Agency: basic

principles
 • The relationship between the principal and
the 3rd party (created if agent acts with
Agency law authority or if principal later ratifies)

refers to: • A possible relationship between the agent

and the 3rd party (if agent has no authority;
or if also contracts in own name; or if did
not disclose that acting as agent)

• The relationship between the agent and the

principal
Mechanism
of an Agency
relationship
Agency

AGENT

External Relationship
Principal Third Party
Contracting Parties
 It is difficult to give a simple definition of agency.
An agent generally represents its principal in
dealings with a third party.
Defining Agency

Additionally, the agent is able to affect the legal

relations between principal and third party, e.g.,
by bringing about a contract between them.

As between principal and agent, the relationship

is often described as “fiduciary” as a result of the
power of the agent to affect the legal position of
the principal.
• Gujranwala Ltd ( one of the subsidiary of S ltd) is a company that produces electronic equipment and seeks your legal advice on ALL of the following problems:
•
(a) Musa is the nephew of Gujranwala Ltd's sole director, Bashir. Bashir tells Musa that "it will be a matter of time" before he (Musa) is formally appointed as director of the
company. Musa is allowed to make presentations to potential clients and has brought in two contracts worth Rs500,000 each for Gujranwala Ltd. Musa attends a trade fair and
tells Faisalabad Ltd, another company attending the fair, that he is a director of Gujranwala Ltd. He is fascinated with Faislabad Ltd's energy-saving widget and commits
Gujranwala Ltd to a contract of supply with Faislabad Ltd that will cost the company Rs 1,500,000. Bashir is unhappy with the contract and wishes to avoid it.
(b) Javed describes himself as an "independent agent" who also runs his own distribution business. Gujranwala Ltd sometimes uses Javed to procure various supplies as Javed is
able to negotiate a good price with suppliers he knows. Javed enters into a contract with Watan Ltd to buy 1000 metres of cable. Gujranwala Ltd pays Javed, but Javed has not
paid Watan Ltd. Watan Ltd discovers that Javed has been declared a bankrupt and is nowhere to be found. Watan Ltd now claims payment from Gujranwala Ltd.
(c) Gujranwala Ltd wishes to procure a supply of microchips from Battleaxe Co Ltd. However, as Gujranwala Ltd and Battleaxe Co Ltd have a sour relationship involving litigation over
an alleged breach of contract by Gujranwala Ltd, Gujranwala Ltd thought it would be more appropriate to ask Dania to secure the contract instead. After the conclusion of the
contract with Dania, Battleaxe Ltd realises that delivery of the microchips would be made to the warehouse address belonging to Gujranwala Ltd and refuses to continue with
the contract.
(d) Erica is approached by Gofar plc and offered Rs400,000 if she manages to persuade Gujranwala Ltd to sign a lease in its new shopping centre in DHA lahore. Erica then tells
Bashir about the availability of the shop in DHA, and Bashir gives Erica the go-ahead to formalise the lease on Gujranwala’s behalf. Bashir subsequently discovers that the lease
Erica arranged on Gujranwala Ltd’s behalf is Rs20,000 more than that of all the other tenants in the shopping centre, and then finds out about the commission Erica received.
(e) Omar is Gujranwala Ltd’s customer service manager and is responsible for dealing with queries and complaints from all of Gujarnwala Ltd’s business customers. When he visits a
trade fair, he comes across a new customer service management system created by Callhappy Ltd which he thinks would be ideal for Gujranwala Ltd. He places an order with
Callhappy Ltd to purchase the system. When Callhappy Ltd come to Gujranwala Ltd’s premise to deliver and install the system, Bashir tells them that Omar did not have the
authority to sign any contracts, and that Gujranwala Ltd do not want to have Callhappy’s system installed. Callhappy Ltd accept that Omar acted without authority, but would like
to recover the wasted costs incurred and the fact that they lost out on a sale.
 • Contrasted with other
transactions
• Trust
• Bailment
Agency • Sale
• Distributorship/Franchising
• Employees/Servants
Types of agent:
1. Factor

The term ‘factor’, which was used regularly in nineteenth-century legislation

and case law, refers to an agent who is engaged to sell goods on behalf of his
principal, with the crucial characteristic being that the factor would hold or
control the goods in question and would often sell them in his own name
without disclosing the name of his principal.
Today, the term ‘factor’ is rarely used in its original sense and has been
replaced by the broader term ‘mercantile agent’, which is defined :
• as an ‘agent having in the customary course of his business as such agent
authority either to sell goods, or to consign goods for the purpose of sale,
or to buy goods, or to raise money on the security of goods’
 Broker (negotiates contracts between sellers and
buyers but does not have possession/control
over goods and does not sell in his own name)

Broker
agents A broker is similar to a factor, in that he
negotiates contracts for the sale of goods
between his principal and third parties.
The difference lies in the fact that the broker
will not usually have control or possession of the
goods (he is unlikely ever to see the goods) and
he should not sell the goods in his own name.
 3. Commission agent (not generally recognised in English law) – agent contracts with
third party in his own name as principal even though there is also a principal-agent

Types of relationship.

agents( less
common) 4. “Self-employed commercial agents”, based on the EU’s commercial agents directive
(“self-employed intermediary who has continuing authority to negotiate the sale or
purchase of goods on behalf of another person, or to negotiate and conclude the sale or
purchase of goods on behalf of and in the name of that principal “(Reg.2(1) Commercial
Agents Regulations 1993).
Creation of agency relationship
• Do we need a formal contract to form an agency relationship?
• Yasuda Co v Orion Ltd (1995), Colman J
“Although in modern commercial transactions agencies are almost invariably
founded upon a contract between the principal and agent, there is no necessity
for such a contract to exist.”

