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(f)â Agent the real principal
It is possible for an agent to enter into a contract for his own benefit. The agent can then enforce the contract and will be liable for any breaches of the contract.
(g)â Collateral contracts
In a limited number of circumstances, it is possible for an agent to enter into a collateral contract with a third party who is already subject to the contract with the agent’s principal. In such a situation, the agent could incur liability and/or instigate legal proceedings. Rights and liabilities under a collateral contract are of course separate from the rights and obligations of the principal.144
Q5 What is a disclosed agency?
6â Undisclosed agency
An undisclosed agency arises where the agent, for one of a number of reasons, does not make the third party aware that he is working for a principal. This might arise, for example, where the principal deliberately intends to remain unknown, or where in the course of a dealing, no one divulges the existence of the principal to the third party.145 It is important to note that the third party is under no legal obligation to ask whether the other party to a contract is acting as an agent; however, case law requires actual notice that the agent is representing a principal for the undisclosed principal doctrine not to be applied.146 Cheng-Han stated that ‘in the case of undisclosed agency, the acts of the undisclosed principal’s agent should prima facie be those of the principal in as much as the agent acts within the scope of the agent’s actual authority’.147 He added that ‘in undisclosed agency, as the agent has been authorised by the principal to enter into the contract with the third party, the contract should be the principal’s since the agent has only acted within the scope of the mandate given to him’.148 The doctrine of undisclosed agency has been described as ