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I.

CONTRACT LAW

Agency (excerpt from KE1IY-HOLMES-I IAYWARI), Business Law, London, 2005)

CHAPTER 11 AGENCY

11.1

INTRODUCTION

The prmicples of agency law provide the basis for an understandmg of many issues relatmng to partnerships and some of those relatmng to reglstered companies The general assumpthon 1s that mdivxduals engagmng in busmness actvxty carry on that busmess by themselves, and on their own behalf, either mdnvidually or collectivehy It 1S not uncormmon, however, for such indivxduals to engage others to represent them and negotiate busmness deals on thenr behalf Indeed, the role of the 'mriddleman' 1S a commonplace one in business and commerce. The legal relatonship betxxeen such a representathve, or middIeman, and the busmness person makmng use of them s governed by the law of agency Agency principles also apply n relation to comparues registered under the compames legislation and the directors and other officers of such compames.

11.2

DEFINITION OF 'AGENCY'
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An agent 1s a person wxho is empowered to represent another legal party, called the principali and brings the principal into a legai relatonship xx th a third party. It should be emphasised that the contract entered mto 1S between the principal and the tlurd party. In the normal course of events, the agent has no personal rnghts or habrhties in relation to the contract Thrs outcome represents an accepted exception to the usual operation of the doctrhne of prvity in contract law (see above, 5 6) Smice the agent 1S not actually entermg mito contractual relathons wx th the third party, there 1s no requrrement that the agent has contractual capacity, although, based on the same reasormng, it is essenial that the principal has fltl contractual capacity Thus, it is possible for a principal to use a mmor as an agent, even though the minor mnght not have contractual capacatv to enter into the contract ori their own behalf There are numerous examples of agency relationshlps For example, as ther names imply, estate agents and travel agents are expressiy appomted to facilitate particular transactions Additionall\, empIoyees may act as agents of their employers m certain circumstances, or frnends may act as agents for one another Some forms of agency mernt particular consideration, as folloxw s A general agent, as the titIe mndcates, has the power to act for a principal generally m relation to a particular area of busmess, whereas a special agent only has the authornty to act in one particular transaction A del credere agent is one who, in return for anr additional coimmssion by way of A* pavment, guarantees to the principal that, in the event of a third party's failure to pay for goods received, the agent will make good the loss * A commission agent 1s a hybrid form which lies midxax betxxeen a fuli principal/agent relationshp and the relationshp of an independent trader and client In essence, the agent stands betvi een the principal and the thlrd party and
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estabhshes no contract bern;een those two partes The effect 1s that, although the commission agent owes the duthes of an agent to bis or her prmcipal, he or she contracts with the third party as a principal in his or her own right The effectiveness of this procedure 1s undermuned by the normal operation of the agency law relating to an undisclosed prmcipal (see below, 11 6 2) The position of a mercantile agent/factor 1s defined in the Factors Act 1889 as an agent. hav ng in the customary course of his busmess as such agent authority eilther 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 However, of perhaps more contemporary importance are marketmng agents, distnbution agents and the question of franchismg Marketng agents have only hmited authority They can only mtroduce potential customers to ther prmncipals and do not have the authority either to negotiate or to enter mto contracts on behalf of their prmcipalc Distribution agents are appomted by supphers to arrange the distribution of ther products nwithm a particular area The distributore ordmarnly cannot bmd the supplier, except where they have expressly been given the authoritv to do so Franchismg arrangements arnse wvhere the orngmaal developer of a busmess decides, for whatever reason, to allow others to use ther goodn iiI to conduct an independent busmess, usmg the original name of the busmess TWo promment examples of franchises are McDonalds and The Body Shop, although there are many others It 1S essential to emphasise that any such relationship does not arnse from, or give rise to, a relatoncshp of principal and agent Indeed, dt 1S commonplace, if not umiversal, that franchise agreements mnclude an express clause to the effect that no such relationship tS to be established Commercial agents are specifically covered by the Commercial Agents (Councl Direchtve) Regulations 1993, which were enacted in order to comply wnth EC Dlirective 86/653 The Regulations defmne a commercial agent as a self-emploved mtermediarv who has continumng authority to negtiate the sale or purchasc of goods on behalf of another person, or to negotiate and conclude such transactions on behalf of that person Although mtended to harmonmse the operation and effect of agency law withm the European Union, the regulations do not mtroduce anv major substanrive change mto UK agency law The effect of the Regulathons will be consedered m more detail below at 11 5 3 A power of attorney arises where an agencv 1s specifically created by way of a deed.

