an agency by estoppel, in other words the principal is prevented or
estopped from denying the existence of the agency.

An agency of estoppel arises where:

1. The principal (or someone acting with the actual authority of the principal) represents to the
third party that the agent is authorized to undertake the transaction which the agent and the
third party subsequently conclude the
2. The agent does not purport to make the agreement as principal
3. The third party is induced to enter into the transaction in reliance upon the principal’s
representation
4. The third party alters their positions to their detriment

Representations by the Principal

In order to be bound by the apparent authority of the agent the principal must have represented
the third party that the agent had the necessary authority to conclude the transaction on behalf of
the principal and the third party must have a reasonable belief that the agent had such authority. In
general, if the representation as to authority comes from the person purporting to be an agent, the
principal will not be bound to the third party (Nayyar & Others v Sapte & Anor)

Ing Re (UK) Limited v R&V Versicherung AG (2006)

The representation may be words or by actions. Usually silence or inaction will not amount to a
representation unless there is a duty to say something, which will be rare (Exception: Spiro v Lintern)

Representation by the agent

Normally, the agent will not be able to represent their authority but the principal can endow the
agent with this authority (actual or apparent) to make representations about the agent’s own
authority to act in the transaction for the principal (Freeman v Lockyer)

1. Armagas Ltd v Mundogas (1986)- Normal approach

2. First Energy Ltd v Hungarian International Bank Ltd (1993)- exception

In first energy the court of appeal took the view that, although the senior manager did not have
authority to make the decision, his position as senior manager loathed him with the authority to
communicate to first energy’s decisions from the head office. In Armagas the manager was held not
to be in a position that would lead the third party reasonably to believe that the manager has the
authority to undertake the transaction. The courts will normally follow the approach taken in
armagas. ***

The third party’s knowledge of the agent’s actual authority cannot be overridden by claims as to
apparent authority. (Overbrooke Estates Ltd v Glencombe Properties Ltd (1974))

Agency of Neccesity

The courts are reluctant to hold P liable on the ground of necessity. In other words, if A has acted
beyond their authority than if A had no prior authority (China-Pacific SA v Food Corporation of India,
‘The Winson’) [1982]

A person may have authority to act on behalf of another in certain cases where he is faced with an
emergency in which the property or interests of that other are in imminent jeopardy and it becomes
necessary, in order to preserve the property interest, so to act.

In some cases this authority may entitle him to affect his principal’s legal position by making
contracts or disposing of property. In other it may merely entitle him to reimbursement of expenses
or indemnity against liabilities incurred in so acting, or to a defence against a claim that what did
was wrongful as against the person for whose benefit he acted.

The agency of necessity may arise where certain conditions are fulfilled:

1. P’s property is in A’s possession as the result of an existing relationship such as a contract of
bailment
2. A is unable to obtain instructions from the owner
3. An emergency threatens the property;
4. A takes action in good faith and that action is commercially reasonable, proportionate and in the
interests of P (Prager v Blatspiel, Stamp and Heacock Ltd (1924).

Agency of necessity will only arise if:

1. It is impossible or impracticable for the agent to communicate with the principal (Springer v
Great Western Rly Co)
2. The action is necessary for the benefit of the principal (Prager v Blatspiel)
3. The agent acts bona fide in the interest of the principal (Prager v Blatspiel)
4. The action taken by the agent is reasonable and prudent (F v West Berkshire Health Authority)
5. The principal has not given the agent express instructions to the contrary (Bowstead v Reynolds)

Ratification

Ratification

If a person (agent) acts without authority, or exceeds his authority, his actions cannot bind the
person (principal) on whose behalf he proposes to act. Subsequently, however, the principal may
ratify the agent’s act. Ratification validates the agent’s actions with effect from the time those action
took place.

The principal will be bound where it validly ratifies a transaction entered into by someone
purporting either to act as its agent when that person has not previously been appointed as such, or
by someone purporting to possess authority beyond that granted by the principal. In determining if
there has been ratification, the motive of the principal is irrelevant.

