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I. CONTRACT LAWAgency (excerpt from KE1IY-HOLMES-I IAYWARI), Business Law, London, 2005)

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CHAPTER 11AGENCY

11.1 INTRODUCTIONThe prmicples of agency law provide the basis for an understandmg of many issuesrelatmng to partnerships and some of those relatmng to reglstered companies Thegeneral assumpthon 1s that mdivxduals engagmng in busmness actvxty carry on thatbusmess by themselves, and on their own behalf, either mdnvidually or collectivehy It1S not uncormmon, however, for such indivxduals to engage others to represent themand negotiate busmness deals on thenr behalf Indeed, the role of the 'mriddleman' 1S acommonplace one in business and commerce. The legal relatonship betxxeen such arepresentathve, or middIeman, and the busmness person makmng use of them sgoverned by the law of agency Agency principles also apply n relation to comparuesregistered under the compames legislation and the directors and other officers of suchcompames.

11.2 DEFINITION OF 'AGENCY'An agent 1s a person wxho is empowered to represent another legal party, called theprincipali and brings the principal into a legai relatonship xxth a third party. It should 3rbe emphasised that the contract entered mto 1S between the principal and the tlurdparty. In the normal course of events, the agent has no personal rnghts or habrhties inrelation to the contract Thrs outcome represents an accepted exception to the usualoperation of the doctrhne of prvity in contract law (see above, 5 6)

Smice the agent 1S not actually entermg mito contractual relathons wxth the thirdparty, there 1s no requrrement that the agent has contractual capacity, although, basedon the same reasormng, it is essenial that the principal has fltl contractual capacityThus, it is possible for a principal to use a mmor as an agent, even though the minormnght not have contractual capacatv to enter into the contract ori their own behalf

There are numerous examples of agency relationshlps For example, as ther namesimply, estate agents and travel agents are expressiy appomted to facilitate particulartransactions Additionall\, empIoyees may act as agents of their employers m certaincircumstances, or frnends may act as agents for one another

Some forms of agency mernt particular consideration, as folloxw se A general agent, as the titIe mndcates, has the power to act for a principal generallym relation to a particular area of busmess, whereas a special agent only has theauthornty to act in one particular transactionA*del credere agent is one who, in return for anradditional coimmssion by way ofpavment, guarantees to the principal that, in the event of a third party's failure topay for goods received, the agent will make good the loss

* A commission agent 1s a hybrid form which lies midxax betxxeen a fuliprincipal/agent relationshp and the relationshp of an independent trader andclient In essence, the agent stands betvi een the principal and the thlrd party and

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262 Busmess Law 263hapter 11 Agencyestabhshes no contract bern;een those two partes Th e effect 1s that, although thecommission agent owes the duthes of an agent to bis or her prmcipal, he or shecontracts with the third party as a principal in his or her own right Theeffectiveness of this procedure 1s undermuned by the normal operation of theagency 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 anagent.hav ng in the customary course of his busmess as such agent authority eilther to sellgoods, or to consign goods for the purpose of sale, or to buy goods, or to raise moneyon 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 ca n only mtroduce potential

customers to ther prmncipals and do not have the authority either to negotiate or toenter mto contracts on behalf of their prmcipalc* Distribution agents are appomted by supphers to arrange the distribution of therproducts 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 goodniI to conduct anindependent busmess, usmg the original name of the busmess TWo promment

examples of franchises are McDonalds and Th e Body Shop, although there aremany others It 1S essential to emphasise that any such relationship does not arnsefrom, or give rise to, a relatoncshp of principal and agent Indeed,t 1Scommonplace, if not umiversal, that franchise agreements mnclude an express clauseto the effect that no such relationship tS to be established

D Commercial agents are specifically covered by the Commercial Agents (CounclDirechtve) Regulations 1993, which were enacted in order to comply wnth ECDlirective 86/653 Th e Regulations defmne a commercial agent as a self-emplovedmtermediarv who has continumng authority to negtiate the sale or purchasc ofgoods on behalf of another person, or to negotiate and conclude such transactionson behalf of that person Although mtended to harmonmse the operation and effectof agency law withm the European Union, the regulations do not mtroduce anvmajor substanrive change mto UK agency law Th e effect of the Regulathons will beconsedered m more detail below at 11 5 3

e A power of attorney arises where an agencv 1s specifically created by wa y of adeed.