agents had no entitlement to coummssion, as the property owner had not agreed to their actng as bis agent. The principal/agent relationship canr be created m a number of ways It ma; arnse as the outcome of a dstcnct contract, which may be made either orally or m writnng, or t may be established purely gratuitously, where some person simply agrees to act for another. The relationslup may also anse from the actions of the parties It is usuai to consider the creation of the principal/agency relationshtp under five dsctnct categories 11.3.1 Express appointment Thcs is the most common manner m whtch a prmcipal/agent relatuonship comes mto existence. In this situaton, the agent 1S specifically appomted by the prmncipal to carry out a particular task or to undertake some general function. In most situations, the appomntment of the agent will tself involve the establishment of a contractual relationshup between the prmcipal and the agent, but need not necessarily depend upon a contract ben;een those parties For the most part, there are no formal requirements for the appomntment of an agent, although, where the agent tS to be gven the power to execute deeds m the principal's name, they must themselves be appomted by way of a deed (that 1S, they are given power of attorney) 11.3.2 Ratification An agencv 1S created by ratification nwhen a person who has no authority purports to contract wnth a third party on behalf of a principal Ratification 's the express acceptance of the contract by the prmcipal Where the prmcipal elects to ratify the contract, it gves retrospective valhdty to the action of the purported agent There are, however, certam conditions wnach have to be fully complbed wnth before the prmcipal cari effechively adopt the contract, as follotws * The prziicpa/ uiist have been in exstence at the time that the agent entered iito the CO71tract Thus, for example, in Ke/rier v Baxter (1866), where promoters attempted to enter irto a contnact on behalf of the as yet unformed company, it was held that the comparin could not ratrfY the contract after it was created and that the promoters, as agents, were personall liable on the contract (This 1S now given statutory effect under s 36C of the Compamues Act 1985 ) * The priiczpai aiiiist hlave had legaZ capacity to e1itei l11tO the cotact when il ceas H1iade When the capacity of compames to enter mnto a busmess transachon was hlmited by the operation of the docthrie of Lilti a veres, it was clearly established that they could not ratif an; such ti/tra vres contracts Similarl;, t 1s not possible for miors to ratify a crontract, e;aen though it was made in theur name An iindesciosed pri;scipalcainot ratfy a coitract The agent must have declared that he or she was actnrg for the prmcipal If the agent appeared to be actmg on bls or her own accouut, then the prmcipal cannot later adopt the contact (see Kegh/ei Maxted & Co v DTrant (1901))
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11.3

CREATION OF AGENCY

No one can act as an agent without the consent of the pimncpal, although consent need not be expressly stated In Vvhite v Lucas (1887), a firm of estate agents clalmed to act on behalf of the onn-er of a particular propertv, though that person had denied them permisseon to act on has behalf lVhen the owner sold the property to a third party, who was mntroduced through the estate agents, they cialmed thear commicssion It iwas held that the estate

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The principal wiust adopt the whole of the contract It s not operi to the pricipal to pick and choose which parts of the contract to adopt, they must accept all of ts terms Ratefication nist take piace eithi a reasonable time It 1s not possible to state xith certamnty what will be considered as a reasonable time in any particular case Where, however, the third party wth whom the agent contracted becomes aware that the agent has acted without authority, a time hmit can be set, wi thm which the principal must indicate their adoption of the contract for ilt to be effectve

the railway company could have contacted the plaitiff to seek his further instructions. The person seeking to estabZish the agency by necesszty mnust have acted bonafide in the mnterests of the principal (see Sachs v Miklos (1948))

11.3.5 Estoppel
This form of agency 1s also known as 'agency by holdmg out' and arnses where the principal has led other parties to believe that a person has the authority to represent hbm or her (The authority possessed by the agent is referred to as 'apparent authority' - see below, 11 4 2 ) In such circumstances, even though no principal/agency relationsrlp actually exists m fact, the principal is prevented (estopped) from denymg the existence of the agency relationship and 1s bound by the action of his or her purported agent as regards any third part' who acted in the bellef of its existence. To rely on agency by estoppel, the principae mnust have inade a re'presentatioln as to the anthorty of the agent In Free1nan ancd Lockyer v Bztck1lirst Park Properties Ltd (1964), a property company had four directors, but one director effecthvely conhrolled the company and made contracts as lf he were the managmg director, even though he had never actually been appomted to that position and, therefore, as an individual, had no authornth to bmnd the company The other directors, however, w-ere aware of this activhty anrd acquiesced m it When the company was sued m relation to one of the contracts entered into by the unauthornsed director, it was held that it was liable, as the board xihich had the actual authornty to bmd the company had held out the mdividual drector as having the necessary authority to enter such contracts It was, therefore, a case of agency by estoppel * As with estoppel generally, the pai ty seeking to uise t must haee reled on the 1 presenitati1en In Overbeooke Estates Ltd v Gleconbe PropE rties Ltd (1974), a notice xwhlch expressly demed the authoritv of an auctoneer to make such statements as actuallv tumed out to be false was successfully relied on as a defence by the aucthoneer's employers

