­Chapter 15
Law of Agency
[15.20]
[15.30]
[15.40]
[15.50]
[15.110]
[15.210]
[15.340]
Copyright © 2020. Thomson Reuters (Professional) Australia Pty Limited. All rights reserved.
[15.390]
[15.500]
Definition of agency.........................................................................................................374
Agency distinguished from other relationships...............................................................374
Capacity to act as principal and agent.............................................................................375
Creation of agency............................................................................................................375
[15.60]
Expressly.........................................................................................................375
[15.90]
Holding out or estoppel..................................................................................376
[15.100] Ratification......................................................................................................376
Nature and scope of an agent’s authority........................................................................377
[15.120] The authority of an agent...............................................................................377
[15.170] Apparent authority.........................................................................................379
Duties of an agent.............................................................................................................380
[15.220] Duty to follow the principal’s instructions....................................................380
[15.230] Duty to act in person......................................................................................381
[15.240] Duty to act in good faith................................................................................381
[15.260] Duty to make full disclosure of any personal interest....................................381
[15.280] Duty not to make a secret profit.....................................................................381
[15.300] Duty to exercise reasonable care and skill......................................................382
[15.330] Further duties..................................................................................................383
Rights of agents.................................................................................................................383
[15.340] Right to remuneration....................................................................................383
[15.370] Right to indemnity and reimbursement........................................................384
[15.380] Right of lien....................................................................................................384
Liabilities of agents...........................................................................................................384
[15.400] Liability of the agent to the principal............................................................384
[15.410] Liability of the agent to third parties.............................................................384
[15.450] Breach of warranty of authority.....................................................................386
[15.460] Liability of the principal and agent for misrepresentation............................386
[15.470] Liability of the principal and agent for tortious acts.....................................386
Termination of agency......................................................................................................387
[15.510] Performance or completion of agency...........................................................387
[15.520] Impossibility of performance..........................................................................387
[15.530] Agreement.......................................................................................................387
[15.540] Revocation......................................................................................................387
[15.550] By death..........................................................................................................388
[15.560] By insanity......................................................................................................388
[15.570] Bankruptcy......................................................................................................388
[15.580] Renunciation by the agent.............................................................................389
Turner, T. &. G. (2020). Concise australian commercial law. Thomson Reuters (Professional) Australia Pty Limited.
CACL6___Book.indb
Created from monash373
on 2025-01-11 06:12:11.
27-Nov-20 15:52:20
374
Part 5: Business Relationships
Introduction
Figure 15.1 : The agency matrix
Principal
• Authorises agent to act
Third party
Agent
• Contract created with
principal. Agent drops out
• Acts with third party on
behalf of principal
Copyright © 2020. Thomson Reuters (Professional) Australia Pty Limited. All rights reserved.
[15.10] An increasingly important concept in the commercial world is the concept of agency.
Although we usually act for ourselves and are responsible for our own actions, it is also clear that
for various reasons –​lack of time, lack of expertise, inability to be present –​we often rely upon or
engage others to act on our behalf. We only need to think of real estate agents, sports and theatrical
agents, stockbrokers, employees, travel agents and directors of corporations to appreciate that
agency is crucial to many aspects of commercial life.
Definition of agency
[15.20] Agency is the relationship existing between two parties whereby the agent is authorised by the
principal to do, on the principal’s behalf, certain acts which affect the principal’s rights and duties in
relation to third parties. An agent has express or implied authority to act for a principal with the general
object of bringing the principal into legal relations with a third party.
Agency distinguished from other relationships
[15.30] Agency overlaps with two other relationships which appear at first sight to be similar, namely, that
of employer and employee and that between an independent contractor and the person with whom they
contract. Employees and independent contractors are mutually exclusive classes. Employees are subject to
control regarding the manner in which their work is to be carried out. Independent contractors exercise
their own discretion as to the manner in which they carry out the work they undertake to perform.
Some independent contractors are agents for those who employ them and some employees are general
agents for their employers but it is not true to say that all employees or all independent contractors are
Turner, T. &. G. (2020). Concise australian commercial law. Thomson Reuters (Professional) Australia Pty Limited.
CACL6___Book.indb
Created from monash374
on 2025-01-11 06:12:11.
27-Nov-20 15:52:20
­Chapter 1 Law of Agency
375
agents for their employers. The essence of agency is that it should be within the scope of the employment
that the person employed brings the employer into a legal relationship with a third party. With some types
of employee this will be readily implied. For example, a shop assistant employed to sell goods is an agent.
On the other hand, a domestic servant is not generally an agent of the employer. An auctioneer retained to
sell goods is an agent but not an employee.
An agent should also be distinguished from a trustee. Both act in a similar manner, that is, on behalf of
other persons. However, although a trustee exercises their powers on behalf of beneficiaries, a trustee is not
the agent of the beneficiaries. Thus, a trustee does not bring the beneficiaries into a contractual relationship
with third parties. In dealing with matters relating to the trust, the trustee is considered a principal not
an agent.
Capacity to act as principal and agent
[15.40] There is a marked distinction between a person’s capacity to act as a principal and their capacity
to act as an agent. Generally speaking, only those persons with full contractual capacity may employ an
agent. Any person can be employed as an agent and can exercise any of the rights and powers conferred
by the contract of agency, even though they may not have the necessary contractual capacity to bind
themselves in similar negotiations.
An agent cannot have greater powers conferred upon them than the principal has; if the principal is
under some disability, the powers of the agent are equally limited according to the nature of such disability.