• Agency of necessity (not covered further)

• Normally consensual; but 'agency of necessity' when 'agent' can bind
'principal' (e.g. captain of ship making emergency arrangements to
salvage cargo).
DISCLOSED AND UNDISCLOSED AGENCY

• Disclosed Agency?
• Cases where the third party knows (or should know) that the agent is
acting for someone else (the principal), even if the third party does not
know who the principal is ('the unidentified principal).
• Undisclosed agency?
• These are instances where the agent does not reveal that he is acting for
someone else and the third party has no reason to know this.
• The common law has developed the doctrine of 'undisclosed agency': if the
agent was acting for an undisclosed principal (and was authorized to do so)
the principal can sue, and can be sued by, the third party. ( not very
common in Pakistan)
Types of an Agent’s authority
 What is the Agent’s authority and why does it
matter?
An agent’s ability to enter into legally binding agreements on behalf of his principal is the
main issue in the law of agency.

The general rationale behind holding such agreements as binding is that the principal has
consented to the agent acting in such a way by bestowing authority upon the agent to act
on his behalf.
It follows that the authority of an agent is a central concept of the law of agency

two principal types of authority being identifiable, namely actual authority and apparent
authority.
Why does the question of Authority matter?

Determining the existence and type of authority is vital as the legal

consequences of an agent breaching his authority can be severe.

The principal may not be bound by the agent’s actions, and the agent may
instead be personally liable (or both may be liable).

In addition, the agent may lose the commission/remuneration to which he

was entitled and may be found liable for breach of contract and/ or
breach of warranty of authority.
Authority of an agent

Authority falls into the following categories:

1. Actual Authority:
• Express actual authority
• Implied actual authority
2. Apparent or Ostensible Authority
 Actual authority

• “An ‘actual’ authority is a legal relationship between the

principal and agent created by a consensual agreement of 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.”
• (Diplock LJ in Freeman & Lockyer (1964)).
Two types of actual authority?
• This definition indicates that there are two types of actual authority
that need to be discussed:
• Express actual authority, which refers to the authority that the
principal has expressly bestowed upon the agent, either orally or in
writing;
• Implied actual authority, which refers to authority that the law deems
to have been bestowed by the principal upon the agent as a result of
their dealings, circumstances, or relationship.
Communication of Agent’s authority?

Express actual authority can be bestowed upon an agent through the creation of a formal
document (such as a contract or a deed), or informally (e.g. through spoken words).

It is important to know the method through which express actual authority has been
conferred, as this can have a significant impact upon the construction of the agent’s
authority.

If by deed, the courts will rely on the document to determine the scope of authority

If not by deed, the courts are more liberal. They determine the scope of the agent’s
express actual authority ‘determined by inference from the whole circumstances’
 Ireland v Livingston (1871–72) LR 5 HL 395 (HL)
• FACTS: Livingston (the Liverpool-based principal) wrote to Ireland (his agent based in Mauritius),
instructing him to purchase 500 tonnes of sugar (or 50 tonnes more or less) in Mauritius and ship
it to Britain.
• The instructions also stated that Livingston would prefer the option of deciding whether the
vessel delivering the sugar should go to London, Liverpool, or the Clyde, but that if this was not
possible, the sugar could be shipped to London or Liverpool.
• Ireland could only obtain just under 400 tonnes and arranged for this amount to be shipped to
Liverpool in one vessel, which also contained goods belonging to other people.
• Upon arrival in Liverpool, Livingston refused to take delivery of the sugar, and Ireland sued.
• Livingston( the P) contended that his instructions indicated that the vessel’s destination should be
determinable by Ireland but, by placing the sugar on a ship that contained other people’s goods,
Ireland would be unable to determine the vessel’s destination.
• Ireland contended that the instruction indicating that the sugar could be shipped to London or
Liverpool authorized him to ship the sugar on a single vessel containing cargo belonging to other
people.
• Held:?
Held
• HELD: The House noted that Livingston’s instructions were ambiguous and established the
approach that should be adopted when confronted by an ambiguity in the agent’s express actual
authority:
• [I]f a principal gives an order to an agent in such uncertain terms as to be susceptible of two
different meanings, and the agent bonâ fide adopts one of them and acts upon it, it is not
competent to the principal to repudiate the act as unauthorized because he meant the order to be
read in the other sense of which it is equally capable.
• It is a fair answer to such an attempt to disown the agents’ authority to tell the principal that the
departure from his intention was occasioned by his own fault, and that he should have given his
order in clear and unambiguous terms
• Should this approach be followed in today’s connected world???
 Actual authority: limitations
• Express actual authority
• Ireland v Livingstone (1872) LR 5 HL 395 (HL)
• European Asian Bank AG v Punjab and Sind Bank (No.2) [1983] 1 WLR 642
• “In our judgment there must be some limit to the operation of this principle.
Obviously it cannot be open to every contracting party to act upon a bona fide,
but mistaken, interpretation of a contractual document prepared by the other,
and to hold the other party to that interpretation. … [E]ven in the context of
agency and other analogous transactions, … a party relying upon his own
interpretation of the relevant document must have acted reasonably in all the
circumstances in so doing.
• If instructions are given to an agent, it is understandable that he should expect to
act on those instructions without more; but if, for example, the ambiguity is
patent on the face of the document it may well be right (especially with the
facilities of modern communications available to him) to have his instructions
clarified by his principal, if time permits, before acting upon them.” (p.656)
 Implied actual authority