11.3.3 Implication
This form of agency arnses from the relationship that exists betheen the principal and the agent and from which t 1s assumed that the principal has given authonrty to the other person to act as bls or her agent Thus, it is implied from the particular position held by indviduais that they have the authornty to enter into contractual relatons on behalf of their principal So, whether an employee has the actual authority to contract ori behalf of bls or her employer depends on the position held by the emplovee, and, for example, it was decided in Panoraenza Develeopnents v Fidelis Funrishing Fcbrics Ltd (1971) that a company secretary had the implied authority to make contracts in the company's name relathg to the day to day runrmng of the company Problems most often occur in relation to the impled extent of a person's authority, rather than their actual appomtment (but see Hely-Hutchinson v Bi-Oyhead Ltd (1967) as an example of the latter)

11.3.4 Necessity
Agency by necessitI occurs under circumstances wihere, although there 1s no agreement betwveen the partes, an emergency requires that an agent take particular acton in order to protect the mterests of the principal The usual situation whch grves rise to agency by necessit5 occurs where the agent s in possession of the prmcpal's property and, due to some unforeseen emergency, the agent has to take acthon to safeguard that property In orderforagency by ecessity to anse, there needs to be a @enim1e erlergency In Creat Noe thern Railway Co v Swaffield (1874), the radLvvay company transported the defendant's horse and, when no one arnived to collect it at ts destination, t was placed in a livery stable It wvas held that the company was enritled te recover the cost of stabling; as necessiht had forced them to act as thev had done as the defendant s agents The1e aii7zt ilsoe be 1lO pactical way of obtaeinin. fin the1 in strLictens feni the pi i7mOpa1 In Spiiicr-ev Great TVestern Reilc",ay Co (1921), a consigrment of tomatoes arrived at port after a delayed Journey due to storms A ralb aV strnke would have caused further delay in getting the tomatoes to their destiation, so the railwaa compani decided to sell the tomatoes locally It vv-as held that the radlwiay companv xias responsible to the plaintiff for the dLfference betw een the price achieved and the market price m London The defence of agency of necessit was not avallable, as

11.4

THE AUTHORITY OF AN AGENT

In order to bind a principal, any contract entered mto must be withmn the lnmits of the authorntv extended to the agent The authoritv of an agent cari be either actual or apparent

11.4.1 Actual authority


Actual authority can anse in t ,-o ways * Express actual ai'therit11 ThIs is explhcitly granted by the principal to the agent The agent 1s instructed as to xwhat particular tasks are required to perform and 1s riformed of the precise powers giv en in order to fulfii those tasks

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IMrpled actual authority This refers to the way miwblch the scope of express authority may be mcreased Thlrd parties are entitled to assume that agents holding a particular position have all the powers that are usually provided to such an agent Without actual knowledge to the contrari, they may safely assume that the agent has the usual authornty that goes with their position (This has been referred to above m relation to imphed agency) In i\atteau v Fenriwck (1893), the new ownners of a hotel contmued to employ the previous owner as its manager They expressly forbade him to buv certain arthcles, includmg cigars The manager, however, bought cagars from a third party, who later sued the owners for pavment as the manager's prmcipal It was held that the as within the usual authority of a manager of such an purchase of cigars wx estabhshment and that for a limutation on such usual authornty to be effective, it must be commurucated to any third party

In Yonge v Toynbee (1910), a firm of solicitors was mstructed to mstitute proceedmgs agamst a third party Without their knowledge, their client was certhfied insane, and although this automaticallv ended the agency relationship, they conthnued with the proceedmgs The thlrd party successfully recovered damages for breach of warrant of authontv, since the solictors wv\ere no longer actmg for their former client

11.5

THE RELATIONSHIP OF PRINCIPAL AND AGENT

The folloiwm-g considers the reciprocal rights and duties that principal and agent owe to each other

11.5.1 The duties of agent to principal


The agent owes a number of duties, both express and umplied, to the prncipal These duties are as follows 8 To perforrn the agreed unrdertakmgaccordiug te the instrictions of the priiicipal A failure to carr'y out mstructions wfIl leave the agent open to an action for breach of contract This, of course, does not apply in the case of gratuitous agencies, where there is no obligation whatsoever on the agent to perform the agreed task See Turprn v Bilton (1843), where an agent was held lhable for the loss sustamed bv his faldure to msure his prmcipal's shlp prior to its smiang *
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11.4.2 Apparent authority