Where the alleged principal is in fact incapable of giving authority to an agent to act on their behalf, an
agent who represents that he or she has such authority is liable to the third party for breach of warranty
of authority.
Copyright © 2020. Thomson Reuters (Professional) Australia Pty Limited. All rights reserved.
Creation of agency
[15.50] The relationship of principal and agent may be created in the following ways:
(a)
expressly (ie by agreement)
(i)
by deed;
(ii)
by writing; and
(iii)
by word of mouth;
(b)
“holding out” or estoppel;
(c)
ratification; or
(d)
operation of law
(i)
agency of necessity; and
(ii)
agency arising by cohabitation.
Expressly
By deed
[15.60] The appointment of an agent by deed (ie an instrument under seal) is necessary where the agent
is required to execute any instrument under seal on behalf of their principal, in which case the document
creating the power is termed a power of attorney.
Turner, T. &. G. (2020). Concise australian commercial law. Thomson Reuters (Professional) Australia Pty Limited.
CACL6___Book.indb
Created from monash375
on 2025-01-11 06:12:11.
27-Nov-20 15:52:20
376
Part 5: Business Relationships
By writing
[15.70] An agent is often appointed in writing. In some cases, the appointment is required by statute to
be in writing. For example, in most States agents employed to sell or buy land and agents employed to sell
or buy businesses cannot sue for remuneration, that is, commission, unless the appointment of the agent
is in writing.
By word of mouth
[15.80] A verbal offer followed by acceptance in writing or verbally is sufficient to conclude a contract
of agency for most purposes other than those mentioned above. In practice, it is usually desirable that the
appointment of an agent be in writing.
Holding out or estoppel
[15.90] The relationship of principal and agent may arise where one party, P, either by words or conduct,
leads others to believe that A is P’s agent. In such a case, P cannot subsequently deny the authority of A to
act as P’s agent where a third person has entered into an agreement with A because of the representation
that A was the agent of P. Whether P has engaged in “holding out” to third parties that A is their agent is
a question of fact to be decided upon the circumstances of each particular case.
Ratification
Copyright © 2020. Thomson Reuters (Professional) Australia Pty Limited. All rights reserved.
[15.100] The relationship of agency may also arise as a result of “ratification”. Where one person acts
on behalf of another, without having authority to do the particular act, the person on whose behalf the
act is done may, by “ratifying” it, render the act as valid and effectual as if it had been done by their duly
authorised agent.
This may arise where an agent has exceeded their authority. For example, where an estate agent enters
into a contract for a lease for a term longer than the principal has stipulated, the principal may adopt the
transaction and thus bind themselves to the unauthorised act of the agent.
In order that the ratification may be effectual, the following rules should be observed:
1.
The acts must have been done as agent for and on behalf of the supposed principal. For the legal
position where an agent does not disclose to the third party that he or she is acting as an agent, see
[15.440].
2.
The ratification may only be by a principal who was in existence at the time of the making of the
contract. This relates to the pre-​incorporation activities of a corporation.
3.
The principal must have the capacity to make the contract both at the date of the contract and at
the date of ratification.
4.
Ratification must be of the whole contract. A principal cannot ratify that which is beneficial and
reject the remainder.
5.
Ratification must be with full knowledge of what has been done so that the inference may properly
be drawn that the principal intended to take upon themselves the responsibility for such acts.
Provided the ratification complies with the above rules, it operates retrospectively to validate a previously
unauthorised act so it is as if the agent had been vested with authority at the outset.
Turner, T. &. G. (2020). Concise australian commercial law. Thomson Reuters (Professional) Australia Pty Limited.
CACL6___Book.indb
Created from monash376
on 2025-01-11 06:12:11.
27-Nov-20 15:52:20
­Chapter 1 Law of Agency
377
Nature and scope of an agent’s authority
Figure 15.2 : Agent’s authority
The authority of an agent
Actual authority
Apparent authority
Express authority
Implied authority
Oral or written
“Necessarily incidental” to carry
out tasks
Usual authority that agents of
that type have
Agent acting without
authority
Principal not
bound
Principal may
ratify
Copyright © 2020. Thomson Reuters (Professional) Australia Pty Limited. All rights reserved.
[15.110] The principal will only be bound by those acts of the agent that fall within the scope of the
agent’s authority and will not be affected by what the agent does in excess of their authority, unless the
principal subsequently ratifies the unauthorised act. Furthermore, if the agent acts outside their authority,
the agent may be liable to the principal for breach of the contract of agency or to third parties for breach
of implied warranty of authority.
The following case is an example of the importance of determining the scope of an agent’s authority.
In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52 (see [9.260]), the main issue was whether
the principle of L’Estrange v Graucob [1934] 2 KB 394 applied. Alphapharm also submitted that Richard
Thomson Pty Ltd was not acting within its authority when its employee signed the contract. If not, the
Conditions of Contract that included the exclusion clause would not bind Alphapharm. The High Court
rejected the argument and concluded that Thomson was acting as an agent for Alphapharm and acting
within its authority. The Court said:
The evidence compels the conclusion that Alphapharm authorised Thomson to contract with
Finemores and to agree upon rates of freight, terms of payment, and such other standard terms
and conditions of the contract of storage and transportation as were required by Finemores. So
long as the terms and conditions to which Richard Thomson agreed were Finemores’ standard
terms and conditions then Richard Thomson was acting within its authority.
The authority of an agent
Actual authority
[15.120] The actual authority of an agent is either actual express authority or actual implied authority. The
general nature and effect of the actual authority of an agent was explained by Diplock LJ in Freeman &
Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 as follows:
Turner, T. &. G. (2020). Concise australian commercial law. Thomson Reuters (Professional) Australia Pty Limited.