• The actual authority of the agent can also be implied based on the relationship between the principal
and agent, or based on their conduct,
• Implied actual authority can arise in numerous ways, but there is no universally accepted categorization
of implied actual authority. We will see that implied actual authority is divided into three types, namely:
• Incidental authority;
• Usual authority;
• Customary authority.
 Incidental authority
The first type of implied actual authority can be classified as incidental authority and provides that ‘[a]n
agent has implied authority to do whatever is necessary for, or ordinarily incidental to, the effective
execution of his express [actual] authority in the usual way’.

An agent who is expressly authorized to enter into a transaction on behalf of his principal might need to
undertake ancillary acts in order to enter into that transaction—the agent will have express authority to
enter into the transaction and implied authority to undertake the relevant ancillary acts

Can you think of any examples??

 • Often a person will be appointed to a
particular role or occupation, or
engaged within a particular trade or
business, but his authority will not be
specified in detail.
Usual authority • In such cases, the concept of usual
authority will be particularly
important, as it will provide that an
agent has authority to do such things
that a person in that agent’s position
usually has.
 Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549
(CA)
• FACTS: Richards (the agent) was chairman of Brayhead Ltd (the principal) and, although
he was not appointed formally as the managing director of the company, he acted as
such with the board’s acquiescence.
• Richards, purporting to act on behalf of Brayhead, agreed to indemnify Hely-
Hutchinson for any loss in relation to a company named Perdio Electronics Ltd.
• When Perdio went into liquidation, Hely-Hutchinson sought to enforce the indemnity
against Brayhead but, unsurprisingly, it refused to honour the indemnity, contending
that Richards had no authority to enter into the indemnity agreement with Hely-
Hutchinson.
• Hely-Hutchinson commenced proceedings against Brayhead.
Held:
• “It is plain that ... Richards had no express authority to enter into these ...
contracts on behalf of the company: nor had he any such authority implied from
the nature of his office. He had been duly appointed chairman of the company
but that office in itself did not carry with it authority to enter into these contracts
without the sanction of the board. But I think he had authority implied from the
conduct of the parties and the circumstances of the case”
• What conduct is being referred to here?
• The conduct to which Lord Denning MR referred was the fact that ‘the board by
their conduct over many months had acquiesced in [Richards] acting as their
chief executive and committing Brayhead Ltd to contracts without the necessity of
sanction from the board’. Accordingly, the indemnity was valid and Hely-
Hutchinson’s claim succeeded
How do courts determine Implied actual( usual) authority

The task of the court is to determine whether or not the activities of

the agent are usually incidental to the role, occupation, or trade
being undertaken. This will be a question of fact in each case.

The courts will not find usual authority to be conferred where it is

not necessary or incidental to the agent’s express actual authority.

In other words we can also say that usual authority will not be
present where it would conflict with an express limitation or
prohibition imposed by the principal.
 Customary authority
• Certain markets, trades, or locations may have their own customs, and the courts may give effect to such
customs by holding that an agent has customary authority to act in accordance with the custom in question.
• But less frequently accepted by courts now
• The requirements to establish customary authority were laid out by Ungoed-Thomas J in the case of Cunliffe-
Owen v Teather & Greenwood [1967] 1 WLR 1421 (Ch) 1438. who stated that the custom:
• must be certain, in the sense that the practice is clearly established;
• it must be notorious, in the sense that it is so well known, in the market in which it is alleged to exist, that
those who conduct business in the market contract with the usage as an implied term; and
• it must be reasonable
• Two further requirements have subsequently been added in the case of Tucker v Linger (1982–83) LR 8 App Cas
508 (HL) 511 (Lord Blackburn).
• namely that (i) the custom must not be unlawful; and (ii) it must not conflict with, or be excluded by, the
terms of the contract between the parties.
• Providing that the various requirements have been satisfied, the custom will ‘be considered as part of the
agreement: and if the agreement be in writing, though the custom is not written it is to be treated exactly as
if that unwritten clause had been written out at length’. This will be so even if the principal was not aware of
the custom.
Scenario A
• Javed describes himself as an "independent agent" who also runs his
own distribution business.
• Gujranwala Ltd sometimes uses Javed to procure various supplies as
Javed is able to negotiate a good price with suppliers he knows.
• Javed enters into a contract with Watan Ltd to buy 1000 metres of
cable.
• Gujranwala Ltd pays Javed, but Javed has not paid Watan Ltd.
• Watan Ltd discovers that Javed has been declared a bankrupt and is
nowhere to be found.
• Watan Ltd now claims payment from Gujranwala Ltd.
Apparent authority
 Apparent authority
• Many times, the relationship between the Agent and the principal doesn’t clearly
signify an agency relationship.
• Where as this may be because of the lack of consent, there may also be instances
where the 3rd party has relied on the relationship between the P and A, and has acted
to their detriment.
• So where Express actual or implied authority fails, we may need to examine the
Apparent authority!
• In essence Apparent authority is a form of authority which is based on the authority
that, from the third party’s point of view, the agent appears to have, namely apparent
authority (in older cases, apparent authority is also known as ostensible authority)
• it can be seen that ‘[a]pparent authority is really equivalent to the phrase “appearance
of authority”. There may be an appearance of authority whether in fact or not there is
authority’, or,
• to put it more simply, ‘apparent authority is the authority of an agent as it appears to
others’.
 Apparent authority can serve
to extend the scope of an
Scope of agent’s authority beyond that
agreed to by the principal
the Agent
in Apparent or it can even result in the
creation of an agency
authority relationship where none
previously existed.
 What is apparent authority and how does estoppel work?
• The P makes a representation ( by words or actions or both or omission) to The Third party, that the
Agent has the Authority to represent him( the P).

