1 What is Agency?

• Agency is a relationship that allows the agent to bind the principal to a contract with a third party – the principal effectively steps into the agent’s shoes
• The agent also owes certain duties to the principal and has certain rights

2 Actual Authority

2.1 How does it arise?

General Rule: An agency relationship can only be established by the consent of the principal and the agent. Consent is deemed if they agree to what amounts in law to such a relationship, even if they do not recognise it themselves and even if they profess to disclaim it. However, consent has to be given either expressly or impliedly through words and conduct - Win Line (UK) Ltd v Masterpart (2000)

General Rule: Actual authority may also be inferred/implied from parties’ conduct and the circumstances of the case

• Where the board appoints a director to be managing director, they invest him with implied authority to do what all things that fall within the usual scope of his office - Hely-Hutchinson v Brayhead Ltd (1968)
• Where a person has been given express authority to do some things, they will also have implied authority to do other things which are necessary for them to execute their express authority
• Naturally, this may be restricted by and subject to any agreement between the parties (eg, the agent is appointed managing director but a contract expressly restricts his powers)

2.2 What are the implications?

2.2.1 Disclosed Principal Situation

General Rule: In such a situation, the agent “drops out of the picture” upon the entering of the contract; the third party and the disclosed principal can sue each other on the contract.

2.2.2 Undisclosed Principal Situation

General Rule: An undisclosed principal can also sue (and be sued) the third party on a contract when the following requirements are met. (If the undisclosed principal sues the third party, the third party can use against the principal any defence it would have had against the agent)

3 Apparent Authority

3.1 How does it arise?

Apparent authority is simply authority which the agent appears to have been given, but was not actually given. Contracts concluded by an agent with apparent authority are binding on the principal. The idea is that if the principal has conducted himself in such a way as to make other people believe that a person is his agent, the principal should be estopped from later denying the person is indeed his agent.

Generla Rule:

• A representation (via words or conduct) from the principal that that the person is the principal’s agent and has the necessary authority
• Reliance on the representation (ie, believing and acting on it)
• A change of position based on the representation

General Rule: The agent need not be aware that the representation was made by the principal - Freeman v Buckhurst (1964). However, the agent must not purport to make the agreement as the principal himself.

4 Ratification

Where an agent exceeds his actual and/or apparent authority, the principal can choose to ratify his act. This grants the agent the authority (retrospectively) to act on the principal’s behalf.

General Rule:

• The agent must have been known by the third party to be acting on his principal’s (rather than his own) behalf
• The principal must be in existence at the time that the transaction was completed and was legally competent to act (save for an exception for companies under Section 41 Companies Act)
• The ratification must occur within a reasonable period of time

5 Fiduciary Duties

• The no-conflict rule
  • An agent must not put herself in a position where the principal’s interests conflict with her own unless she has notified and obtained permission from the principal
• The no-profit rule
  • An agent must not use opportunities arising from her position to make a profit, even if the principal could not have made use of the opportunity himself and suffered no harm from it
• In both cases, the agent must notify the principal and obtain permission (if the principal is a company, then through a shareholder’s resolution), or must cease to act as agent
• Breach of such a duty usually leads to an account of the agent’s profits