Essay On Liabilities Of Undisclosed Principals: Authority In Agency Law.

Introduction to Agency Law

Discuss About The Cases On Liabilities Undisclosed Principal?

The common law which rules over the relationship which is present between an agent and a principal is the agency law. As per this law, the principal is accountable and has the responsibility towards the third party for work which is done by the agent.  This is due to the fact that the agent is the one who represents the principal when they communicate with the third party (Benett, 2014). So, a deal which is made with the agent is considered as one made by the third part with principal. The raison d'être for holding the principal accounting is the requirement of protecting the third party due to the fact that third party is unaware of the level of authority which is granted to the agent or about the presence or absence or the kind of relationship which is present between a principal and an agent (Hynes, 2014).

In Australia, there are two authorities under the common law of agency, and these are actual authority and ostensible/ apparent authority. Under the actual authority given to the agent, the agent is given either the express authority or the implied authority. In the express authority, the agent is told expressly what has to be done and what their authority is. In the implied authority, the authority is given in an implied manner, which is usually incidental to the express authority which has been granted to the agent (Cohen, 2017).

The other form of authority which is given to the agents, and probably which attracts a lot of controversy is the ostensible authority. Under the ostensible authority, the conduct of the principal is such that the third party forms a notion that the agent has been given the particular authority to go forward with the task at hand. In short, the apparent authority is “apparent” through the conduct of the principal. The key point in this authority is that the agent is never given an express authority to do so and only the same is perceived to be present (Allen & Kraakman, 2016).

The leading case quoted for the purposes of making a case of ostensible authority can be found in the English case of Watteau v Fenwick [1893] 1 QB 346 (Deodhar, 2013). In this case, Watteau was the supplier of the cigars to a beer house and this place was operated by Humble. The sign of the business bore his name and even the license was in Humble’s name. Watteau supplied the cigars to Humble and he was not aware of the involvement of Fenwick. Fenwick had never given the authority to Humble to act on his behalf. When the plaintiff was not paid the outstanding amount of 25 pounds, he brought a legal action against the defendant. The court gave the decision in this case in favour of the plaintiff and stated that Humble had the general authority to act on behalf of the defendant due to the display of name on board and on the license. Hence, the plaintiff was compensated for his outstanding payment pursuant to an order of the court by the defendant (H2O, 2013).

Actual Authority and Implied Authority

To establish the presence of authority, the case of Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 4 is amongst the well established cases. The post of director in this case was held by the company and a legal battle had been initiated with this case’s plaintiff for the non payment of the architectural fee. The director of the company around whom the case was cantered had never been appointed at the post of managing director of the company but he always portrayed that he was indeed the managing director of the company. Furthermore, the directors of the company also held out the particular director as being the managing director of the company and nothing was done on part of the directors of the company to undo this portrayal. This knowledge of the directors led to the court holding the company accountable for paying the unpaid debts in terms of the architect fee and so, the plaintiff was paid the outstanding sum (Baidu, 2011).

This case presented with it four different conditions which are required to be present for undertaking the acts by the agents based on apparent authority. Out of these four, only three are applicable on the Australian companies. In the first condition, the “holding out” condition is covered. Based on this condition, the representation has to be made through words or through the conduct of the principal, in front of a third party, in which the agent undertakes the words on behalf of the principal and where it is clearly shown that the agent had the requisite authority for entering into the contract in question or the transaction which was undertaken. Under this case, the second relevant condition was that this particular representation had to go from the company who was the holder of the actual authority for undertaking the transaction or for acting on behalf of the company. The last condition in is that the third party has to rely upon representation which was made by the agent when the transaction in question was being undertaken (Krawitz, 2002).

In line with the ruling of this case was the one given under Devren Pty Ltd v Old Coach Developments Pty Ltd and Ors [2015] QSC 53, in which Claire’s authority had been put under question. But the court had held that Claire had the required apparent authority even when he was not the director of the company and as a result of this, the company was liable for the acts which were done by Claire (Cooper Grace Ward, 2015).

Ostensible Authority and Third-Party Liability

The facts which are given under the case study point towards Kevin being an agent, who was undertaking transactions on behalf of Mudkey. The reason for holding Mudkey as the agent was that he was appointed by the company as one, after they became aware about the business opportunity. Kevin would also be considered as having the required authority to contract on behalf of Mudkey as he has apparent and actual implied authority. The case of Watteau v Fenwick proves helpful in establishing the presence of actual implied authority. As was present in this case, Kevin’s name had been displayed prominently on the website of the company as he was holding the post of development manager and it was also shown that a leading role was being played by Kevin in the development of the business of Kevin. This “implied” that Kevin had the required authority for going forward with the business management and for placing the business service order. Hence, on the basis of the quoted case law, the implied authority was present with Kevin; and as a result of this, the company has to take responsibility towards Anthony and would be liable for making the requisite payment.

It is crucial that the three specific points which were raised in the case of Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd, are applied here as these were particularly in the context of the Australian companies. Kevin was clearly being depicted as the agent of the company due to the prominent display of his name and the company holding out him as their agent. There was a representation which flowed from the website of the company to the third party. And the last condition s also fulfilled as reliance was made by Anthony on the presence of authority to act on behalf of the company with Kevin. This would mean that on the basis of apparent authority, Kevin has the relevant authority which would bind Mudkey for the undertaken actions by Kevin. The failure of business cannot be cited as an excuse for the absence of authority. The applicability of Devren Pty Ltd v Old Coach Developments Pty Ltd and Ors would further strengthen the case presented here and Mudkey would have to go forward with making the payment. As Mudkey had done so, under the threat of legal action, they did the right thing and avoided a legal case from being made against them.