CACL6___Book.indb
Created from monash377
on 2025-01-11 06:12:11.
27-Nov-20 15:52:21
378
Part 5: Business Relationships
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. To this agreement the
contractor is a stranger; he may be totally ignorant of the existence of any authority on the part of
the agent. Nevertheless, if the agent does enter into a contract pursuant to the “actual” authority,
it does create contractual rights and liabilities between the principal and the contractor.
Actual express authority
[15.130] The express authority of an agent is the authority the principal has expressly given the agent
in words or writing. An example is where the principal gives the agent specific instructions to enter into
a contract on the principal’s behalf to purchase a particular piece of land at a stipulated price. In other
words, the agent’s authority may be specifically created and limited by the terms of the agreement which
gives rise to the agency relationship.
Actual implied authority
[15.140] The agent may have a further implied authority to do whatever is necessarily incidental to
carrying out the principal’s express instructions. For example, where an agent is expressly authorised
to buy certain shares, the agent will also have implied authority to do everything in the usual course of
business to complete the transaction.
Copyright © 2020. Thomson Reuters (Professional) Australia Pty Limited. All rights reserved.
Furthermore, where a person employs a particular type of agent to carry out some act on behalf of the
principal, the agent will have such implied authority as agents of that class normally have to carry out
their functions. For example, when the board of directors of a company appoints one of the directors to
be managing director, “[t]‌hey thereby impliedly authorise him to do all such things as fall within the usual
scope of that office”: Hely-​Hutchinson v Brayhead Ltd [1968] 1 QB 549.
Hopcroft v Edmunds
[15.150] Hopcroft v Edmunds (2013) 116 SASR 191. The respondent’s accountant sent
a shareholders’ agreement to the appellants for signature. The respondents did not sign the
agreement. The appellants argued that the accountant had authority to make an offer on the
respondent’s behalf by sending the contract for their signature. It was held that the accountant
did not have actual authority to bind the respondents. Although the evidence was that the
respondents had told their accountant to “do whatever [is] necessary”, the Court held that such
an instruction related only to ascertaining the necessary actions and preparing the necessary
documents. The expectation that the respondents would need to have signed the agreement
in order to be bound could only have been displaced by clear evidence of the accountant’s
authority to bind them.
[15.160] Implied authority is regarded as an aspect of an agent’s actual authority because implied authority
can only arise where the principal has consented to the agent having authority to act in such a manner.
If there is evidence that the principal has not so consented, then it cannot be said that there is implied
authority. However, as we shall see in the next paragraph, it may well be that in such a case the third party
can rely on the agent’s apparent authority to enter into the particular transaction.
Turner, T. &. G. (2020). Concise australian commercial law. Thomson Reuters (Professional) Australia Pty Limited.
CACL6___Book.indb
Created from monash378
on 2025-01-11 06:12:11.
27-Nov-20 15:52:21
­Chapter 1 Law of Agency
379
Apparent authority
[15.170] As we have seen, actual authority arises from the relationship that exists between the principal
and the agent. The third party does not affect the extent of actual authority. Provided the agent acts within
the scope of their actual authority, the principal is bound by the acts of the agent. On the other hand,
apparent authority arises from the relationship between the principal and the third party. The agent does
not affect the extent of apparent authority. The extent of the authority depends on what the principal
represents to the third party (expressly or impliedly, by words or conduct) about the authority of the agent.
Once the principal relies on the representations by the principal, the principal cannot subsequently claim
the agent did not in fact have that authority.
If a principal allows an agent to occupy a particular position, such as where the board of directors
of a company permits one of the directors to act as a managing director without having been formally
appointed, the agent will have apparent authority to deal with third parties in a manner consistent with
the functions normally falling within the usual authority of the holder of that position. The following case
is the leading authority on this point.
Copyright © 2020. Thomson Reuters (Professional) Australia Pty Limited. All rights reserved.
Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd
[15.180] Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480.
Kapoor and Hoon formed the defendant company to purchase, develop and then resell the
Buckhurst Park Estate in Berkshire, UK. The board of directors comprised Kapoor, Hoon and
a nominee of each. The Articles of the company contained a power to appoint a managing
director but none had been appointed. The development of the land was left to Kapoor who,
with the knowledge of the board of directors, acted as managing director although he had never
been formally appointed to the position. Kapoor employed Freeman and Lockyer, the plaintiff
firm of architects. Kapoor had no specific authority to do this, either in the Articles or from the
Board. When the architects claimed their fees from the company, the company refused to pay,
arguing that Kapoor had no authority to employ the architects. The plaintiffs sued the company
for payment of their fees.
The Court rejected the submission that Kapoor had actual authority. There was no express
authority to engage the architects and there was no implied actual authority, which might
have existed had Kapoor been appointed managing director. However, the Court of Appeal
unanimously agreed that Kapoor had apparent authority to engage the plaintiffs. Kapoor was
the driving force behind the venture (Hoon was absent for most of the time) and evidence
from the Board meetings indicated Kapoor should carry out all the acts necessary to make the
venture a success. However, before, such authority exists, Diplock LJ set out four criteria that
must be met:
… (1)
that a representation that the agent had authority to enter on behalf of the company
into a contract of the kind sought to be enforced was made to the contractor;
(2)
that such representation was made by a person or persons who had “actual” authority
to manage the business of the company either generally or in respect of those matters
to which the contract relates;
(3)
that he (the contractor) was induced by such representation to enter into the contract,
that is, that he in fact relied upon it; and
Turner, T. &. G. (2020). Concise australian commercial law. Thomson Reuters (Professional) Australia Pty Limited.