Apparent authornty 1s an aspect of agency by estoppel considered above at 11.3 5 It can anse m two distmct wais * iWhere a person mnakes a representatuon to thlrd parties that a particularpersoli has the authority to act as their ageit without actually appoetinn the agent In such a case, the person makmg the representation is bound by the actions of the apparent agent (see Freemiiani aind Lockyei v Buckhurst Park Propertles Ltd (1964)) The prncipal iS also lhable for the actions of the agent where it Is known that the agent claums to be his or her agent and iet does nothmg to correct that impression Where a principe! has preuioushy represeited to a third party that an aeTent has the autheorit to act oer their behalf Even 1f the principal has subsequently revoked the agent's authority, he or she mav still be liable for the acthons of the former agent, unless he or she has informed tblrd parties who had previously dealt with the agent about the new situation (see ls Faber &Co Ltd v Joyce (1911)) Ii'f

11.4.3 Warrant of authority


lf a person clalms to act as agent, but without the authoritv to do so, the supposed principal will not be bound by any agreement entered into. Neither Is there a contract between the supposed agent and the third parti, for the reason that the third parti intended to deal not with the purported agent but with the supposed principal However, the supposed agent may lay themselves open to an action for breach of warrant of authorntv If anr agent contracts with a third partyi on behalf of a pruicipal, the agent umphedly guarantees that the princpal exists and has contractual capacity The agent also rmplies that he or she has the authorhtv to make contracts on behalf of that principal If any of these Lmplied warranties prove to be untrue, then the thurd partt may sue the agent in quasi-contract for breach of warrant of authorntv Such an acton may anse even though the agent was genumely unawi are of any lack of authourit

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To exercise due care and sbIli An agent will owe a duty to act with reasonable care and skllI, regardless of whether the agency relationshp 1S contractual or gratuwtous The level of sklll to be exercised, however, should be that appropriate to the agent s professional capacity and this may introduce a distnction in the levels expected of different agents For example, a solicitor would be expected to show the level of care and skilI that would be expected of a competent member of that profession, whereas a layperson actig in a gratuitous capacity would only be expected to perform with such degree of care and skll as a reasonable person would exercise m the conduct of their own affairs See Keppel v W\heeler (1927), where the defendant estate agents were held liable for fallng to secure the maxmum possible pnce for a property To cairy Out tastiructioispersolially Unless expresslv or impliedly authornsed to delegate the wvork, an agent owes a duty to the pr1ncipal to act personally in the completion of the task The rnght to delgate may be agreed expressly by the prmcipal, or it may be implied from customarv practice or arnse as a matter of necessitv In any such case, the agent remaus lilable to the prmcipal for the proper performance of the agreed contract To accouat There IS an implied duty that the agent keep proper accounts of all transactuons entered mto on behalf of the principal The agent is required to account for all monev and other property recelved on the prmcipal's behalf and should keep bls or her own property separate from that of the principal

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In addition to these contractual duties, there are general equitable duties whuch flow from the fact that the agency relationship 1s a fiduciari one, that 1s, one based on trust These general fiduciari duties are as follows

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to permit a conflict of mterest te aise An agent must not allow the possibihty of personal mterest to conflict with the mterests of bis or her principal without disclosmg that possibility to the principal iipon full disclosure, it 1s up to the principal to decide whether or not to proceed wth the particular transaction lf there is a breach of thls duty, the principal mav set aside the contract so affected and claim anv profit which mrght have been made by the agent In McPherson v VA7att (1877), a solicitor used his brother as a nommee to purchase property which he was engaged to sell It was held that since the solicitor had allowed a conflhct of mterest to anse, the sale could be set aside It was mnmaterial that a fanr price w'as offered for the property The corollary to the above case 1s that the agent must not sell bis or her own propertv to the principal wi thout fully disclosmg the fact (see Harrods v Lemon (1931)) T'is leads into the next duty * Not to make a secret profit or omisuse confidenitwI znjormaton An agent who uses his or her position as an agent to secure financial advantage for hbm or herself, without full disclosure to bis principal, 1S in breach of fiduciarv duty Upon disclosure, the principal may authonse the agent's profit, but fui! dcsclosure is a necessary precondition (see Hfppislev vKnRee Bros (1905) for a clearcut case) An example of the strictness with which thus principle 1s enforced may be seen m the case of Boardman v POizpps (1967), m wxlch agents were held to account for profits made from information whch they had gamed from ther positon as agents, even though ther action also benefited the company for wblch they were actng. * Not to take a bribe This duty may be seen as merely a particular aspect of the general duty not to make a secret profit, but it goes so much to the root of the agency relationslip that it 1s usuallv treated as a distmnct headmg in its oxi nnght Again, for clear-cut cases, see Boston Deep Sea FPsh/ng & Ice Co Ltd v Ansell (1957), in whch the managmg director of the company was held to have breached his fiducian, duties as an agent by acceptmg a bribe m return for orders See also Mllaiesan v MaIaysan Go'e'nnimeint Officers Co-operatroe Hos xg Socety (1978), where the plamhtff received a bribe to perrut a third party to profit at his principal's expense \Vhere it 1s found that an agent has taken a briibe, the followmg civil. remedes are open to the prmclpal to repudiate the contract wi th the third party, to dismass the agent without notice, D to refuse to pay anv monev oTwed to the agent or to recover such money alreadv paid, to clam the amount of the bibe, and to claiun damages in the tort of deceit for any loss sustamed as a result of the payment of the bribe The payment of the bribe ma; also haie consttuted a breach of criminal Iaw

