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Agents’ Authority

Previous: Introduction to agency

When a principal agrees that an agent will act on his behalf, that principal confers authority on the agent. There are two type of authority: actual authority and apparent authority. Authority describes the extent to which an agent can bind his principal with contracts entered into on his principal’s behalf.

Actual authority

Actual authority, in the words of Lord Diplock in Freeman and Lockyer v Buckhurst Park Properties [1964], is a legal and consensual relationship between agent and principal which starts with the interpretation of that agreement. Actual authority is therefore the authority that a principal intends to surrender to his agent. If an agent concludes a contract within the scope of his actual authority, the principal (and the third party) is bound by that contract.

Express actual authority

Express actual authority is the extend of the authority that an agent has from the interpretation of his agency agreement. Ireland v Livingston (1872) allows an agent to act reasonably in interpreting ambiguity within his agreement, but this may have been modified where it is possible that due to developments in technology, the agent could have asked for clarification. In European Asian Bank v Punjab Sind Bank (No. 2) [1983], it was again confirmed that ambiguity, where practical, should be clarified.

Implied actual authority

According to Howard v Baillie (1796), an agent has actual authority to do all acts ‘in order to attain the accomplishment of the object of principal power’. That is, if a principal authorises his agent to sell his car, the will be impliedly authorising him to show potential buyers around the car, and perhaps take it for a test drive. Similarly, in Hely-Hutchinson v Brayhead [1968], an agent was said to be authorised to do all such things as fall within the scope of his office: a chairman and de-facto managing director was authorised to warrant or indemnity against losses on behalf of the company for which he was an agent. In Panorama Developments v Fidelis Furnishing Fabrics [1971], it was noted that over time, the typical user of an office (in this case a secretary) can change over time, such that secretaries may be authorised to order company cars. Implied actual authority can also extend to customary authority, but, in Cunliffe-Owen v Teather and Greenwood [1967], it was established that for customary authority to be found, an authorised act must be notorious, certain and reasonable, a test failed on the facts of the case.

Formalities

Even if an agent’s authorised acts involve formalities, there is usually no requirement for the agency agreement to have been formed with formalities, as said in Heard v Pilley (1869). The only exception to this rule is where an agent is authorised to execute deeds: his own authority must then have been conferred by deed, according to Berkeley v Hardy (1826).

Necessity

Although not as relevant today, The Choko Star [1990] illustrates that if an agent has no realistic alternative and his principal is not contactable, he may act within actual authority by carrying out necessary acts.

Sub-agency

Due to the trusting relationship created in an agency agreement, an agent is not usually allowed to delegate, unless the sub-agency is authorised, as in De Bussche v Alt (1878), or the delegated act is a ministerial act, as it was in Allam & Co v Europa Postal Services [1968]. In De Bussche v Alt (1878), the sub-agent was treated as a co-agent, allowing liability. As sub-agents cannot usually be used, principals have no right to sue them, according to Calico Printers’ Association v Barclays Bank (1931). Although, courtesy of the Contracts (Rights of Third Parties) Act 1999, this right can be created. Tort law, according to Henderson v Merrett Syndicates [1995], may not be used to circumvent a contractual structure.

Apparent authority

Whereas actual authority is created expressly between agent and principal, apparent authority is a more difficult concept. Once again, according to Lord Diplock in Freeman and Locker v Buckhurst Park Properties [1964], where a principal represents to a third party that an agent has authority to carry out a certain act, if the third party relies on that representation (where the principal has the authority to make that representation and the capacity to enter into the resulting contract), the principal will be bound irrespective of whether the agent had actual authority to conclude that transaction. It is an argument therefore that is based on estoppel, as is well illustrated by Freeman and Locker v Buckurst Park Properties [1964] itself, where the appointment of a director represented authority to conclude contracts on behalf of the principal company. Although, no actual authority was granted by the company’s articles of association, the company was still bound by the director’s act. Apparent authority could also be justified on the basis of objectivity as in Smith v Hughes (1871): a third party can expect his counterparty to be able to carry out the obligations they mutually agree upon.

The representation

A representation of authority need not be express, it may be my conduct, such as the appointment of a director (a company can’t itself speak, after all), or by other conduct, such as in Suncorp Insurance and Finance v Milano Assicurazioni [1993], where it was expected that a contracting agent had the authority to enter into contracts. ING re [2006], apparent authority was said to be created by a company organising its affairs in a certain was as to make agents’ positions apparent.