There are a number of requirements for valid ratification:

1. At the time of the relevant act, the agent must have intended to act on behalf of the principal ,
this intention is gathered from the terms of any contract and surrounding circumstances
(National Oilwell (UK) Ltd v Davy Offshore Ltd)
2. The purported agency must be revealed to the third party before the transaction is concluded.
There can be no ratification where agent makes the contract as principal (Keighley, Maxsted &
Co v Durant). The identity of the principal need not be disclosed, but there must be such a
description of him as shall amount to a reasonable designation of the person intended to be
bound by the contract (Watson v Swann). It will be sufficient if the agent states that they are
 acting for a class of persons to which the principal belongs (National Oilwell (UK) Ltd v Davy
Offshore Ltd)
3. The third party must believe that the person whom they are dealing has authority to act for
another
4. The principal must be competent to enter the contract at the time of the original act by the
agent and at the time of ratification
5. Ratification must occur within a reasonable time after the action of the purported agent (The
managers of the Metropolitan Asylums Board v Kingham)
Ratification may still occur even after the contract has commenced (Williams v North China
Insurance Co)
6. There are no formalities for a valid ratification, but it is essential that the principal must have
intended to ratify. The principal will only be held to have ratified if they did so with full
knowledge of the facts or if it is clear that the principal is willing to adopt the act whatever the
facts (Marsh v Joseph [1897]). Ratification can be express or implied from conduct as long as the
intention to ratify is clear and unequivocal (Aviva Life & Pensions UK Ltd v Strand Street
Properties Ltd [2010]). An authorized agent can ratify.(Suncorp Insurance and Finance v Milano
Assicurazioni SpA).
7. An attempt to ratify only part of a contract and repudiate the rest will generally operate as
ratification of the whole (Suncorp Insurance and Finance v Milano Assicurazioni SpA)

Effect of ratification:

Ratification puts the parties into the position they would have been in had the act been
authorized from the outset. (Keighly, Maxted & Co v Durant). While Ratification normally
relieves the agent from personal liablity to the principal, the principal might be able to to ratify
without waiver of any breach of duty by the agent (where the agent exceeds their authority).
(Suncorp Insurance and Finance v Milano Assicuraziani)

Since ratification puts the parties into the same position as if the act had been authorised from
the outset, then logically it relates back to the moment of the original contract. (Bolton Partners
v Lambert).

Ratification is not likely to be effective in the following situations:

• If the interests of someone other than a party to the original contract are unfairly
affected, or if the unauthorised act was void as a nullity. (Brown v Bird)
Contrast: (Presentaciones Musicales SA v Secunda)
• If the agent and the third party rescind the agreement before ratification (Walter v
James).

Capacity

1. The general rule is that whatever a principal is competent to do personally may be delegated to
an agent. Conversely, a principal cannot authorize an agent to do an act that the principal is not
competent to undertake. (Boston Deep Sea Fishing and Ice Co Ltd. V Farnham (Inspector of
Taxes) (1957))
2. Capacity of the agent: The capacity of the agent to enter the particular transaction on the agent’s
own behalf is irrelevant. Similarly, the fact that the agent would have the capacity to undertake a
transaction on their own behalf will not supply the deficiency of the principal. Finally, it is
important to note that some agents, such as solicitors and insurance brokers, are required by
statute to have particular qualifications before they can act for a principal an respect of certain
transactions.

AGENCY DISTINGUISHED FROM OTHER RELATIONSHIPS

1. Agency and Trusts: An agent acts for another, a trustee holds

Agency and Bailment: A contract of bailment arises where one party (the bailor) delivers or transfers
goods to another (the bailee) on terms that require the bailee to deal with the goods as agreed with
the bailor (e.g. to return them to the bailor or deliver them to someone at the bailor’s direction).
Bailee does not represent the bailor not enter into contracts on bailor’s behalf.

2. Agency and Bailment: A contract of bailment arises where one party (the bailor) delivers or
transfers goods to another (the bailee) on terms that require the bailee to deal with the goods as
agreed with the bailor (e.g. to return them to the bailor or deliver them to someone at the
bailor’s direction). Bailee does not represent the bailor not enter into contracts on bailor’s behalf.

3. Agency and Sale: The distinction can be made according to whether the agent intended to act on
his own behalf or on behalf of someone else. For example, Was A paid a fee or commission or did
A retain the profit from the sale to T? The use of the word ‘agent’ by the parties will not mean
that the person is an agent: ‘the test is ultimately one of substance rather than form’ [Rix LJ in
Mercantile Intl Group plc v Chuan Soon Huat]

4. Agency, Distribution and Franchising: Whether someone is an agent or a principal – that is,
whether the relationship is an agency or a distributorship/franchise – depends on the intention
of the parties: was it their intention that goods supplied would be resold by the recipient acting
as principal, or that they would be sold on behalf of the principal? ‘The test is ultimately one of
substance rather than form. [Rix LJ in Mercantile Intl Group plc v Chuan Soon Huat]