11.5.2 The rights of an agent It 1s a simple matter of fact that the common law does not generally provide agents with as many rnghts in relation to the number of duties that it mposes on them The agent, however, does benefit from the clear estabbshment of three general rnghts These nghts are as follows.
* To clain remuneratonlorservces peiformed It is usual m agency agreements for the amount of payment to be stated, elther m

the form of wiages or commussion or, mdeed, both XVbere a commercial agreement is sdlent on the matter of payment, the court willimpi> a term into the agreement, requirmg the payment of a reasonable remuneration Such a term will not be rmplied in contradiction of the express terms of the agreement. See Re Richmnonzd Gate Property Co Ltd (1965), where it was held that no remuneration could be clairned where an agreement stated that pavment would be determmed by the directors of the compani, but they had not actually decided on any payment
claii mde mnty aganst the prncpal for all expenses legtmately ncurred in the perforrnaIceof seil ces

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Both contractual and non-contractual agents are entitled to recover money spent in the course of performmg their agreed task In the case of the former, the remedy 1s based on an Lmplied contractual term, in the case of a gratuitous agent, t is based on the remedy of restitution Money can, of course, only be claimed where the agent has been actmg withm bis or her actual authonity
* To exercse a lien over propei ty owned by the prncpal
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a right to retain the prmcipal's goods, where they have lawfullv come mito the agent's possession, and hold them agamst any debts outstandmg to him or her as a result of the agency agreement The nature of the ben 1s usually a particular one relatmg to specific goods which are subject to the agreement, not a general one wxhbch enttles the agent to retam any of the principal's goods, even where no monev s owed in relation to those specfic goods The general lien is onlv recogmsed oufthe bass of an express term m the contract, or as a result of judiciatl recognised customn, as m the area of banklmg
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11.5.3 Commercial Agents (Council Directive) Regulations 1993 These Regulations implement Councl Directie 86/653/EEC on the Co-ordination of the Laws of Member States relating to Sehf-Employed Commercial Agents, and carne mto force at the begrmng of 1994 Regulations 3-5 set out the rnghts and oblgations as benieen commercial agents and therr prmncipals, regs 6-12 deal w'th remuneration; and regs 13-16 deal with the conclusion and termination of the agency contract Regulations 17-19 contain previsions relatmng to the mndemnmtv or compensation pavable to a conurercial agent on ternmmahtion of bis agency conthact, and reg 20 relates to the validity of restramit of trade clauses Considermig the provisiorxs in more detal oreg 3 provides that agents must act dutifully and m good faith in the mterests of their principal The agents must negotiate in a proper manner, execute the contracts they are contracted to undertake, commuricate all necessary information
to, and comp> with all reasonable mistructions from, theur pmcipal,

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wth reg 4 relates to principals' duties and requires that they provide their agents the necessary documentation relatng to the goods concemed, obtain information m particular, notify the necessary for the performance of the agency contract and, withm a reasonable period once thev anticipate that the volume commercial agent of commercial transactions will be significantlylower than that which the shall commercial agent could normally bave expected Additionally, a princpai imform the commercial agent, within a reasonabie period, of their acceptance or refusal of a commercial transactionwhich the commercial agoent has procuredfor them, situation, * reg 14 prov'des that agents are entitled to notice of termination of theor * reg 17 states that commercial agents are entitled to indemmnty or compensation on termmation of the agency agreement, and * reg 20 states that any agreementsin restraint of trade in agencv contracts are only effect've if they are m writing Such restramts must relate solely to the type of goods dealt wth under the agency agreement and must be limted to the geographical area, or the particular customer group, allocatedto the agent In any case, such restraints may onlybe valid for a maximum period of two vears (cf general contractsin restraint of trade above at 7 6 3)