11.3 CREATION OF AGENCYNo one can act as an agent without the consent of the pimncpal, although consent neednot be expressly stated

In Vvhite v Lucas (1887), a firm of estate agents clalmed to act on behalf of the onn-erof a particular propertv, though that person had denied them permisseon to act on hasbehalf lVhen the owner sold the property to a third party, who was mntroducedthrough the estate agents, they cialmed thear commicssion It iwas held that the estate

agents had no entitlement to coummssion, as the property owner had not agreed totheir actng as bis agent.The principal/agent relationship canr be created m a number of ways It ma; arnseas the outcome of a dstcnct contract, which may be made either orally or m writnng, ort may be established purely gratuitously, where some person simply agrees to ac t foranother. The relationslup may also anse from the actions of the partiesIt is usuai to consider the creation of the principal/agency relationshtp under fivedsctnct categories

11.3.1 Express appointmentThcs is the most common manner m whtch a prmcipal/agent relatuonship comes mtoexistence. In this situaton, the agent 1S specifically appomted by the prmncipal to carryout a particular task or to undertake some general function. In most situations, theappomntment of the agent will tself involve the establishment of a contractualrelationshup between the prmcipal and the agent, but need not necessarily dependupon a contract ben;een those parties

For the most part, there are no formal requirements for the appomntment of anagent, although, where the agent tS to be gven the power to execute deeds m theprincipal's name, they must themselves be appomted by way of a deed (that 1S, theyare given power of attorney)

11.3.2 RatificationAn agencv 1S created by ratification nwhen a person who has no authority purports tocontract wnth a third party on behalf of a principal Ratification 's the expressacceptance of the contract by the prmcipal Where the prmcipal elects to ratify thecontract, 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 prmcipalcari effechively adopt the contract, as follotws* The prziicpa/ uiist have been in exstence at the time that the agent entered iito the

CO71tractThus, for example, in Ke/rier v Baxter (1866), where promoters attempted to enterirto a contnact on behalf of the as yet unformed company, it was held that thecomparin 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 effectunder s 36C of the Compamues Act 1985 )

* The priiczpaiaiiiisthlave had legaZ capacity to e1itei l11tO the cotact when il ceas H1iadeWhen the capacity of compames to enter mnto a busmess transachon was hlmited bythe operation of the docthrie of Lilti a veres, it was clearly established that they couldnot ratif an; such ti/tra vres contracts Similarl;, t 1s not possible for miors toratify a crontract, e;aen though it was made in theur name

An iindesciosedpri;scipal ainot ratfy a coitr ctTh e agent must have declared that he or she was actnrg for the prmcipal If theagent appeared to be actmg on bls or her own accouut, then the prmcipal cannotlater adopt the contact (see Kegh/ei Maxted &Co v DTrant (1901))

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* The principal wiust adopt the whole of the contractIt s not operi to the pricipal to pick and choose which parts of the contract toadopt, they must accept all of ts terms

* Ratefication nist ake piace eithi a reasonable imeIt 1s not possible to state xith certamnty what will be considered as a reasonabletime in any particular case Where, however, the third party wth whom the agentcontracted becomes aware that the agent has acted without authority, a time hmitcan be set, wi thm which the principal must indicate their adoption of the contractfor ilt to be effectve

11.3.3 ImplicationThis form of agency arnses from the relationship that exists betheen the principal andthe agent and from which t 1s assumed that the principal has given authonrty to theother person to act as bls or her agent Thus, it is implied from the particular positionheld by indviduais that they have the authornty to enter into contractual relatons onbehalf of their principal So, whether an employee has the actual authority to contractori 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 thecompany'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) asan example of the latter)11.3.4 NecessityAgency by necessitI occurs under circumstances wihere, although there 1s noagreement betwveen the partes, an emergency requires that an agent take particularacton in order to protect the mterests of the principal Th e usual situation whch grvesrise to agency by necessit5 occurs where the agent s in possession of the prmcpal'sproperty and, due to some unforeseen emergency, the agent has to take acthon tosafeguard that property

In orderforagency by ecessity to anse, there needs to be a @enim1e erlergencyIn Creat Noe thern Railway Co v Swaffield (1874), the radLvvay company transportedthe defendant's horse and, when no one arnived to collect it at ts destination, twa s placed in a livery stable It wvas held that the company was enritled te recoverthe cost of stabling; as necessiht had forced them to act as thev had done as thedefendant s agents

The1e ai7ztlsoe be 1lO pacticalway of obtaeinin. fin the1 in strLictens feni the pi i7mOpa1In Spiiicr-ev Great TVestern Reilc",ay Co (1921), a consigrment of tomatoes arrived atport after a delayed Journey due to storms A ralb aV strnke would have causedfurther delay in getting the tomatoes to their destiation, so the railwaa companidecided to sell the tomatoes locally It vv-as held that the radlwiay companv xiasresponsible to the plaintiff for the dLfference betw een the price achieved and themarket price m London Th e defence of agency of necessit was not avallable, as

the railway company could have contacted the plaitiff to seek his furtherinstructions.

* The person seeking to estabZish the agency by necesszty mnust have acted bonafide in themnterestsof the principal see Sachs v Miklos (1948))

11.3.5 EstoppelThis form of agency 1s also known as 'agency by holdmg out' and arnses where theprincipal has led other parties to believe that a person has the authority to representhbm 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/agencyrelationsrlp actually exists m fact, the principal is prevented (estopped) from denymgthe existence of the agency relationship and 1s bound by the action of his or herpurported 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 agentIn Free1nan ancd Lockyer v Bztck1lirst Park Properties Ltd (1964), a property companyhad four directors, but one director effecthvely conhrolled the company and madecontracts as lf he were the managmg director, even though he had never actuallybeen appomted to that position and, therefore, as an individual, had no authornthto bmnd the company Th e other directors, however, w-ere aware of this activhty anrdacquiesced m it When the company was sued m relation to one of the contractsentered into by the unauthornsed director, it was held that it was liable, as theboard xihich had the actual authornty to bmd the company had held out themdividual drector as having the necessary authority to enter such contracts Itwas, therefore, a case of agency by estoppel

* As with estoppel generally, the pai ty seeking to uise t must haee reled on the1 presenitati1enIn Overbeooke Estates Ltd v Gleconbe PropErties Ltd (1974), a notice xwhlch expresslydemed the authoritv of an auctoneer to make such statements as actuallv tumedout to be false was successfully relied on as a defence by the aucthoneer'semployers

11.4 TH E AUTHORITY OF AN AGENTIn order to bind a principal, any contract entered mto must be withmn the lnmits of theauthorntv extended to the agent The authoritv of an agent cari be either actual orapparent

11.4.1 Actual authorityActual 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 toxwhat particular tasks are required to perform and 1s riformed of the precisepowers giv en in order to fulfii those tasks

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o IMrpled actualauthorityThis refers to the way miwblch the scope of express authority may be mcreasedThlrd parties are entitled to assume that agents holding a particular position haveall the powers that are usually provided to such an agent Without actualknowledge to the contrari, they may safely assume that the agent has the usualauthornty that goes with their position (This has been referred to above m relationto imphed agency)In i\atteau v Fenriwck (1893), the new ownners of a hotel contmued to employ theprevious owner as its manager They expressly forbade him to buv certain arthcles,includmg cigars Th e manager, however, bought cagars from a third party, wholater sued the owners for pavment as the manager's prmcipal It was held that thepurchase of cigars wxs within the usual authority of a manager of such anestabhshment and that for a limutation on such usual authornty to be effective, itmust be commurucated to any third party

11.4.2 Apparent authorityApparent authornty 1s an aspect of agency by estoppel considered above at 11.3 5It can anse m two distmct wais* iWhere a person mnakes a representatuon to thlrd parties that a particular ersoli has the

authority to act as theirageit withoutactuallyappoetinn the agentIn such a case, the person makmg the representation is bound by the actions of theapparent agent (see Freemiianiaind Lockyei v Buckhurst ParkPropertlesLtd (1964)) Theprncipal iS also lhable for the actions of the agent where it Is known that the agentclaums to be his or her agent and iet does nothmg to correct that impression