• If the Third party relies on that representation ( made by P) by entering into a transaction with A, and
alters their position, then P cannot deny the existence of authority of A and will be bound by A’s
actions.
• The idea is that if we didn’t have estoppel, it might then be inequitable to allow P to go back on his
promise made to T about A, and so he will be estopped from doing so
 Actual authority?

No
Yes: what kind?

Implied actual (
Express actual: incidental, Apparent
Where ? Written? Customary, usual? authority?
Oral?
Some overlap between usual Implied auth and apparent
Actual authority and apparent authority
overlap?
• In many cases the actual authority and apparent authority of an agent will
generally coincide and so the difference between the two forms of authority
may not be important in practice.
• “[A]pparent authority ... often coincides with actual authority. Thus, when
the board appoints one of their number to be managing director, they invest
him not only with implied [actual] authority, but also with ostensible authority
to do all such things as fall within the usual scope of that office.
• Other people who see him acting as managing director are entitled to assume
that he has the usual authority of a managing director.”
• But the Apparent authority will continue to exist even after actual authority
has been terminated….
 Apparent Authority
• Based on estoppel
• The Third party Needs to show:
• a representation
• reliance on that representation
• an alteration of your position resulting from such reliance

• “The doctrine of apparent or ostensible authority also rests on the ability of an

estoppel to preclude a person (P) who has held out another person (A) as his
agent to a third person (T) from denying the existence of such authority or
therefore the validity of a contract purportedly made by B on A's behalf with C.
...” (Mance LJ in Baird)
Scenario A
• Musa is the nephew of Gujranwala Ltd's sole director, Bashir.
• Bashir tells Musa that "it will be a matter of time" before he (Musa) is
formally appointed as director of the company.
• Musa is allowed to make presentations to potential clients and has brought
in two contracts worth Rs500,000 each for Gujranwala Ltd.
• Musa attends a trade fair and tells Faisalabad Ltd, another company
attending the fair, that he is a director of Gujranwala Ltd.
• He is fascinated with Faislabad Ltd's energy-saving widget and commits
Gujranwala Ltd to a contract of supply with Faislabad Ltd that will cost the
company Rs 1,500,000.
• Bashir is unhappy with the contract and wishes to avoid it.
• Did Musa have the authority to Bind Gujranwala Ltd???
Apparent Authority ingredients:
1. Representation
• a. What must this representation indicate?
• the representation must indicate that the agent has the authority to
act on behalf of the principal.
• b. From whom must this representation derive?
• Must come from principal, not agent
• Armagas v Mundogas (The Ocean Frost) [1986] AC 717 the House
of Lords stated clearly that, where the third party knows that an
agent lacks authority, a principal will not be bound where such an
agent wrongly claims to have obtained such authority.
 First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] BCC 533
(CA)

