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Concise Australian Commercial Law

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Question: Using the Common Law of Agency, advice Paratol Ltd on their legal position?    Answer: Issues According to the scenario of the case, the Australian based pharmaceutical wholesaler PharmCo negotiated a distribution agreement with Paratol Ltd in the month of January 2015 in keeping with which Paratol was required to release a large stock of painkillers for distribution to PharmCo for a valuation of $2,00,000. The company was given a grace period of six months to pay off the amount. The major issue that was identified in the case was related with providing of guarantee letter from the asset manager in order to ensure that if default is made by PharmCo, liquidating its assets would amount to $2,00,000. The guarantee was signed by the Processing and Payment Department of Goldman Asset Management (GAM), which manages the complex finances of PharmCo. After it was received by Paratol Ltd, it commenced its delivery of stock to PharmaCo. However, PharmCo defaulted on the payment on December 2015 due to its insolvency and the company was found to be operating under huge loss since the past eight months. In this context, Paratol Ltd claimed its debts against GAM that did not accept the liability of paying off the same. It stated that the Guarantee and Valuation Department is responsible for signing the guarantee rather than the Processing and Payment Department. Furthermore, the manager also claimed that the document was signed by GAM for verifying the signature of PharmCo but not to ensure its liquidity and accept its guarantee. There was no such information mentioned in the guarantee document regarding the acceptability of guarantee that through which GAM would be held liable. In practice, the signature of the manager was for verifying the signature of PharmCo for limited purpose that was unknown by both the companies.    Rules Analyzing the case scenario, it is revealed that there is an applicability of common law of agency that will help in advising Patrol Ltd on their legal position. The law of agency completely deals with contractual, non-contractual and quasi-contractual fiduciary relationships involving an individual known as agent[1]. The individual is generally given the authority to take action on behalf of a party for the purpose of creating legal relationships with a third party. The law represents equal relationships between an agent and principal through which the principal implicitly or explicitly provides authorization to the agent to work on behalf of him/her[2]. The agents are required to negotiate with the third parties on the principal’s behalf for entering into a contractual relationship[3]. The common law of agency in Australia comes under Victorian Legislation and the Agents Act 2003[4]. The law further states that the liabilities and reciprocal rights between an agent and principal reflect legal and commercial realities. The law categorizes agents into three different classes that include universal agents, general agents and special agents. Universal agents possess the authority to perform on behalf of the principal and they may also have professional relationships or hold power of attorney[5]. General agents possess limited authority for conducting transactions for a continuous time period and finally the special agents possess the authority for conducting specified or single transaction over a limited time period[6]. There are various statutes formulated by the Australian government that generally regulate the activities of the agents and these include: Auctioneers: Auction Sales Act 1958 (Victoria); Estate agents: Estate Agents Act 1980 (Victoria); Finance brokers: Consumer Credit (Victoria) Act 1995 (Victoria); Travel agents: Travel Agents Act 1986 (Victoria); Mercantile agents: Goods Act 1958 (Victoria); and Insurance agents: Instruments Act 1958 (Victoria), Credit Act 1984 (Victoria)         The law also demonstrates the liability of agents to the third parties and principal and the liability of principal to the agent. In context to liability of agent to third party, if the agent possesses apparent or actual authority, the agent will not be liable for the acts being performed within the authority’s scope until the disclosure of principal’s and agency’s identity[7]. In case the agency is partially disclosed or not disclosed at all, the principal and the agents both will be held liable. Similarly, with regard to the liability of agent to principal, if the actions of agent are without actual authority and the principal is bound because of possessing apparent authority, it is the liability of agent in indemnifying the principal for damage or loss occurred[8]. However, in context to the liability of principal to the agent, if the actions of the agent are within the range of provided authority, the agent must be indemnified by the principal for transactions made.        The law of agency can be demonstrated with the help of a popular case, [Tooth v Laws (1888) 9 LR (NSW) 154]. According to the case, Laws (principal) held the position of hotel licensee who kept his name over the hotel door even though he did not possess any interest in the business. The agents who were conducting the business were supplied liquor by a third party, Tooth & Co. that took legal actions for the cost of liquor. As Tooth & Co. was not provided with the information that Laws was not conducing the business, he could not deny that the individuals who were conducting the business were acting as his agents. Thus, Laws was held liable for the particular action[9]. According to the law, the apparent authority may not be considered more important than the actual authority as at a majority of the circumstances the third party remains unaware of the agent’s actual authority. The similar incident can be demonstrated through the case of [Pacific Carriers Limited v BNP Paribas (2004) HCA 35] in which BNP Paribas was held responsible for the loss caused to Pacific Carriers Ltd due to arresting of their vessel for not providing relevant bills against the indemnity letters[10].  The Law of Agency also states that the agent possesses the authority to act for the principle only after having the actual authority to do so. This can be dem

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