Where a principe! has preuioushy represeited o a third party that an aeTent has theautheorit to act oer heir behalfEven 1f the principal has subsequently revoked the agent's authority, he or she mavstill be liable for the acthons of the former agent, unless he or she has informedtblrd parties who had previously dealt with the agent about the new situation (seeIi'f ls Faber&Co Ltd v Joyce (1911))

11.4.3 Warrant of authoritylf a person clalms to act as agent, but without the authoritv to do so, the supposedprincipal will not be bound by any agreement entered into. Neither Is there a contractbetween the supposed agent and the third parti, for the reason that the third partiintended to deal not with the purported agent but with the supposed principalHowever, the supposed agent may lay themselves open to an action for breach ofwarrant of authorntv

If anragent contracts with a third partyi on behalf of a pruicipal, the agent umphedlyguarantees that the princpal exists and has contractual capacity The agent alsormplies that he or she has the authorhtv to make contracts on behalf of that principal Ifany of these Lmplied warranties prove to be untrue, then the thurd partt may sue theagent in quasi-contract for breach of warrant of authorntv Such an acton may anseeven though the agent was genumely unawi are of any lack of authourit

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

11.5 TH E RELATIONSHIP OF PRINCIPAL AND AGENTThe folloiwm-g considers the reciprocal rights and duties that principal and agent oweto each other11.5.1 The duties of agent to principalThe agent owes a number of duties, both express and umplied, to the prncipal Theseduties are as follows8 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 breachof contract This, of course, does not apply in the case of gratuitous agencies, wherethere is no obligation whatsoever on the agent to perform the agreed task SeeTurprn v Bilton (1843), where an agent was held lhable for the loss sustamed bv hisfaldure to msure his prmcipal's shlp prior to its smiang

* To exercise due careand sbIliAn agent will owe a duty to act with reasonable care and skllI, regardless ofwhether the agency relationshp 1S contractual or gratuwtous Th e level of sklll to beexercised, however, should be that appropriate to the agent s professional capacityand this may introduce a distnction in the levels expected of different agents Fo rexample, a solicitor would be expected to show the level of care and skilI thatwould be expected of a competent member of that profession, whereas a laypersonactig in a gratuitous capacity would only be expected to perform with suchdegree of care and skll as a reasonable person would exercise m the conduct oftheir own affairs See Keppel v W\heeler (1927), where the defendant estate agentswere held liable for fallng to secure the maxmum possible pnce for a property

* To cairyOut tastiructioispersoliallyUnless expresslv or impliedly authornsed to delegate the wvork, an agent owes aduty to the pr1ncipal to act personally in the completion of the task The rnght todelgate may be agreed expressly by the prmcipal, or it may be implied fromcustomarv practice or arnse as a matter of necessitv In any such case, the agentremaus lilable to the prmcipal for the proper performance of the agreed contract

e To accouatThere IS an implied duty that the agent keep proper accounts of all transactuonsentered mto on behalf of the principal The agent is required to account for allmonev and other property recelved on the prmcipal's behalf and should keep blsor her own property separate from that of the principal

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

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\oTt to permit a conflict of mterest te aiseAn agent must not allow the possibihty of personal mterest to conflict with themterests of bis or her principal without disclosmg that possibility to the principaliipon full disclosure, it 1s up to the principal to decide whether or not to proceedwth the particular transaction lf there is a breach of thls duty, the principal mavset aside the contract so affected and claim anv profit which mrght have been madeby the agentIn McPherson v VA7att (1877), a solicitor used his brother as a nommee to purchaseproperty which he was engaged to sell It was held that since the solicitor hadallowed a conflhct of mterest to anse, the sale could be se t aside It was mnmaterialthat a fanr price w'as offered for the propertyThe corollary to the above case 1s that the agent must not sell bis or her ownpropertv 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 znjormatonAn agent who uses his or her position as an agent to secure financial advantage forhbm or herself, without full disclosure to bis principal, 1S in breach of fiduciarvduty Upon disclosure, the principal may authonse the agent's profit, but fui!dcsclosure is a necessary precondition (see Hfppislev vKnRee Bros (1905) for a clear-cut case) An example of the strictness with which thus principle 1s enforced may beseen m the case of Boardman v POizpps (1967), m wxlch agents were held to accountfor profits made from information whch they had gamed from ther positon asagents, even though ther action also benefited the company for wblch they wereactng.