• FACTS: First Energy (UK) Ltd (‘FE’) sought to obtain credit facilities from Hungarian International
Bank Ltd (‘HIB’, the principal), with the request being handled by Jamison (the agent), the senior
manager of HIB’s Manchester branch.
• FE had dealt with Jamison before and knew that he did not have actual authority to sanction a
credit facility (indeed, Jamison himself made this clear to FE), and that any letter offering such a
facility would need to be signed by two of the bank’s officials.
• Jamison wrote to FE informing it that HIB had approved the credit facility.
• The letter was not signed by two of the bank’s officials and HIB had not approved the credit
facility.
• Accordingly, HIB claimed that Jamison lacked the authority to offer the facility and therefore
refused to offer it to FE. FE commenced proceedings.
 Held?
• HELD: Jamison had apparent authority to inform FE that the facility had
been approved.
• ‘Jamison’s position as senior manager in Manchester was such that he was
clothed with ostensible( apparent) authority to communicate that head
office approval had been given for the facility.’
• Accordingly, whilst Jamison lacked authority to sanction the credit facility,
he did have authority to inform FE that his head office had authorized the
facility,
• or, as Steyn LJ stated, ‘the law recognises that in modern commerce an
agent who has no apparent authority to conclude a particular transaction
may sometimes be clothed with apparent authority to make
representations of fact
• Based on commercial reality, rather than sound legal principles!!!!!!
Representation
• c. How must the representation be made?
• Orally
• In writing
• Through conduct ( the most common form of Apparent authority.
This is where the P places the A in such a position, which provides
the A with authority to take decisions on P’s behalf eg the Director
of a company)
 Freeman & Lockyer v Buckhurst Park (Mangal) Proper ties Ltd [1964] 2
QB 480 (CA)
• FACTS: Kapoor (the agent) and another person formed Buckhurst Park (Mangal)
Properties Ltd (‘Buckhurst’, the principal), the purpose of which was to purchase and
resell a large estate.
• Kapoor was a director of Buckhurst, along with a number of other persons.
• Kapoor acted as managing director with the board’s acquiescence, although he had never
been formally appointed to the role.
• He engaged a firm of architects (Freeman & Lockyer) on Buckhurst’s behalf.
• The architects completed the work required of them and sought payment of their fees
from Buckhurst.
• Buckhurst refused to pay, alleging that Kapoor lacked authority to engage the architects.
• The architects sued for payment.
• Was there any Express actual authority? Or Implied Actual Auth ( usual, incidental or
customary)?
 Held:
• The claim succeeded and Buckhurst was liable to pay the architects for
the work they completed. Diplock LJ stated:
• ‘The representation which creates ‘apparent’ authority may take a variety
of forms of which the commonest is representation by conduct, that is,
by permitting the agent to act in some way in the conduct of the
principal’s business with other persons.
• By so doing the principal represents to anyone who becomes aware
that the agent is so acting that the agent has authority to enter on behalf
of the principal into contracts with other persons of the kind which an
agent so acting in the conduct of his principal’s business has usually
‘actual’ authority to enter into
 • Apparent auth can also be found because of previous course
of dealing ( Summers v Solomon 1857).
• Facts: Solomon had a jeweller’s shop in Lewes which was
Apparent managed by his nephew Abraham Solomon.
• Summers was a jeweller in London who had been accustomed
authority to supply goods to Solomon’s shop on the order of his nephew
and the goods had always been paid for by Solomon.
based on • The nephew came to London, ordered jewellery from
previous Summers for the shop and took it away with him saying he
was going to Lewes.
dealings? • The nephew absconded with the jewellery and Solomon
refused to pay.
• It was held that there was evidence that the nephew was held
out as Solomon’s agent to buy the goods.
Apparent authority
• 2. Reliance
• Knowledge of limitations
• Reliance is a key component of estoppel and, as apparent authority is based
upon the doctrine of estoppel, it follows that the third party must rely on the
principal’s representation in order for apparent authority to arise.
• Accordingly, apparent authority will not exist where the third party did not
know of the principal’s existence (i.e. the principal was undisclosed) or did not
know of the representation.

• Overbrooke Estates Ltd v Glencombe Properties Ltd [1974] 1 WLR 1335

 Overbrooke Estates Ltd v Glencombe Properties Ltd [1974] 1 WLR 1335 (Ch)

• FACTS: Overbrooke Estates Ltd (the principal) put up a piece of property for sale by auction.
• Prior to the auction, Glencombe Properties Ltd( the Third party) was sent a copy of the
auctioneer’s general conditions of sale, which stated that ‘[t]he vendors do not make or give and
neither the auctioneers nor any person in the employment of the auctioneers has any authority to
make or give any representation or warranty in relation to these properties’.
• At the auction, the auctioneer (the agent) told Glencombe that neither the local authority nor
Greater London Council had plans for the property and were not interested in compulsorily
purchasing it.
• Glencombe bought the property, but subsequently discovered from the local authority that the
property was within an area that would be subject to a slum clearance program.
• Upon discovering this, Glencombe stopped the payment and refused to honour the contract.
• Overbrooke sought specific performance, and
• Glencombe alleged that the auctioneer had apparent authority to make the statement and, given
that it was inaccurate, it amounted to a misrepresentation, allowing Glencombe to rescind the
contract of sale.
Held;
• The Court found for Overbrooke( P) and ordered specific performance
• Brightman J, stated
• “It seems to me that it must be open to a principal to draw the attention
of the public to the limits which he places upon the authority of his agent
and that this must be so whether the agent is a person who has or has not
any ostensible authority. If an agent has prima facie some ostensible
authority, that authority is inevitably diminished to the extent of the
publicised limits that are placed upon it”
• And as there were publicized limits to the Agents Authority, The Court said
there could be no reliance on apparent authority by the T
Apparent authority
• 3. Alteration of position: what is required?
• In a number of agency cases, the courts have
required that ‘the person to whom the
representation was made has suffered loss by acting
upon it; or, to put it in another way, has altered his
position to his detriment by acting on the
representation’.
• However in other cases, all the T party needs to do is
have altered their position, there is no need to show
Loss.
• The more practical position seems to be that there is
a need for alteration. Loss is not needed.
Agency through ratification
Ratification

• If an agent carries out an act in the name of a principal for which

he was not authorised, the principal may decide to ratify the
transaction.
• If the principal decides to ratify the transaction then he adopts the
agent’s unauthorised acts, which then become authorised ab initio.
• In other words, ratification is equivalent to antecedent authority and
the agent will be regarded as having retrospective actual authority.
• In Koenigsblatt v Sweet (1923), Lord Sterndale MR explained ratification
in the following terms:
Ratification

• Koenigsblatt v Sweet [1923] 2 Ch 314, 325 per Lord Sterndale MR:

• “Ratification…is equivalent to an antecedent authority…and when there has
been ratification the act that is done is put in the same position as if it had
been antecedently authorized.”