High Court, contrary to general common law principles, held that, under the Regulations, an mdependent agency had a v alue, wrhich was akm to the value of the good1ll in a business Anv assessment of that value, at or just before termination, required consideration of various factors, mncludmng the agent's expenditure mcurred in earnmg the corimission, the duration and history of the agreement, provision for notice, etc, and was not susceptible to the applhcation of a simple formula In Ingmar GB Ltd v Eaton Leonard Inc (formerly Eaton Leoicai-d Technolopes Inc) (2001), whl1st Morland J felt himself bound to recogmse the hierarchical supernority of the Scottish Court of Session decision as stated m Douglas Kiing v T Tunnock Ltd in relation to a piece of Brithsh legislation, he nonetheless felt more in sympathy with the approach adopted by the High Court m Barrett McKenZie & Co Ltd v Escada (UK) Ltd Hlis mechanism for achieving both ends was to decide that the Scottish court had laid down 'not a principie of law but a guideline that in many cases may be appropriate' However, in the present case, he found it not appropriate and thus he could effectihvely avold followimg the Court of Session s decision.

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The relationshp of the Commercial Agents (Council Directive) Regulations 1993 (SI 1993/3053) and the common law was considered in Duffenv FRABo SpA (1998), in whbchbt was held that although a dismissed agent could notenforce a 'liquidated damages clause inhis contractbecause itwas really a penaltv clause, he mght notbe restricted to merey clamLing common law' damages, as the Regulations allowed him to clarm 'compensation' whlch mrughtwell involve a premium over the level of ordinary damages (see further, above, 8 7 3). Recently, how ever, controversv, not to say confusion, has arisen over the way m wlhch the level of compensaton provided for m reg 17 should be calculated. As has been stated, the regulation tself simply provides that, in the event of a principal termmnating a reiatonshbp with a commercial agent, the latter1s enttled to compensation The Regulations do not, however, state precsely how such compensation should be calculated, and it ths lack of detall that has led to the confusion, as follows of e In Douglas Klng v T Twinock Ltd (2000), the Inner House of the Scottish Court be it would law.', French on Session determrned that, as the EC Directive was based appropriate to operate the system for the calculation of compensation on the same basis asw as adopted by the French courts On thatbasis, the Inner House held that the agent should receive compensation equal to the gross conmission paid during the prevoous tw-o vears of the agency Alternatiely, the court held that a multiple of twice the average commission earned during the last threeyears could be used In Barett McKenzze & Co Ltd v Escada (UK) Ltd (2001), the Higgh Court reached a e different conclusion as to the way in which compensation should be calculated It did so on the basis that the alm of the original Directive was simply to establish a generai right to an entitlement and that the particular method or assessing the value of that entitlement was to be left to the mdividual Member States to decide upon The Court, therefore, thought it inappropriate simply to folloe'' the method of calculation operated by the French courts Following DtCfe' V FRA Bo SpA, the

The situation as to the precise w ay in which reg 17 compensation payments are to be ork supports the approach calculated remains uncertam Although much academic wi to be determenod by the resolution final the for remamns it Court, of the English High House of Lords, eother in that form or as the Privy Councl in relation to Scottish cases

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11 6

RELATIONS WITH THIRD PARTIES


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In the words of Wright J m Montgoonene v UK Mutual Steamship Association (1891), once an agenr creates a contract betoveen the principal and a third party, prwia facde at common law, 'the only person riho can sue 1s the prmclpal and the only person who cani be sued is the principal' In other words, the agent has no further responsibility This general rule Is, how 'ever,subject to the following particular exceptions, l-hch in tum tend to depend upon '.'hether or not the agent has actually disclosed the existence of the principal

11.6.1 Where the principal's existence is disclosed


Although the actual identity of the principal need not be mentioned, where the agent indicates that he is actmg as an agent, the general rule 1s as stated above, onlv the principal and the third party have rghts and obhgations under the contract Excepthonall,, ho'.ever, the agent may be held liable as a party to the contract flus can occur in the follo'.ming ways' * At tl1i d party nisstence * Where the agent has expressly accepted liability wth the principal m oider to induce the third party to enter the contract, he or she will attract liabdiitv By mplcatolil the agent has signed the contractual agreement m bis or her o'.vn name, Nhere W a representative of the thout clearly stating that he or she is merely acting as principal, he or she vdll most lhkel' be liable on it.
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* In relation to bilIs of exchange As in the previous situation, xxwhere an agent signs a bill of exchange without sufficiently ndcating that be or she 1s merely acting as the agent of a named principal, he or she wiil1 become personally liable on ilt e In relation to the execution of a deed Where the agent signs the deed other than under a powx'er of attormev, he or she xwiii be personally bable on it * iYhere the agent actsfor a non-exstent prncipa! In such circumstances, the other party to the agreement cari take action agamst the purported agent

* Paymnent by the principalto the agent to pass on to the third party In this situation, the general rule 1s that if the agent does not pay the thnrd parti, the primicipal remains lable TIus remams the case wxth an undrisclosed principal (see Irvme &Co v iatson &Sons (1880)).