* Not to take a bribeThis duty may be seen as merely a particular aspect of the general duty not tomake a secret profit, but it goes so much to the root of the agency relationslip thatit 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 managmgdirector of the company was held to have breached his fiducian, duties as an agentby acceptmg a bribe m return for orders See also Mllaiesan v MaIaysan Go'e'nnimeintOfficers Co-operatroe Hos xg Socety (1978), where the plamhtff received a bribe toperrut 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 areopen 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 moneyalreadv paid,to clam the amount of the bibe, andto claiun damages in the tort of deceit for any loss sustamed as a result of thepayment of the bribe

The payment of the bribe ma; also haie consttuted a breach of criminal Iaw

11.5.2 The rights of an agentIt 1s a simple matter of fact that the common law does not generally provide agentswith as many rnghts in relation to the number of duties that it mposes on them Theagent, however, does benefit from the clear estabbshment of three general rnghts Thesenghts are as follows.* To clain remuneratonlor ervces peiformed

It is usual m agency agreements for the amount of payment to be stated, elther mthe form of wiages or commussion or, mdeed, both XVbere a commercial agreementis sdlent on the matter of payment, the court will mpi> a term into the agreement,requirmg the payment of a reasonable remuneration Such a term will not bermplied in contradiction of the express terms of the agreement. See Re RichmnonzdGate Property Co Ltd (1965), where it wa s held that no remuneration could beclairned where an agreement stated that pavment would be determmed by thedirectors of the compani, but they had not actually decided on any payment

*To claii mde mnty aganst the prncpalfor all expenses legtmately ncurred in theperforrnaIceof seil cesBoth contractual and non-contractual agents are entitled to recover money spent inthe course of performmg their agreed task In the case of the former, the remedy 1sbased on an Lmplied contractual term, in the case of a gratuitous agent, t isbasedon the remedy of restitution Money can, of course, only be claimed where theagent has been actmg withm bis or her actual authonity

* To exercse a lien over propei ty owned by the prncpalThis 1s a right to retain the prmcipal's goods, where they have lawfullv come mitothe agent's possession, and hold them agamst any debts outstandmg to him or heras a result of the agency agreement The nature of the ben 1s usually a particularone relatmg to specific goods which are subject to the agreement, not a general onewxhbch enttles the agent to retam any of the principal's goods, even where nomonev s owed in relation to those specfic goods The general lien is onlvrecogmsed oufhe bass of an express term m the contract, or as a result of judiciatlrecognised customn, as m the area of banklmg

11.5.3 Commercial Agents (Council Directive) Regulations 1993These Regulations implement Councl Directie 86/653/EEC on the Co-ordination ofthe Laws of Member States relating to Sehf-Employed Commercial Agents, and carnemto force at the begrmng of 1994 Regulations 3-5 set out the rnghts and oblgations asbenieen commercial agents and therr prmncipals, regs 6-12 deal w'th remuneration;and regs 13-16 deal with the conclusion an d termination of the agency contractRegulations 17-19 contain previsions relatmng to the mndemnmtv or compensationpavable to a conurercial agent on ternmmahtion of bis agency conthact, and reg 20 relatesto the validity of restramit of trade clauses

Considermig the provisiorxs inmore detaloreg 3 provides that agents must act dutifully and m good faith in the mterests oftheir principal The agents must negotiate in a proper manner, execute thecontracts they are contracted to undertake, commuricate all necessary information

to, and comp> with all reasonable mistructions from, theur pmcipal,

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* reg 4 relates to principals' duties and requires that they provide their agentswththe necessary documentation relatng to the goods concemed, obtain informationnecessary fo r the performance of the agency contract and,m particular, notify thecommercial agentwithm a reasonable period once thev anticipate that the volumeof commercial transactions will be significantly ower than that which thecommercial agent could normally bave expected Additionally, a princpai shallimform the commercial agent, within a reasonabie period, of their acceptance orrefusal of a commercial transactionwhich the commercial agoent has procured orthem,