• Basically when the Agent acts without authority and the P now wants to
enforce the contract ( probably because P is the only one who can sue in
case of the T breaching the contract)

• It can be done through actions and/or words.

• But usually not by omission or silence.

 Ratification: Conditions
1. Principal must be in existence
• Especially in the case of Pre incorporation contracts on behalf of a company!!!
• Sec 51 of CA 2006 codifies the case:
• Kelner v Baxter (1866-67) LR 2 CP 174
• “where a contract is signed by one who professes to be signing “as agent,” but who has no principal
existing at the time, and the contract would be altogether inoperative unless binding upon the person
who signed it, he is bound thereby: and a stranger cannot by a subsequent ratification relieve him from
that responsibility.” (Erle CJ)
• 2. The contract must be valid
• The P must have the capacity to enter into the purported contract

• 3. Knowledge of the Principal

• The P must be in existence and the T must know that there is a P, even if the identity isn’t revealed.
• So A cannot act in his own name at the time of the contract!!
 Ratification: Effects

• Ratification backdated to time of transaction

• Bolton Partners v Lambert (1889) 41 Ch D 295
• Bolton was the P, and lambert the T.
• Subject to ratification the A accepted the offer.
• There was a gap between the Agent accepting an offer and the P ratifying it.
• In the Mean while The T decided to withdraw the offer.
• The P accepted the offer after the T withdrew the Offer.
• Held: The ratification works is such a way that it leaves the T in a limbo till the time the P
either accepts of rejects the offer.
Exceptions to the basic principle of ratification

• There are various exceptions to the basic principle

• Time of ratification
• Reasonable time: Managers of the Metropolitan Asylums
Board v Kingham & Sons (1890) 6 TLR 217
• Will depend on each case. Depending on the nature of goods?

• Offer/Acceptance “subject to ratification”

• Whether ratification would cause unfair prejudice to third party
• Adverse effect on proprietary rights (Bird v Brown (1890) 4
Exch 786), where there is an adverse impact on Proprietary
rights of the T, ratification may not be allowed.
• Presentaciones Musicales SA v Secunda [1994] Ch 271
Agency – Part II
Principal, Third Party and Role of Agent
Liability of Agent ?
Agent’s Warranty of Authority
• An agent warrants to the third party that he has authority for the transaction in
question
• Collen v Wright (1857) 8 E&B 647
• Yonge v Toynbee [1910] 1 KB 215
• agent acting without authority liable if
• the agent had been fraudulent;
• the A untruly represented he had authority when he did not;
• agent innocently misrepresents that he has authority when he
• (i) never had authority or
• (ii) the authority has ceased for reasons unknown to him
Principal and 3rd party – disclosed agency
• Settlement of price with agent
• Principal’s contractual obligation to 3rd party not satisfied by paying agent and assuming agent
has already paid/will pay
• Irvine & Co v Watson & Sons (1880) LR QBD 414

• Exception: estoppel based on 3rd party’s conduct

• If the T party led the P to believe that it was acceptable to pay the A to discharge the obligation?
• Davison v Donaldson (1882) LR 9 QBD 623, 627, per Sir George Jessel MR
• “If the [principal] has been misled by the [third party], either by his words or by his
conduct, to believe that which is not true, so that his position is altered, the [third party]
cannot be heard to deny the truth of what he has thus led the [principal] to believe”
Relationship between principal
and agent
Duties of an agent
• Contractual

• Duty to exercise due care and skill

• Chaudry v. Prabhakar [1989] 1 W.L.R. 29

• Fiduciary Duties
• “The expression `fiduciary duty’ is properly confined to those duties which are peculiar to
fiduciaries and the breach of which attracts legal consequences differing from those
consequent upon the breach of other duties...In this sense it is obvious that not every breach
of duty by a fiduciary is a breach of fiduciary duty.” (per Millett L.J. in Bristol and West
Building Society v. Mothew (t/a Stapley & Co.) [1996] 4 All E.R. 698, 710)
Principal and Agent – Fiduciary Duties
• Avoid Conflict of interests
• Armstrong v Jackson [1917] 2 KB 822

• Kelly v Cooper [1993] AC 205 – separate transactions

• No secret profit
• Hippisley v Knee Bros [1905] 1 KB 1

• Boardman v Phipps [1967] 2 AC 46

Principal and Agent – Fiduciary Duties
• No bribes/secret commission

• Boston Deep Sea Fishing and Ice Co. v Ansell (1888) 39 Ch D 339

• “A bribe consists in a commission or other inducement, which is given by a third

party to an agent as such, and which is secret from his principal.” (Anangel Atlas
Compania Naviera SA v Ishikawajima-Harima Heavy Industries Co Ltd [1990] 1 Lloyd’s
Rep 167)