CACL6___Book.indb
Created from monash379
on 2025-01-11 06:12:11.
27-Nov-20 15:52:21
380
Part 5: Business Relationships
(4)
that under its memorandum or articles the company was not deprived of the capacity
either to enter into a contract of the kind sought to be enforced or to delegate authority to enter into a contract of that kind to the agent.
[15.190] Where a person is appointed to a particular position such person will have as part of their
apparent authority all the usual authority of a person occupying that position.
Panorama Developments (Guildford) Ltd v Fidelis Furnishing
Fabrics Ltd
[15.200] Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971]
2 QB 711. The secretary of a company (Fidelis) contracted with a hire-​car company (Panorama)
to hire expensive cars, ostensibly to transport Fidelis’ clients from Heathrow airport to the
company’s offices. In fact, the secretary had no actual authority to enter into such agreements
and was using the cars for his own purposes. The hire-​car company sued Fidelis to recover the
hiring charges. It succeeded.
Copyright © 2020. Thomson Reuters (Professional) Australia Pty Limited. All rights reserved.
The Court of Appeal held that entering into a contract of this kind was within the usual
authority of company secretaries and was therefore within the apparent authority of this
particular secretary. The Court said that a company secretary is an officer of the company with
wide responsibilities. They may be seen to have authority to make representations and enter
contracts on behalf of the company in respect of the day-​to-​day administration of the company.
This would include such routine matters as hiring cars.
An employer may hold out that an employee has authority if the employer permits the employee to
act in a particular way without taking appropriate precautions. In Pacific Carriers Ltd v BNP Paribas
(2004) 218 CLR 451, the High Court said that: “A kind of representation that often arises … is one which
flows from equipping an officer of a company with a certain title, status and facilities … The holding out
might result from permitting a person to act in a certain manner without taking proper safeguards against
misrepresentation”. In those circumstances, it may be unjust to permit the employer to depart from a
reasonable assumption based upon that misrepresentation.
Duties of an agent
[15.210] Every agent owes certain duties to their principal which vary in degree according to the nature
of the agency or according to the express terms of the contract of agency.
Duty to follow the principal’s instructions
[15.220] The primary duty of every agent is to follow the principal’s instructions. An agent must comply
with the contract of agency before they will be entitled to remuneration. Failure to comply with the
principal’s instructions, except where they are illegal, will render the agent liable for the loss suffered by
the principal as a result of the breach.
Turner, T. &. G. (2020). Concise australian commercial law. Thomson Reuters (Professional) Australia Pty Limited.
CACL6___Book.indb
Created from monash380
on 2025-01-11 06:12:11.
27-Nov-20 15:52:21
­Chapter 1 Law of Agency
381
Duty to act in person
[15.230] Every agent must act in person and, apart from the express or implied authority of the principal,
or from particular usage, an agent has no authority to delegate their duties as agent to another. Owing to
the exigencies of business, this rule is relaxed in order to enable the agent in certain cases to delegate their
powers and appoint a sub-​agent. For example, a country solicitor may employ a city agent whose acts will
bind the client. An agent may also delegate where the duties to be performed by the agent do not involve
the exercise of any discretion or skill on the part of the agent in person.
Duty to act in good faith
[15.240] An agent occupies a fiduciary position. A fiduciary relationship exists between one person and
another where the former is bound to exercise rights and powers in good faith for the benefit of the latter.
The agent is under a duty in all cases to act in the interests of the principal and must not allow their own
interests to conflict with those of the principal.
Lintrose Nominees Pty Ltd v King
Copyright © 2020. Thomson Reuters (Professional) Australia Pty Limited. All rights reserved.
[15.250] Lintrose Nominees Pty Ltd v King [1995] 1 VR 574. A purchaser bought property
from a vendor on the advice of an agent to whom the purchaser had paid a fee for the advice.
Unknown to the purchaser, the agent had been retained by the vendor to market the property. It
was held that the purchaser was entitled to rescind the contract of sale with the vendor. “[T]‌he
vendor could not properly sell its property through its agent, knowing that the agent was
retained to advise the purchaser on the purchase, without knowing also that the dual allegiance
of the agent was disclosed to the purchaser.”
Duty to make full disclosure of any personal interest
[15.260] An agent must disclose to the principal all the material circumstances of which they are aware
which might influence the principal in entering into any negotiation. If the agent fails to make such disclosure
they are not entitled to commission. Any profit received by the agent resulting from non-​disclosure is
recoverable by the principal on learning the true facts.
Duty not to make a secret profit
[15.280] A fundamental duty of an agent is not to use their position to make a gain for themselves without the
knowledge and assent of the principal. In the case of Parker v McKenna (1874) 10 Ch App 96, James LJ said:
No agent in the course of his agency, in the matters of his agency can be allowed to make any
profit without the knowledge of his principal; … that rule is an inflexible rule and must be applied
inexorably by this court, which is not entitled, in my judgment, to receive evidence, or suggestion
or argument as to whether the principal did or did not suffer any injury in fact, by reason of the
dealing of the agent.
The following case illustrates this point. Note, in particular, the words of Lord Wright on the ethical
responsibilities of agents vis a vis their principals.
Turner, T. &. G. (2020). Concise australian commercial law. Thomson Reuters (Professional) Australia Pty Limited.
CACL6___Book.indb
Created from monash381
on 2025-01-11 06:12:11.