* reg 14 prov'des that agents are entitled to notice of termination of theor ituation,* reg 17 states that commercial agents are entitled to indemmnty or compensation on

termmation of the agency agreement, and* reg 20 states that any agreements n restraint of trade in agencv contracts are only

effect've if they are m writing Such restramts must relate solely to the type ofgoods dealtwth under the agency agreement and must be limted to thegeographical area, or the particular customer group, allocatedto the agent In anycase, such restraints may onlybe valid for a maximum period of two vears(cf general contracts n restraint of trade above at 7 6 3)

Th e relationshp of the Commercial Agents (Council Directive) Regulations 1993(SI 1993/3053)and the common law wa s considered in Duffenv FRABo SpA (1998), inwhbchbt washeld that although a dismissed agent could notenforce a 'liquidateddamages clause inhi s contractbecause itwas really a penaltv clause, he mght notberestricted to merey clamLing common law' damages, as the Regulations allowed him toclarm 'compensation' whlch mrughtwell involve a premium over the level of ordinarydamages (see further, above, 8 7 3).

Recently, how ever, controversv, not to say confusion, has arisen over the way mwlhch the level of compensaton provided for m reg 17 shouldbe calculated. As hasbeen stated, the regulation tself simply provides that, in the event of a principaltermmnating a reiatonshbp with a commercial agent, the latter s enttled tocompensation The Regulations do not, however, state precsely how suchcompensation should be calculated, and it ths lack of detall that has led to theconfusion, as followse In Douglas Klng v T Twinock Ltd (2000), the Inner House of the Scottish Court ofSession determrned that, as the EC Directive was basedon French law.', itwould beappropriate 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 thatthe agent should receive compensation equal to the gross conmission paid duringthe prevoous tw-o vears of the agency Alternatiely, the court held that a multipleof twice the average commission earned during the last threeyears could be used

e In BarettMcKenzze & Co Ltd v Escada (UK) Ltd (2001), the Higgh Court reached adifferent conclusion as to the way in which compensation should be calculated Itdid so on the basis that the alm of the original Directive was simply to establish agenerai right to an entitlement and that the particular method or assessing thevalue of that entitlement was to be left to the mdividual Member States to decideupon Th e Court, therefore, thought it inappropriate simply to folloe'' the methodof calculation operated by the French courts Following DtCfe' V FRA Bo SpA, the

High Court, contrary to general common law principles, held that, under theRegulations, an mdependent agency had a value, wrhich was akm to the value ofthe good1ll in a business Anv assessment of that value, at or just beforetermination, required consideration of various factors, mncludmng the agent'sexpenditure mcurred in earnmg the corimission, the duration and history of theagreement, provision for notice, etc, and was not susceptible to the applhcation of asimple formula

e 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 theScottish Court of Session decision as stated m Douglas Kiing v T Tunnock Ltd inrelation to a piece of Brithsh legislation, he nonetheless felt more in sympathy withthe approach adopted by the High Court m BarrettMcKenZie & Co Ltd v Escada(UK) Ltd Hlis mechanism for achieving both ends was to decide that the Scottishcourt had laid down 'not a principie of law but a guideline that in many casesmay be appropriate' However, in the present case, he found it not appropriate andthus he could effectihvely avold followimg the Court of Session s decision.

Th e situation as to the precise way in which reg 17 compensation payments are to becalculated remains uncertam Although much academic wi rk supports the approachof the English High Court, it remamns for the final resolution to be determenod by theHouse of Lords, eother in that form or as the Privy Councl in relation to Scottish cases

11 6 RELATIONS WITH THIRD PARTIESIn the words of Wright Jm Montgoonene v UK Mutual Steamship Association (1891), oncean agenr creates a contract betoveen the principal and a third party, prwia acde atcommon law, 'the only person riho ca n sue 1s the prmclpal and the only person whocani be sued is the principal' In other words, the agent has no further responsibilityThis general rule Is, how 'ever,subject to the following particular exceptions, l-hch intum tend to depend upon '.'hether or not the agent has actually disclosed the existenceof the principal11.6.1 Where the principal's existence is disclosedAlthough the actual identity of the principal need not be mentioned, where the agentindicates that he is actmg as an agent, the general rule 1s as stated above, onlv theprincipal 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 fluscan occur in the follo'.ming ways'* At tl1i d party nisstence

*Where the agent has expressly accepted liability wth the principal m oider toinduce the third party to enter the contract, he or she will attract liabdiitv

| By mplcatolilWhere the agent has signed the contractual agreement m bis or her o'.vn name, thout clearly stating that he or she is merely acting as a representative of theprincipal, he or she vdll most lhkel' be liable on it.