• Claim bribe or damages: Mahesan v. Malaysia Government Officers' Co-operative

Housing Society, Ltd. [1979] A.C. 374
Remedies for breach of fiduciary duty

• The court has wide discretion when awarding remedies to a principal where his agent
has committed a breach of a fiduciary duty.
• Where the agent makes a profit as a result of his breach of a fiduciary duty, the
following remedies might be available to the Principal:
• • he may dismiss the agent summarily without notice;
• • he may recover any profits made by the agent as a result of the agent’s breach;
• • he may rescind the contract made with the third party; and
• • where the agent has received a bribe, he may recover from the agent the amount of
the bribe or bring a claim in damages against the agent or the party paying the bribe to
recover any losses he has sustained as a result of the bribe
Scenario B
(a)Erica is approached by Gofar plc and offered Rs400,000 if she
manages to persuade Gujranwala Ltd to sign a lease in its new
shopping centre in DHA lahore. Erica then tells Bashir about the
availability of the shop in DHA, and Bashir gives Erica the go-ahead to
formalise the lease on Gujranwala’s behalf. Bashir subsequently
discovers that the lease Erica arranged on Gujranwala Ltd’s behalf is
Rs20,000 more than that of all the other tenants in the shopping
centre, and then finds out about the commission Erica received.
Rights of Agent
 Principal and Agent – Rights of agent

• Right to Commission

• Contractual

• If discretionary: Kofi Sunkersette Obu v A Strauss & Co Ltd [1951] AC 243

• Otherwise quantum meruit remuneration

• Must be “effective cause”

• Millar, Son & Cod v Radford (1903) 19 TLR 575
 Principal and Agent – Rights of agent

• Opportunity to earn commission:

• George Trollope & Sons v. Martyn Brothers [1934] 2 K.B. 436
• Luxor (Eastbourne) Ltd. v. Cooper [1941] A.C. 108

• Damages only where implied term that P will not prevent A from earning commission
• L. French & Co. Ltd. v. Leeston Shipping Co. Ltd. [1922] 1 A.C. 451
• Alpha Trading Ltd. v. Dunnshaw-Patten Ltd. [1981] 1 All E.R. 482 (P commits
breach of contract with T)

• Commission on making or performing contract

Principal and Agent – Rights of agent
• Indemnity of agent.
• Adams v. Morgan & Co [1924] 1 K.B. 751 (includes liabilities that would not fall on P)

• Rhodes v. Fielder, Jones and Harrison (1919) 89 L.J. K.B. 15 (moral obligations)

• Anglo Overseas Transport Ltd. v. Titan Industrial Corporation Ltd. [1959] 2 Lloyds
Rep.152 (custom)
Principal and Agent – Rights of agent
• Lien
• Particular rather than general
• Only goods relevant to claim

• Requirements:
• Actual or constructive possession of goods
• Possession acquired in capacity as agent
• Possession must have been acquired lawfully
 Despite the general rule of agency
Instances law, the Agent can in some instances
become a part of the contract:
where the • Where the contract itself states that the A is a
Agent may be party to the contract
held a party to • Where it is not expressed but upon the
construction of the contract, it can be
the contract concluded that the agent is a party to the
contact
• Where the Agent signs the contract as a P,
and Not on behalf of someone.
Two way through which Agency comes to an
end By agreement

By acts of the Expiration of Occurrence of

parties period specified event
Revocation and
renouncement

By
performance

termination
Death ,
Dissolution

Bankruptcy
By operation of law

Mental
incapacity

frustration
Undisclosed Agency
Undisclosed agency

• It is essential to appreciate that in the case of an undisclosed principal, he (the undisclosed

principal) can sue the third party on a contract made by the agent even though the third party
did not know that the agent contracted on the principal’s behalf.
• In an undisclosed agency, the A and T can sue each other and be sued.
• In essence the contract was always between the A and the T, only when the T find out that there
was a P, they may sue the P.
• Likewise the P can interfere as long as the A had the authority.
• However, an undisclosed principal will only be able to bring a claim against the third party if the
agent had actual authority to make the contract.
• So, if an A can only be imbued with mere apparent authority, then the undisclosed P, cannot sue
for enforcement against T
• WHY?????
 1. Where the A is purporting to act on behalf of an
undisclosed P, but is actually acting on his own.

In this situation, the law is clear that the T can sue

the purported P( who was acting as an A)
Two But can the A(P) now sue T?
possible
situations Very unlikely, but where T continues with the
contract after becoming aware, yes!!

2. Where the A is acting on behalf of a non existent

P. Like the promoter of a Company.
 • FACTS: Tully (the agent) was the manager and part-owner of a
ship. He became a member of the UK Mutual Steamship
Assurance Association (the third party) and took out an
insurance according to the association
UK Mutual • the article of the Association required that members pay
Steamship contributions, and Tully owed such contributions.
• Tully was declared bankrupt, and so the Association sought to
Assurance recover the contributions from Nevill, another part-owner of
Association Ltd v the ship.
• The Association alleged that Nevill was an undisclosed
Nevill (1887) 19 principal and so could be liable.
QBD 110 (CA) • Nevill denied liability on the ground that he was not a
member of the Association.
• HELD: the claim of the association failed and it was held that
members were liable to pay contributions and, as Nevill was
not a member, making him liable to the Association would be
inconsistent with the express terms of the articles.
 Humble v Hunter (1848) 12 QB 310
FACTS: Mrs Humble (the purported principal) owned a ship called The Ann.