27-Nov-20 15:52:21
382
Part 5: Business Relationships
Regal (Hastings) Ltd v Gulliver
[15.290] Regal (Hastings) Ltd v Gulliver [1942] UKHL 1. The defendants were the directors
of Regal, a company which operated a cinema. It created HAC, intending it to be a subsidiary,
to acquire the leases on two cinemas nearby. However, because the company itself did not have
sufficient money, the directors and the company solicitor personally paid for 60% of the shares
in HAC. HAC acquired the cinemas, and then both were sold off to the plaintiff [Gulliver] for
a tidy profit. The plaintiff, as the new management of Regal, sued the ex-​directors and solicitor,
seeking an account of profits made on the sale of their personal shares in HAC, saying that this
profit was in breach of their fiduciary duty to the company. The four directors were ordered
to disgorge the profit they made from the sale of shares because they had acquired the shares
through their positions as directors. The House of Lords said that the rule of equity, which
insists on those who by use of a fiduciary position make a profit being liable to account for that
profit, in no way depends on fraud, or absence of bona fides; or considerations as to whether
the property would or should otherwise have gone to the plaintiff. The liability arises from the
mere fact of a profit having been made.
Lord Wright put the ethical responsibilities of fiduciaries well in the following statement:
Copyright © 2020. Thomson Reuters (Professional) Australia Pty Limited. All rights reserved.
Once, it was said, they came to a bona fide decision that the appellant company
could not provide the money to take up the shares, their obligation to refrain from
acquiring those shares for themselves came to an end. With the greatest respect, I feel
bound to regard such a conclusion as dead in the teeth of the wise and salutary rule
so stringently enforced in the authorities. It is suggested that it would have been
mere quixotic folly for the four respondents to let such an occasion pass when the
appellant company could not avail itself of it … (however) the person in the fiduciary
position may be the only person in the world who could not avail himself of the
opportunity.
Should the agent receive a secret commission or profit the principal may recover it as well as dismiss
the agent without notice. Where the agent desires to act for both vendor and purchaser and to obtain
commissions from both, the agent must make full disclosure to each party and must obtain the assent of
each party for so acting.
Duty to exercise reasonable care and skill
[15.300] An agent who is employed for remuneration is bound to exercise such skill, care and diligence
in the performance of the undertaking as is usual or necessary for the ordinary or proper conduct of the
profession or business in which the agent is employed. If the agent fails to exercise the requisite care and
skill, the agent will be liable to the principal for the loss sustained by the latter as a result of the agent’s
breach of duty.
Mitor Investments Pty Ltd v General Accident Fire & Life Ass Corp
[15.310] Mitor Investments Pty Ltd v General Accident Fire & Life Ass Corp [1984] WAR
365. An insurance broker was instructed by a client to obtain unqualified insurance cover
against damage caused by flood. Unknown to the client, the broker obtained insurance cover
Turner, T. &. G. (2020). Concise australian commercial law. Thomson Reuters (Professional) Australia Pty Limited.
CACL6___Book.indb
Created from monash382
on 2025-01-11 06:12:11.
27-Nov-20 15:52:21
­Chapter 1 Law of Agency
383
excluding flood caused by the sea. Subsequently, the client suffered loss as a result of flooding
by the sea but the insurance company avoided liability by virtue of the exclusion. The broker
was held liable because of his failure to exercise reasonable care and skill in obtaining the
insurance.
[15.320] The duties of the directors of companies is the subject of statutory provisions that apply without
prejudice to any duty which they might have under the general law. The Corporations Act 2001 (Cth)
provides that a director must exercise their powers and discharge their duties with the degree of care and
diligence that a reasonable person would exercise if they were a director of a corporation in the same
circumstances; and had the same position and responsibilities as the director: s 180(1). A director or other
officer of a corporation must exercise their powers and discharge their duties in good faith in the best
interests of the corporation and for a proper purpose: s 181(1).
Further duties
[15.330] An agent must take such care of the property of the principal as a reasonably prudent person
would take in caring for their own property. They must keep all moneys and property of the principal
separate from their own. An agent must keep separate accounts of all dealings on behalf of the principal,
and to have such accounts ready for inspection by the principal. They must also preserve confidentiality
regarding all matters coming to their knowledge while acting as agent.
Rights of agents
Copyright © 2020. Thomson Reuters (Professional) Australia Pty Limited. All rights reserved.
Right to remuneration
[15.340] In order to determine the agent’s right to commission, the terms and circumstances of the
appointment must be examined. The agent may be entitled to remuneration only if they complete the sale,
or in special cases, commission may be payable if the agent simply brings the parties together. Further,
there may exist a time limit for the completion of the contract or the remuneration may be of a continuous
nature payable on all further business arising from the same source.
Agent must be the effective cause of the sale
[15.350] The transaction in relation to which the agent claims remuneration must not only come within
the scope of the agent’s authority but must have resulted from the agent’s services. The agent must
have been the means whereby the two contracting parties were brought together and entered into a
legally binding contract. That is, the agent must have been the effective cause of the sale to be entitled to
remuneration.
L J Hooker Ltd v W J Adams Estate Pty Ltd
[15.360] L J Hooker Ltd v W J Adams Estate Pty Ltd (1977) 138 CLR 52. A company
was the owner of a property and engaged a real estate agent to find a purchaser. The
agent introduced the property to Company A which made unsuccessful offers to purchase.
Turner, T. &. G. (2020). Concise australian commercial law. Thomson Reuters (Professional) Australia Pty Limited.
CACL6___Book.indb
Created from monash383
on 2025-01-11 06:12:11.