Apparent authority and actual authority are usually united in time, but it is possible that apparent authority will continue after actual authority has been revoked. In Summers v Salomon (1857), for example, a jewellery shop owner was liable to pay for an order concluded by his nephew, although the nephew had left the shop prior to making the order.

If authority is expressly denied, as it was in Overbrooke Estates v Glencombe Properties [1974], apparently authority will case to exist, the explicit representation will override any implicit representation. Further, an agent may not represent his own authority, according to Attorney General of Ceylon v Silva [1953].

The main difficulty with apparent authority arises when an agent attempts to represent authority to enter into a specific transaction. Three cases illustrate the issue.

Firstly, in The Ocean Frost [1986], the House of Lords dealt with a situation where an agent ‘chartering manager’ represented that he had obtained authority to enter into a specific transaction which authorised the leaseback of a ship for three years. The agent only had to the actual authority to conclude a leaseback for one year. The House of Lords adopted the orthodox view that an agent could not represent his own authority and found the principal not bound. Apparently, a ‘chartering manager’ does not have the final say on the terms of its principal’s charterparties and it was said that it would be an unusual case where an agent was required to communicate an extension of his own authority to enter into a specific transaction. Secondly, the Court of Appeal distinguished The Ocean Frost [1986] in First Energy v Hungarian International Bank [1993], allowing a bank’s senior manager to communicate to a third party that he had obtained specific authorisation from a parent branch that he could enter into a loan agreement. There was no authorisation, but the parent branch was still bound. Finally, in Kelly v Fraser [2012], the Privy Council agreed with both The Ocean Frost [1986] and First Energy v Hungarian International Bank [1993], but found that a pension fund was bound by its trustees’ unauthorised receipt of funds where there was no other way for a third party to get in touch with the fund other than via its trustees.

These three cases raise important questions of when apparent authority can be effective. Although this topic merits significant further discussion, it is submitted that apparent authority will be found where a principal organises its affairs in such a way that a third party may only communicate with the agent: in The Ocean Frost, the fraud occurring concurrently with the cases’ facts may have vitiated the chartering manager’s usual apparent authority to convey his principal’s authority. If apparent authority is looked at from the objectivity point of view above, The Ocean Frost must certainly be incorrect, as then all three cases upheld the objective appearance of their respective contracts. However, the principle that an agent may not usually communicate his own authority should not be overruled, as apparent authority preserves the valuable functioning of the law of agency, leaving us in rather a mess.

Reliance

As well as a representation, there must be reliance, and detrimental reliance at that, for there to be a claim concerning apparent authority, according to Lord Sumption in Kelly v Fraser [2012]. Quinn v CC Automotive Group [2010] also mentioned that reliance need not be reasonable, but it must be honest.

Fraud

If a contract is concluded fraudulently, it is said to be null in law. However, fraud is superseded by authority, such that if an agent acts fraudulently, but the act was apparently authorised, as in Lloyd v Grace, Smith & Co (1912), the principal will still be bound. Of course, the agents will have been severely liable to the principals in these cases, assuming they could be found.

Undisclosed agency

The final inconsistency in the law of undisclosed agency lies in Watteau v Fenwick (1893). An agent ordered and failed to pay for goods from the third party. The agent was the manager of a public house in an undisclosed agency agreement. The High Court permitted the third party to recover from the undisclosed principal as orders of cigars were within the ‘usual’ (but not actual) authority of public house managers. This case was not decided on the doctrine of apparent authority as a principal (who does not appear to exist) cannot make a representation to a third party about an agent. Perhaps the representation of authority came from the fact of being in the position of manager of a pub, but in any event, it violates the usual principles of authority; the panel in First Energy would almost certainly have come to a different decision based on more concrete principles.

It is submitted that either there is an unknown explanation to Watteau v Fenwick (1893), or the case is wrong; in any event, it should not be assumed that undisclosed agency and apparent authority can never coincide. Tettenborn’s ‘unknown explanation’ consists of assuming that the principal and the agent were to be treated as the same person, and that agency wasn’t involved; though this justifies as opposed to explaning

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