Case Studies: Watteau v Fenwick and Freeman and Lockyer v Buckhurst Park Properties

To conclude, in this case, Kevin was the holder of both actual implied authority and apparent authority which would require Mudkey to be responsible for the transaction which took place between Anthony and Kevin.

The scope of authority is something which is changed on the basis of the manner in which the agency is created, particularly the type of the authority which is given to the agents, as have been previously highlighted. Through this essay, an attempt has been made to show the manner in which this change occurs.

The previous segment of this discussion highlighted that there are actual and ostensible authority as the two bifurcations of the agency law authority. In the actual authority, the mutual agreement between the principal and the agent gives rise to the authority and the existence of this authority is based on the particular facts of the case. The general rule is that the principal would be made liable for the acts of the agents only when these are done on the basis of the authority given to the agents and on the basis of the scope of this authority. When the agent crosses the boundary of the authority, given to them, the legal responsibility of the principal is ended, towards the third party. And when such a thing takes place, the agent is made personally liable for the acts done by them towards such a third party as the implied warranty of authority is breached by them (Cox & Hazen, 2016).

In TB Bright v Kerr [1939] SCR 63, the ratio stated that where the principal is to be made accountable for the actions undertaken by the agent till such period of time, where they act on the basis of the scope of authority given to them (Lexum, 2017). Hence, the express authority, where is crossed by the agent, would make the agent personally liable instead of the principal being made accountable for the agent’s work. When it comes to the case of implied authority, the work is undertaken by the agent, which is incidental or is necessary for the express authority to be properly executed. Hence, in implied authority, such task is done by the agent which is incidental to the express authority, for holding the principal liable (Fullan, 2014).

Though, the game changes when the question of ostensible authority comes into play. This is because under ostensible authority, the principal is made legally responsible even when the agent has not been given the authority to work on their behalf. The reason for this is that under ostensible authority, the agent seems to have the authority which is needed for acting upon a particular transaction through the words or conduct of the principal and where the prudent individuals would form a view that the agent had the required authority for going forward with this task. Since the third party is made to believe that the requisite authority is present with the agent, even when the reality is different, there is a clear need to hold the principal liable (Owen, 2014). And an example of this could be inferred from the previous segment of this document.

Application to the Case of Mudkey and Kevin

So, in case of ostensible authority, the principal would be liable even in absence of authority as a result of the “doctrine of holding out”, through which the principal is stopped from denying the presence of authority particularly due to the reliance of the third party on the representation made (Kelly, 2013). This can again be established through Hely-Hutchinson v Brayhead Ltd [1967] 1 QB 549 case. Here also, the company was made legally liable for the actions which were undertaken by Richard as a result of the presence of requisite authority (Austlii, 2017).

To conclude the discussion which had been undertaken through discussion, it becomes very clear that the scope of the authority is changed with the manner of agency creation. For instance, in express authority, the principal would not be liable for going beyond the express authority provided by them. And in case of ostensible authority, the principal is legally responsible even beyond the authority given to the agent.

References

Allen, W. T., & Kraakman, R. (2016). Commentaries and cases on the law of business organization. The Netherlands: Wolters Kluwer law & business.

Austlii. (2017). HELY-HUTCHINSON v. BRAYHEAD LTD. Retrieved from: https://www.austlii.edu.au/au/journals/SydLRev/1969/8.pdf

Baidu. (2011). Freeman & Lockyer v. Buckhurst Park Properties. Retrieved from: https://wenku.baidu.com/view/4f0019ec5ef7ba0d4a733b93

Bennett, H. (2014). Principles of the Law of Agency. Portland: Hart Publishing.

Cohen, G. M. (2017). Business Law and Economics of Agency and Partnership. The Oxford Handbook of Law and Economics: Volume 2: Private and Commercial Law, 399.

Cooper Grace Ward. (2015). Companies and perils of ostensible authority: the danger of paying money to a third party and not to the creditor. Retrieved from: https://www.cgw.com.au/publication/companies-and-perils-of-ostensible-authority-the-danger-of-paying-money-to-a-third-party-and-not-to-the-creditor/

Cox, J., & Hazen, T. (2016). Business organizations law. St Paul, MN: West Academic.

Deodhar, R.P. (2013). Common Law Cases on Liabilities of Undisclosed Principal. Retrieved from: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2195467

Fullan, M. (2014). The principal: Three keys to maximizing impact. West Sussex: John Wiley & Sons.

H2O. (2013). Watteau v. Fenwick. Retrieved from: https://h2o.law.harvard.edu/cases/2442

Hynes, J. D. (2014). Agency, partnership, and the LLC: the law of unincorporated business enterprises: selected statutes and form agreements. New Providence, NJ: LexisNexis.

Kelly, C. (2013). Reconciling the Irreconcilable: Ostensible Authority after Kelly v Fraser. King's Inns Student L. Rev., 3, 1.

Krawitz, A. (2002). Protecting Outsiders to Corporate Contracts in Australia. Murdoch University Electronic Journal of Law, 9(3).

Lexum. (2017). T.G. Bright & Co. Ltd. v. Kerr. Retrieved from: https://scc-csc.lexum.com/scc-csc/scc-csc/en/item/3580/index.do

Owen, D. (2014). Products Liability Law, 3d (Hornbook Series). St Paul, MN: West Academic.