27-Nov-20 15:52:21
384
Part 5: Business Relationships
Meanwhile, the owner was negotiating to sell the property to Company B which the agent
had not introduced. When the two companies learnt of each other’s interest in the property,
they entered into a joint venture agreement to avoid forcing up the price by competing
bids. The joint venture agreement provided that each company would continue to negotiate
with the owner. If one of the companies became the purchaser that party would complete
the purchase and redevelop the site with the other on an equal basis. The property was
eventually sold by the owner to Company B. The agent then sued the respondent to recover
commission. It was held that the estate agent was not entitled to recover any commission as
it had not been an effective cause of the sale to Company B, nor of any sale of any interest
in the property to Company A.
Right to indemnity and reimbursement
[15.370] Every agent is entitled to be indemnified against all losses and liabilities sustained, and to be
reimbursed for all expenses lawfully incurred in the carrying out of the principal’s instructions. Attention
is drawn to the word “lawfully”, for where the agent has acted outside the scope of their authority, or has
engaged in an unlawful act, or suffered loss through their own negligence or default, the agent has no claim
to be reimbursed or indemnified.
Right of lien
Copyright © 2020. Thomson Reuters (Professional) Australia Pty Limited. All rights reserved.
[15.380] An agent has a particular lien on such property of the principal as comes into the agent’s hands
for the due payment of all expenses and remuneration lawfully incurred by the agent in transacting the
principal’s affairs. However, the transactions must relate to the property over which the agent desires to
exercise a lien. The agent may have a general lien extending to all claims arising out of the agency either
by express contract or by usage.
Liabilities of agents
[15.390] An agent may incur liability to the principal and to third parties.
Liability of the agent to the principal
[15.400] Generally, the agent incurs no liability to the principal in regard to the contract. However, where
the agent disobeys the principal’s instructions, the agent will be liable for the loss suffered by the principal
as a result of the breach of the contract of agency. Furthermore, where the agent is negligent in carrying out
their duties, the agent will be liable to make good the damage suffered by the principal as a consequence
of the agent’s negligence. Any confidential knowledge acquired by an agent during the course of the agency
should not be used by the agent or made available to third parties, and should the agent do so, they may
be liable in an action for damages.
Liability of the agent to third parties
[15.410] The agent’s liability towards third parties depends upon whether the agent discloses the name of
the principal, or the agent does not disclose the name of the principal but does disclose the existence of the
principal, or the agent does not disclose the existence of any agency.
Turner, T. &. G. (2020). Concise australian commercial law. Thomson Reuters (Professional) Australia Pty Limited.
CACL6___Book.indb
Created from monash384
on 2025-01-11 06:12:11.
27-Nov-20 15:52:21
­Chapter 1 Law of Agency
385
Figure 15.3 : Liability of agent to third parties
Liability of agent to third
parties
Doctrine of undisclosed
principal
Breach of warranty of
authority
Third party can sue either
principal or agent
If agent acts without
authority, third party may
sue agent for damages
Tort/ACL
Third party may sue agent
(or principal) for
misrepresentation,
misleading conduct or
unconscionable conduct of
agent
Third party may sue agent
(or principal) for tortious
acts of agent
Name of the principal disclosed
Copyright © 2020. Thomson Reuters (Professional) Australia Pty Limited. All rights reserved.
[15.420] Where the agent discloses the name of the principal, the contract is deemed to be that of the
principal. The agent is not liable on the contract except where the agent contracts outside the scope of
their actual or apparent authority; the agent agrees to be liable; usage or custom makes the agent liable;
the agent contracts by deed in their own name; or where the principal does not exist.
Where a person professes to contract on behalf of a principal who does not exist, the person so
professing is presumed to have intended to contract personally, unless a contrary intention is proved. The
words “professes to contract on behalf of a principal” are the critical ones, for if the person were to sign a
document, not as an agent but as the principal, the rule would have no operation.
Existence but not the name of the principal disclosed
[15.430] Where the agent discloses the fact that a principal exists but not the name of the principal, the
agent’s liability, provided that they contract as an agent, is similar to the cases where the name of the
principal is disclosed. If the third party enters into the contract, knowing there is a principal and yet does
not ascertain the principal’s name, the third party cannot sue the agent. In other words, the agent’s liability
is the same, provided they contract as an agent, whether or not the principal’s name is disclosed.
However, the particular circumstances may disclose an intention that the agent alone is a party to the
contract. Thus, where the principals would be drawn from a known class (the agent’s clients) but the
agent had not selected any particular client at the time the contract was made, the agent was held to have
contracted as principal.
Existence of principal not disclosed
[15.440] Sometimes an agent does not disclose to the third party that they are acting as an agent.
Accordingly, the third party believes that the person they have been negotiating with is the other party to
Turner, T. &. G. (2020). Concise australian commercial law. Thomson Reuters (Professional) Australia Pty Limited.
CACL6___Book.indb
Created from monash385
on 2025-01-11 06:12:11.
27-Nov-20 15:52:21
386
Part 5: Business Relationships
the contract. In such a case, either the undisclosed principal or the agent can sue or be sued on the contract,
unless the contract between the agent and the third party expressly or impliedly excludes the rights of
persons other than the agent to be a party to the contract.
However, the legal rights and obligations of the undisclosed principal only arise where the agent had
actual authority from the principal to enter into the contract. An undisclosed principal cannot purport to
ratify as the act of their agent a transaction entered into without their authority by one who purported to
be a principal.
While at the outset it is open to the third party to hold either the agent or the undisclosed principal
liable on the contract, the third party is irrevocably bound by their election to hold liable either the agent
or the principal. Where the third party sues and recovers judgment against the agent on the contract, the
third party is conclusively deemed to have elected to hold the agent liable and cannot thereafter sue the
undisclosed principal.