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272 Busmess Law Chapter 11 Agency* In relation to bilIs of exchange

As in the previous situation, xxwhere an agent signs a bill of exchange withoutsufficiently ndcating that be or she 1s merely acting as the agent of a namedprincipal, he or she wiil1 become personally liable on ilte In relation to the execution of a deed

Where the agent signs the deed other than under a powx'er of attormev, he or shexwiii be personally bable on it* iYhere the agent actsfora non-exstent prncipa!

In such circumstances, the other party to the agreement cari take action agamst thepurported agent11.6.2 Where the principal's existence is not disclosedEven in the case of an undisclosed principal, xxwhere the agent has authornty but hasfailed to disclose that he or she ls acting for a principal, the general rule 1s stili that acontract exrsts between the principal and the thurd partv, which can be enforced byeither of them The fotloxxnrig, hox -ever, are some modifications to this general rule Th e third party is entitIed to enforce the contract agamst the agent and, ir turn, theagent 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 madeoutside of the agent's actual authornty WAhere the tbxrd party had a special reason to contract with the agent, the princpaimay be excluded from the contract This will certainiy apply in relation to personaicontracts, such as contracts of employment and, possibly, on the authoriti of Gree-v Downs Supply Co (1927), where the third partxy has a rnght to set off debts agamstthe agent.* Authority exists m Said v Butt (1920), xxhere a theatre critic emploved someone toget hrm a ticket for a performance he would not have been allowed imto, forciaim-g that ari undisclosed principal xvill not be pernutted to enforce a contractxxhere particular reasons exst as to why the third party would not xxish to dealwith him or her This decision appears to run contrari to normal commerciaipracthce and 1s of doubtful merit

It is certam, however, that where the agent actually nusrepresents the identity of theprmncpal, knowmg that the tbird party xxould not otherwise enter into the contract, theprincipai xiii not be permitted to enforce the contract (see Arche v Stone (1898))11.6.3 Payment by means of an agentPayrment bx means of an agent ca n take two forms.o Paygiientby the thzrd paity o the agent to pass on to the principal

In this situation, rf the principalis undisclosed, then the third parti has dischargedliabliitv on the contract and 1s not responsible if the agent absconds wxth themoney However, f the principal 1S disclosed, then any payment to the aaent oniydischarges the thIrd party's responsibiiity if it can be shoxrn that the agent hadauthorty, either express or mplied, to receive monex

* Paymnent by the principal o the agent to pass on to the thirdpartyIn 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 authorityAs has been stated above (11 4 3), where an agent purports to act for a prircipal|x thout actually havimg the necessary authornt,, the agent is sald to have breached hisor her warrant of authority In such circumstances, the third partv may take achionagamist the purported agent11.6.5 Liability in tortAn agent is liable to be sued in tort for any damages thus caused However, the agent'sright teo indemnuti extends to tortious acts done n the performance of his or her actualauthonty In addtion, the principal may have actxon taken agamst hbm or her directly,on the basrs of vicarious liability

11 7 TERMINATION OF AGENCYThe prmcipal/agent relatronslsp can come to end mi tio dstirnct ways either by theacts of the parties themselves, ether joritl or unlaterally, or as an effect of theoperation of law11.7.1 Termination by the partiesThere are a numrber of wais in which the parties can brmg an agency agreement to anend, as followsIBy inutual atietent

Where the agencv agreement ls a continuimg one, the parthes may simply agree tobring the agency relationshbp to an end on such terms as they wishs here theagency was established for a particular purpose, then it wxiill automatically come toa end wben that purpose has been achieved Equally, where the agency was onlrmtended to last for a defunte pernod of time, then the end of that period rli brmngthe agencx to an en diiBy the nlzateral actoe, of ce e of the pO i tiesBecause 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 oftermination of the agreement Although the agency relationshp xill be ended bysuch urlateral action, mi situateons where the principal has formed a contractualrelationship wxth the agent, such undlateral termination mai le ave the prilcipalopen to an action for damages in breach of contractfevocable ?g eeinentsIn some circumstances, t 1s not possible to revoke an agencv agreement Thbssituation arises where the agent has authority coupied xxith an mterest Such an