11.6.4 Breach of warrant of authority


As has been stated above (11 4 3), where an agent purports to act for a prircipal wthout actually havimg the necessary authornt,, the agent is sald to have breached his |x or her warrant of authority In such circumstances, the third partv may take achion agamist the purported agent

11.6.2 Where the principal's existence is not disclosed


Even in the case of an undisclosed principal, xxwhere the agent has authornty but has failed to disclose that he or she ls acting for a principal, the general rule 1s stili that a contract exrsts between the principal and the thurd partv, which can be enforced by either of them The fotloxxnrig, hox -ever, are some modifications to this general rule The third party is entitIed to enforce the contract agamst the agent and, ir turn, the agent can enforce the contract against the tIerd party In both cases, the principal canr irterene to enforce or defend the acthon on his or her orrn behalf * As stated prevxously, ari undisclosed prircipal cannot ratrfy any contract made outside of the agent's actual authornty WAhere the tbxrd party had a special reason to contract with the agent, the princpai may be excluded from the contract This will certainiy apply in relation to personai contracts, such as contracts of employment and, possibly, on the authoriti of Greev Downs Supply Co (1927), where the third partxy has a rnght to set off debts agamst the agent. * Authority exists m Said v Butt (1920), xxhere a theatre critic emploved someone to get hrm a ticket for a performance he would not have been allowed imto, for ciaim-g that ari undisclosed principal xvill not be pernutted to enforce a contract xxhere particular reasons exst as to why the third party would not xxish to deal with him or her This decision appears to run contrari to normal commerciai practhce and 1s of doubtful merit It is certam, however, that where the agent actually nusrepresents the identity of the prmncpal, knowmg that the tbird party xxould not otherwise enter into the contract, the principai xiii not be permitted to enforce the contract (see Arche v Stone (1898))

11.6.5 Liability in tort


An agent is liable to be sued in tort for any damages thus caused However, the agent's right teo indemnuti extends to tortious acts done n the performance of his or her actual authonty In addtion, the principal may have actxon taken agamst hbm or her directly, on the basrs of vicarious liability

11 7

TERMINATION OF AGENCY

The prmcipal/agent relatronslsp can come to end mi tio dstirnct ways either by the acts of the parties themselves, ether joritl or unlaterally, or as an effect of the operation of law

11.7.1 Termination by the parties There are a numrber of wais in which the parties can brmg an agency agreement to an end, as follows
IBy inutual atiet eent

11.6.3 Payment by means of an agent


Payrment bx means of an agent can take two forms. o Paygiient by the thzrd paity t o the agent to pass on to the principal In this situation, rf the principalis undisclosed, then the third parti has discharged liabliitv on the contract and 1s not responsible if the agent absconds wxth the money However, x f the principal 1S disclosed, then any payment to the aaent oniy discharges the thIrd party's responsibiiity if it can be shoxrn that the agent had authorty, either express or mplied, to receive monex -L--

Where the agencv agreement ls a continuimg one, the parthes may simply agree to bring the agency relationshbp to an end on such terms as they wish rs here the agency was established for a particular purpose, then it wxiill automatically come to a end wben that purpose has been achieved Equally, where the agency was onlr mtended to last for a defunte pernod of time, then the end of that period rli brmng the agencx to an end iiBy the nlzater ,al actoe, of cee of the pOi ties Because of the essenhtally consensual nature of the Prucrpalagencv relationslp, t is possible for either of the partes to brmg it to an end sampiv by gpvimg notice of termination of the agreement Although the agency relationshp xill be ended by such urlateral action, mi situateons where the principal has formed a contractual

=:

ir

relationship wxth the agent, such undlateral termination mai le ave the prilcipal
open to an action for damages in breach of contract fevocable e ?g eeinents In some circumstances, t 1s not possible to revoke an agencv agreement Thbs

1,

,,

_a

situation arises where the agent has authority coupied xxith an mterest Such an

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Busmness Law irrevocable agency might anse where a prmicipai owes money to the agent and the payment of the debt wxas the reason for the formation of the agency relationship For example, vvhere, in order to raise the money to pay off his debt, the principal appomts his creditor as his agent to sell some particular piece of property, the principal may not be at lhberty to brmg the agency to an end unmt2 the sale has taken place and the debt has been pald off

SUMMAIRY OF CHAPTER 11 AGENCY

Definition
An agent is a person who is empowered to represent another legal party, called the principal, and brmgs the prmcipal into a legai relatonship with a third party Agency agreements may be either contractual or gratuitous Commerciai agents are specifically covered by the Commercial Agents (Council Directive) Regulations 1993

11.7.2 Termination by operation of law


flms refers to the fact that an agency relationship xwill be brought to an end by anv of the followmng. * Frustratioa Contracts of agency are subject to discharge by frustration m the same way that ordmnary contracts are (see above, 8 4, for the general operation of the doctrme of frustration) The death of either party e Death of the agent clearlx brmgs the agreement to an end, as does the death of the principal The latter situation mav, however, give rise to problems xxwhere the agent ls unaware of the death and continues to act in the capacity of agent In such circumstances, the agent will be in breach of hrs or her xxwarrant of authorntv and wll be personally liable to thlrd parties Iusarzity of elther party As in the previous situation, the msamity of either partx wll brnxg the agency to an end, similarly, agents wll have to be careful not to breach their warrant of authority by continuing to act after the principal has become msane (see Yionge v Toynibee (1910), above, 11 4 3) Bankrziptcy e Generally, the bankruptcv of the principal will end the agency agreement, but the bankruptcy of the agent xxill only bring it to an end where it renders him or her unfit to continue to act as an agent

Creation of agency
Agency may anse * expresslv, * by ratification, * bi implication, * bx necessitv, or * by estoppel

Nature of agent's authority


Actual authornty may be divided mito. e express actual authornt, and
| *mplhed actual authonrty

Apparent authority 1s based on estoppel and operates in such a way as to make the ho claims to be principal responsible for their acthon or maction as regards someone wx

their agent Warrant of authority


ith a tiurd partv on behalf of a principal, the agent imphedly If an agent contracts vx guarantees that the princ-P>al exists and has contractual capacity and that he or she has that person's authonty to act as his or her aaent If thIs 1s not the case, the agent iS personally liable to tlurd parties for breach of warrant of authoritx

The duties of agent to principal


The dutes of the agent to the principal are e to perform the undertakmg according to urstructions, * to exercise due care and skill, o to carry out instructions pDersonally,
e to accoiunt,

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* not to perimt a confhct of mterest to arnse, not to make a secret profit or mususe confidential information, and o * not to take a bribe.

Payrnent by means of an agent * If the agent does not pay the tbird party, the prmcipal remains liable * If the agenit absconds with nimoney paid by the thrrd party, then, if the prircipal 1S undisclosed, he or she sustains the loss If, how; ever, the primclpal is disclosed, the agent must have had authority to accept money, or else the thurd party lS ale Termination of agency Agreements may end * bv mutual agreement, * by the umlateral acthon of one of the parties, * through frustraton, or * due to the death, msanmty or barIkruptcy of either party

The rights of an agent


The rnghts of an agent are to clalm remuneration for sen7ices performed; * to claim mdemmuty for all expenses legitimately mcurred m the performarnce of services, arnd * to exercise a ben over property owned by the prmcipal

Commercial Agents (Council Directive) Regulations 1993


* Regulathons 3-5 set out the rights and obligatons as betw,een commercial agents and thenr prmcpals * Regulations 6-12 dea! with remuneration * Regulahons 13-16 deal with the conclusion and termmaton of the agency contract * Regulations 17-19 contair prov;sions relating to the mdernnmty or compensation payable to a commercial agent on ternmration of los agency contract Regulation 20 relates to the vahdity of restramt of trade clauses

Relations with third parties \liThere the agent indcates that he or she is acting as an agent, the general rule is that only the prmcipal and the thlrd party have rights and obligations under the contract There are exceptions to thls * at the misstence of the thurd party, * by implication; m relation to bulls of exchange, and m relation to deeds e
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Wlhere the prmcipal's existence is not disclosed * the agent can enforce the contract agamst the third party, * the prmcipai can enforce the contract agamst the thlrd party * the thrd party can choose to enforce the contract agamst the agent or the prmcipalt or * an undisclosed prmcipal canmot ratifv any contract made outside of the agent's actual authoritv Where the thrd party had a specal reason to contract with the agent, the prmcipal ma; be excluded from the contract Imq-ere the agent musrepresents the identity of the principal, the thircd party mav not be bourid bL the contract

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