Breach of warranty of authority
[15.450] So long as the agent does not exceed their authority, the agent will not be personally liable to
persons with whom they deal. Where an agent represents, either expressly or impliedly, that they have
authority to enter into a particular transaction and a third party relies on that representation, the agent
is taken to warrant that the representation is true. If the representation is untrue, the agent is liable in
damages for breach of warranty of authority. The measure of damages is the actual loss sustained by the
third party.
Copyright © 2020. Thomson Reuters (Professional) Australia Pty Limited. All rights reserved.
It will be no defence that the agent acted innocently or in mistake as to the precise extent of their
authority. A person who purports to act as an agent impliedly warrants that they have authority and is
liable for breach of that warranty even though their authority has come to an end by reason of facts of
which they have no knowledge or means of knowledge. However, the agent is not liable where the other
party knew of the agent’s lack of authority.
Liability of the principal and agent for misrepresentation
[15.460] Where an agent is engaged to sell property, it will normally be within the scope of the agent’s
apparent authority to describe the nature and quality of the property the agent is selling on behalf of the
principal. Accordingly, if the agent’s representations are untrue, the vendor will be liable to the purchaser
for the loss suffered by the purchaser as a result of relying on the agent’s representations.
A principal is vicariously liable for a tort committed by an agent where the agent has acted within
the scope of their actual or apparent authority. The liability of the principal includes liability for the
negligent misrepresentations of their agent. The representations of an agent may also constitute misleading
or deceptive conduct in contravention of s 18 of the Australian Consumer Law.
Liability of the principal and agent for tortious acts
[15.470] An agent is liable for their tortious acts. The principal will also be liable for any tort committed
by the agent where the agent has acted within the scope of their actual or apparent authority, whether the
tort was committed for the benefit of the principal or of the agent. For example, the principal will be liable
for the fraudulent conduct of their agent, where it was committed within the scope of the agent’s apparent
authority.
Turner, T. &. G. (2020). Concise australian commercial law. Thomson Reuters (Professional) Australia Pty Limited.
CACL6___Book.indb
Created from monash386
on 2025-01-11 06:12:11.
27-Nov-20 15:52:22
­Chapter 1 Law of Agency
387
Royal Globe Life Assurance Co Ltd v Kovacevic
[15.480] Royal Globe Life Assurance Co Ltd v Kovacevic (1979) 22 SASR 78. An insurance
agent persuaded Kovacevic to enter into a life assurance contract. Kovacevic paid the agent an
initial premium. The agent gave him a receipt using a receipt book provided by the insurance
company. Some months later, the agent invited Kovacevic to invest moneys on loan with the
insurance company. The agent told him that a deposit of moneys with the company would
return a higher rate of interest and give him the right to obtain from the company a mortgage
for the purchase of a house. Kovacevic paid the agent $2,000 and was given a receipt from
the agent’s receipt book. The agent disappeared with the money. Kovacevic sued the insurance
company for the $2,000. It was held that the agent had received the money from Kovacevic
in the course of his employment by the insurance company which was accordingly liable to
Kovacevic for the agent’s fraud.
[15.490] A principal is liable for the tortious acts (eg negligence) of their agent where the agent is authorised
to do the act or where the act is within the class of acts that an agent in usually authorised to do or the
principal has represented that the agent has the authority to do the act. Conversely, a principal will not be
liable for wrongful acts of an agent which are outside the agent’s actual or apparent authority, such as where
an agent commits an unauthorised assault upon a third party. A principal will not be liable for the negligence
of an agent who acts without any authority and in their own interests and not on behalf of the principal.
Termination of agency
Copyright © 2020. Thomson Reuters (Professional) Australia Pty Limited. All rights reserved.
[15.500] The circumstances in which the relationship of principal and agent will end depends upon the
terms of the original contract of agency.
Performance or completion of agency
[15.510] Where the agent is appointed either for the performance of one specific act, or for the duration
of a definite period, then the authority of the agent will extend only until such act has been done, or the
specified period has ended.
Impossibility of performance
[15.520] Where it becomes impossible for the agent to carry out their obligations, the authority immediately
ceases.
Agreement
[15.530] While the agency is still current, both the principal and agent may mutually agree to its termination.
Revocation
[15.540] In any contract of agency, unless some express stipulation has been made to the contrary, there is
an implied term that either party may terminate it upon notice. But neither notice of revocation nor notice
Turner, T. &. G. (2020). Concise australian commercial law. Thomson Reuters (Professional) Australia Pty Limited.
CACL6___Book.indb
Created from monash387
on 2025-01-11 06:12:11.
27-Nov-20 15:52:22
388
Part 5: Business Relationships
of renunciation will affect any rights or liabilities which may have been created between the principal and
third parties prior to the notice.
The right of the principal to revoke the agent’s authority may be limited by the rights of third parties
and the agent. The principal may be liable to third parties even after the principal has validly revoked the
authority of the agent, where such parties have had previous dealings with the agent and continue to deal
with the agent without notice of the withdrawal of the agent’s authority.
The right of the principal to revoke the authority of their agent may be limited by the principal’s
obligation to indemnify the agent against any loss or damage the agent may have suffered as a result of
their employment. Further, the agent may be entitled to claim for loss of commission. For example, the
principal cannot capriciously refuse to enter into a contract and revoke the agency when the agent has
found and introduced a purchaser ready, willing and able to buy at the stipulated price.