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irrevocable agency might anse where a prmicipai owes money to the agent and thepayment of the debt wxas the reason for the formation of the agency relationshipFor example, vvhere, in order to raise the money to pay off his debt, the principalappomts his creditor as his agent to sell some particular piece of property, theprincipal may not be at lhberty to brmg the agency to an end unmt2 the sale hastaken place and the debt has been pald off

11.7.2 Termination by operation of lawflms refers to the fact that an agency relationship xwill be brought to an end by anv ofthe followmng.* Frustratioa

Contracts of agency are subject to discharge by frustration m the same way thatordmnary contracts are (see above, 8 4, for the general operation of the doctrme offrustration)

e The death of eitherpartyDeath of the agent clearlx brmgs the agreement to an end, as does the death of theprincipal Th e latter situation mav, however, give rise to problems xxwhere the agentls unaware of the death and continues to act in the capacity of agent In suchcircumstances, the agent will be in breach of hrs or her xxwarrant of authorntv andwll be personally liable to thlrd parties

Iusarzity of elther partyAs in the previous situation, the msamity of either partx wll brnxg the agency to anend, similarly, agents wll have to be careful not to breach their warrant ofauthority by continuing to act after the principal has become msane (see Yionge vToynibee (1910), above, 11 4 3)

e BankrziptcyGenerally, the bankruptcv of the principal will end the agency agreement, but thebankruptcy of the agent xxill only bring it to an end where it renders him or herunfit to continue to act as an agent

SUMMAIRY OF CHAPTER 11AGENCY

DefinitionAn agent is a person wh o is empowered to represent another legal party, called theprincipal, and brmgs the prmcipal into a legai relatonship with a third party

Agency agreements ma y be either contractual or gratuitousCommerciai agents are specifically covered by the Commercial Agents (CouncilDirective) Regulations 1993

Creation of agencyAgency ma y anse* expresslv,* by ratification,* bi implication,* bx necessitv, or* by estoppelNature of agent's authorityActual authornty may be divided mito.e express actual authornt, and| *mplhed actual authonrtyApparent authority 1s based on estoppel and operates in such a way as to make theprincipal responsible for their acthon or maction as regards someone wxo claims to betheir agentWarrant of authorityIf an agent contracts vxth a tiurd partv on behalf of a principal, the agent imphedlyguarantees that the princ-P>al exists and has contractual capacity and that he or she hasthat person's authonty to act as his or her aaent If thIs 1s not the case, the agent iSpersonally liable to tlurd parties for breach of warrant of authoritxTh e duties of agent to principalThe dutes of the agent to the principal aree 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,o not to make a secret profit or mususe confidential information, and* not to take a bribe.The rights of an agentTh e rnghts of an agent are to clalm remuneration for sen7ices performed;* to claim mdemmuty for all expenses legitimately mcurred m the performarnce ofservices, arnd* to exercise a ben over property owned by the prmcipalCommercial Agents (Council Directive) Regulations 1993* Regulathons 3-5 set out the rights and obligatons as betw, en 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

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 1Sundisclosed, he or she sustains the loss If, how; ever, the primclpal is disclosed, theagent must have had authority to accept money, or else the thurd party lS aleTermination of agencyAgreements 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

Relations with third parties\liThere the agent indcates that he or she is acting as an agent, the general rule is thatonly the prmcipal and the thlrd party have rights and obligations under the contractThere are exceptions to thls* at the misstence of the thurd party,* by implication;G m relation to bulls of exchange, ande m relation to deedsWlhere the prmcipal's existence is not disclosed* the agent ca n enforce the contract agamst the third party,* the prmcipai can enforce the contract agamst the thlrd party* the thrd party ca n choose to enforce the contract agamst the agent or the prmcipaltor* an undisclosed prmcipal canmot ratifv any contract made outside of the agent's

actual authoritvWhere the thrd party had a specal reason to contract with the agent, the prmcipalma; be excluded from the contract

Imq-ere the agent musrepresents the identity of the principal, the thircd party mavnot be bourid bL the contract

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