Her son, CJ Humble (the purported agent), chartered the ship to Hunter (the third party).

The son signed the charter as the owner of the ship called the ANN

Later the mother sought to take over the contract from her son as an undisclosed principal.

HELD: She was not permitted to intervene, and the court held that she was not in fact the
principal, The son signing as the owner precluded that possibility of her intervening as principal.
 • “An anomalous legacy of eighteenth
Undisclosed and nineteenth century
Agency jurisprudence, which survives in the
modern law on account of its
antiquity rather than its coherence”
(Lord Sumption in BNL v Playboy
Club London Ltd [2018] UKSC 43)
Undisclosed Agency
• Justification:
• Teheran-Europe Co Ltd v ST Belton (Tractors) Ltd [1968] 2 QB 545, 555
• Diplock LJ:
• “Where an agent has such actual authority and enters into a contract with another party
intending to do so on behalf of his principal, it matters not whether he discloses to the
other party the identity of his principal, or even that he is contracting on behalf of a
principal at all, if the other party is willing or leads the agent to believe that he is willing to
treat as a party to the contract anyone on whose behalf the agent may have been
authorised to contract.
• In the case of an ordinary commercial contract such willingness of the other party may be
assumed by the agent unless either the other party manifests his unwillingness or there are
other circumstances which should lead the agent to realise that the other party was not so
willing.”
 • Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199
• “For present purposes the law can be summarised shortly.
• (1) An undisclosed principal may sue and be sued on a contract
made by an agent on his behalf, acting within the scope of his
actual authority.
Undisclosed • (2) In entering into the contract, the agent must intend to act
Agency ( the on the principal's behalf.
• (3) The agent of an undisclosed principal may also sue and be
current legal sued on the contract. ( very difficult to justify from a legal point
of view)
position) • (4) Any defense which the third party may have against the
agent is available against his principal.
• (5) The terms of the contract may, expressly or by implication,
exclude the principal's right to sue, and his liability to be sued.
The contract itself, or the circumstances surrounding the
contract, may show that the agent is the true and only
principal.”
Undisclosed Agency
• Intervention by principal precluded where
• Terms of contract
• Humble v Hunter (1848) 12 QB 310 (if the agent described as “owner”, then this clearly
excludes principal)
• Fred Drughorn Ltd v Rederiaktiebolaget Trans-Atlantic [1919] AC 203 (“charterer” did not
exclude principal)

• Agent acting beyond actual authority

• Keighley, Maxsted & Co v Durant [1901] AC 240
 Undisclosed Agency
• Intervention by principal precluded where

• 3rd party only intended to deal with agent not principal

• Said v Butt [1920] 3 KB 497 (“personal element strikingly present”) ( this is an

exception and Not the RULE) only limited to circumstances, where the identity of the
parties is of essence to the contract)

• Dyster v Randall & Sons [1926] Ch 932( in a normal commercial contract, the identity
of the P doesn’t really matter)
• Rolls-Royce Power Engineering plc v Ricardo Consulting Engineers Ltd [2003] EWHC
2871 (collaborative design agreement)
 Rolls-Royce Power Engineering plc v Ricardo
Consulting Engineers Ltd [2003] EWHC 2871
• In a contract to develop a diesel engine with a third party, Rolls-Royce appointed Allen ( one of
their subsidiary) as their agent in managing certain aspects of its business. In the written contract,
these including placing orders and entering into ‘commitments and liabilities of any description
with third parties.
• Rolls-Royce agreed to indemnify Allen for any liability they suffered. In practice, the agreement
was solely intended to enable Rolls-Royce to use a cost-effective single accounting system for all
the companies in its corporate group. The parties never applied it outside of the accountancy
context.
• The engines malfunctioned and both Rolls Royce and Alen sought to sue the manufacturer.
• The manufacturer denied any liability to RR on the basis that their contract was with Alen and
NOT RR.
• One of the arguments made by RR to have cause of action was to argue that they were the
undisclosed Principle. So had the right to sue
• Held: Allen entered into the sub-contract as the principal. Rolls-Royce was neither a disclosed or
undisclosed principal. The mere fact that Allen had an agency relationship with Rolls-Royce did
not prevent them from making contracts in their own right. There was insufficient evidence that
Allen intended to act on Rolls-Royce’s behalf when they made the contract.
 • Settlement with agent
• Armstrong v Stokes (1872) LR 7 QB 598 (no
right of recourse against principal if only
discovered after payment by P to A)

Undisclosed • Merger and Election

Agency • Clarkson Booker Ltd v Andjel [1964] 2 QB 775
• “the external acts of the third party must
lead to the conclusion, as a matter of fact,
that the third party has settled to a choice
involving the abandonment of his option to
enforce his rights against one party.”
Possible causes of action against an Agent

Tort of Negligent
Conversion Defamation?
deceit Misrep
Termination of the agency
agreement