By death
[15.550] The death of either the principal or the agent immediately puts an end to the agency. The death
of the principal terminates the authority of the agent, even though the agent is unaware of the death and
had no means of ascertaining that fact.1 Consequently, the agent becomes personally liable to third parties
for having made any contract on behalf of the deceased principal, and may be sued for breach of warranty
of authority even though the agent was ignorant of the principal’s death. The estate of the principal is not
liable under such a contract, though the executor may confirm the contract.
By insanity
Copyright © 2020. Thomson Reuters (Professional) Australia Pty Limited. All rights reserved.
[15.560] Once insanity has overtaken either the principal or the agent, the agency is at an end. However, a
third party is entitled to treat the authority of the agent as subsisting until they receive notice of the insanity
where the principal, before becoming insane, had held out the agent as having authority.
Bankruptcy
[15.570] The bankruptcy of the agent terminates their authority, except where the bankruptcy does
not affect their capacity to contract as agent. Thus, where the duties of the agent are merely formal,
the agent’s bankruptcy would not necessarily affect their authority. The bankruptcy of the principal
also terminates the agency. However, even after notice of the principal’s bankruptcy, an agent may do
whatever is necessary to complete a transaction which was already binding on the principal before the
bankruptcy.
1
In some States, every act done in good faith within the scope of a power of attorney after the death of the donor and before
the receipt of notice of the death is valid and the donee of such power is not liable: Powers of Attorney Act 2014 (Vic),
ss 14–​15, 75; Powers of Attorney and Agency Act 1984 (SA), s 12; Property Law Act 1969 (WA), s 85(2); Powers of
Attorney Act 2000 (Tas), s 52.
Turner, T. &. G. (2020). Concise australian commercial law. Thomson Reuters (Professional) Australia Pty Limited.
CACL6___Book.indb
Created from monash388
on 2025-01-11 06:12:11.
27-Nov-20 15:52:22
­Chapter 1 Law of Agency
389
Renunciation by the agent
[15.580] The agent may renounce the agency at any time but must compensate the principal for any loss
caused by the renunciation.
Further reading
G Dal Pont, Law of Agency (3rd ed, LexisNexis Butterworths, Sydney, 2014).
S Fisher, Agency Law (Butterworths, Sydney, 2000).
Copyright © 2020. Thomson Reuters (Professional) Australia Pty Limited. All rights reserved.
Tutorial activities
1.
What is the basic concept that is at the heart of the law of agency?
2.
Distinguish between express and implied actual authority.
3.
Distinguish between actual and apparent authority.
4.
Explain, with reference to Freeman [15.180], the circumstances in which a person without
actual authority, can have apparent authority. Why did Buckhurst Park have to pay the
architects for their work?
5.
Explain, with reference to Panorama [15.200], how we determine the extent of an agent’s
apparent authority.
6.
What are the duties, rights and liabilities of an agent? Referring to the breach of warranty of
authority, comment on the circumstances where an agent is liable to a third party?
7.
When is ratification of an agent’s action possible?
8.
Anwar was appointed to the stationery purchasing agent position during his time at Awesome
Accountants. He regularly purchased stationery on Awesome Accountant’s account from
Stationery Express Ltd with Awesome Accountant’s knowledge and acquiescence. Anwar’s
purchasing limit was $500 per week, although he never needed to order stationery worth
more than $300 at a time.
After the end of his internship with Awesome Accountants, he placed a $250 stationery
order with Stationery Express. Anwar picked up this stationery and took it home for his own
use. Awesome Accountants has received the invoice for the stationery and does not wish
to pay.
9.
(a)
Is there an agency relationship between Awesome Accountants and Anwar?
(b)
Assuming there is, is the purchase within Anwar’s authority?
Ricardo is the senior curator and ground manager at Noora Golf Club Resort, a luxury facility
in North Queensland owned by Gabba Pty Ltd. Noora has been under financial pressure since
the Global Financial Crisis affected the flow of Japanese tourists. The Board cut budgets and
informed Ricardo that he could not enter into any contracts valued at over $10,000. Despite
this instruction, he proceeded to negotiate a landscaping contract with Willow Landscaping
that was valued at $13,000. An associated water feature cost an extra $4,000. When
Turner, T. &. G. (2020). Concise australian commercial law. Thomson Reuters (Professional) Australia Pty Limited.
CACL6___Book.indb
Created from monash389
on 2025-01-11 06:12:11.
27-Nov-20 15:52:22
390
Part 5: Business Relationships
work commenced, the CEO asked Ricardo what was happening. Ricardo informed him
of the landscaping project but did not mention the water feature. After considering the
circumstances, the CEO tells Willow to proceed. Soon after, the Board understands the
totality of the commitment. Advise the Board of its rights and obligations.
Jeremy is an estate agent in the Melbourne inner city area of Docklands. He is selling high-​
rise units “off the plan” for Aspirational Developments Pty Ltd. He has friends who work for
other developers and becomes aware that a competing high-​rise that is also selling “off the
plan” has run into difficulties and is unlikely to go ahead. The result is that the units he is
selling are likely to be more valuable than previously thought. Being an opportunist, Jeremy
assists a friend to arrange finance so she can buy three of the units with a view to selling later
at a profit that they will split 50–​50.
Copyright © 2020. Thomson Reuters (Professional) Australia Pty Limited. All rights reserved.
10.
Turner, T. &. G. (2020). Concise australian commercial law. Thomson Reuters (Professional) Australia Pty Limited.
CACL6___Book.indb
Created from monash390
on 2025-01-11 06:12:11.
27-Nov-20 15:52:22