Introduction
The concept of agency is a foundational element within legal frameworks, particularly in contract and commercial law. At its core, agency describes a relationship where one party, the agent, acts on behalf of another, the principal, to create legal relations with a third party. This relationship operates through technical principles which establish the extent of the agent’s power to bind the principal. Key requirements include a clear expression of intention to create an agency, whether explicit or implied, and a defined scope of authority. The legal framework governing agency seeks to balance the commercial efficacy of agents acting on behalf of others with the need to protect third parties who rely on the agent’s representations. This article will provide an examination of the various types of agency, the extent of agent authority and the legal liabilities.
Types of Agent Authority
The authority granted to an agent is a critical factor in determining whether their actions bind the principal. Generally, authority can be categorized into three forms: actual authority, apparent authority, and usual authority.
Actual Authority
Actual authority arises from the explicit instructions provided by the principal to the agent. This authority can be clearly stated in a written agreement, or it can be inferred from the conduct and relationship of the parties. For instance, in the provided problem question, Annette grants Becky express instructions on selling antique goods for a minimum of seventy-five percent of the marked price while prohibiting the purchase of new stock. These explicit directions define the scope of Becky’s actual authority, meaning any action outside this limit is deemed a breach.
Apparent Authority
Apparent authority, sometimes also called ostensible authority, exists when a principal's words or actions lead a third party to believe that the agent has the authority to act, even if the principal did not grant such authority. This concept focuses on the external perception created by the principal, which can bind them even if the agent’s actions are outside the scope of their actual authority. The case of Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd established key requirements for apparent authority, including a representation of authority from the principal, that it was made by a person with authority to make it, and reliance on this representation by the third party. For example, by placing Becky in charge of her shop Annette creates an implied representation that Becky has the usual authority of a shop manager, who can usually negotiate sales and make purchases, giving Becky apparent authority towards Chris and Eddie. However, Diana is aware that Becky is exceeding her authority; therefore, Diana cannot rely on this.
Usual Authority
Usual authority, a concept arising from common law, is the authority that an agent normally possesses by virtue of their position. An agent holding a certain position will normally possess the authority appropriate to that job, even if the principal limits the agent's actual authority, unless the third party is aware of such limitations. The case of Watthau v Fenwick provides support for the principle; however, the limitations of the concept are visible. For example, Becky, as a shopkeeper, would usually possess the authority to negotiate sales and acquire new stock. However, if third parties like Diana are aware of limitations on Becky’s authority, usual authority does not apply.
Liabilities in Agency
The liabilities of both principals and agents depend on several factors, including whether the agency relationship is disclosed and whether the agent acts within their authority.
Liability of the Principal
If an agent acts within their actual authority, the principal is generally bound by the contract created. However, even if the agent acts outside their actual authority, the principal may still be liable under the concept of apparent or usual authority. The distinction is that apparent authority operates on external perception and usual authority is about what a position usually allows. When an agent exceeds their authority, a principal is liable as long as it is not clear that they are working outside of their authority and the third party reasonably relies on the representation of authority. Furthermore, in the case of an undisclosed agency, where a third party is unaware that the agent is acting on behalf of a principal, a principal may sometimes intervene to enforce a contract, even when the agent lacked actual authority. This possibility creates uncertainty and highlights the importance of transparent agency relationships. The decision in R (Sandiford) v The Secretary of State for Foreign and Commonwealth Affairs highlights that certain policies can be deemed lawful and not involve an exertion of power by officials; however, it did not engage with the principal/agent relationship.
Liability of the Agent
An agent is generally not liable for contracts they make on behalf of a disclosed principal, as long as they act within their authority. However, an agent can face liability if they breach their duties to the principal or misrepresent their authority to a third party. For instance, an agent who falsely claims they have the power to act may be liable for the tort of deceit or breach of warranty. This concept is clear in the case of Hedley Byrne & Co Ltd v Heller & Partners Ltd, which showed liability can be found for negligent misstatements. Additionally, under common law, an agent is duty-bound to follow the principal’s instructions and perform their responsibilities with reasonable care and skill. The agent will also be held liable for breach of contractual duties. The Commercial Agents (Council Directive) Regulations 1993 also adds statutory obligations, which includes the necessity to act dutifully and in good faith, by following the reasonable instructions given by the principal.
Relevant Case Law and Legislation
Various pieces of legislation and case law have helped shape the concept of agency. The cases of Ashbury Railway Carriage and Iron Co. Ltd v. Riche and Re City Equitable Fire Insurance Co. Ltd identify the limitations of implied duties. However, the case of Boardman v Phipps states that an agent has a fiduciary responsibility for any profits gained by reason of their fiduciary role and this cannot be escaped without principal consent.
Proceeds of Crime Act 2002
This legislation addresses the issue of money laundering, which can be relevant in the context of agent conduct. The Act includes an obligation to disclose any suspicious transactions to the relevant authority (Suspicious Activity Report, or SAR). The Act creates a series of offences, including concealment of the proceeds of crime, involvement in an arrangement relating to such, and possession or use of criminal property, all which may be committed by an agent. The failure to disclose a money laundering suspicion can also result in criminal liability.
General Data Protection Regulation (GDPR)
The GDPR plays an important role when looking at agent obligations by controlling the use and retention of personal data. In the example of Old Bailey Solicitors, or any other commercial undertaking, an organisation is required to disclose how they are collecting information, who they share it with and, most importantly, how they intend to use it. Individuals have a number of rights relating to their data under the GDPR. QLTS’s privacy policy provides useful commentary that these data obligations are also placed on individuals.
Conclusion
The legal concept of agency requires a balancing act between commercial freedom and the protection of third parties. Understanding the nuances of actual, apparent, and usual authority is essential for both principals and agents to avoid unforeseen legal liabilities. Relevant legislation, like the Proceeds of Crime Act 2002, the General Data Protection Regulation, and the Commercial Agents Regulations 1993, adds further complexities to agency relationships. However, the application of cases such as Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd help to contextualise these concepts. These aspects, along with various other legal principles, ensure that the rights and obligations of each party within an agency arrangement are clearly defined, providing a legal framework for commercial and personal interactions.
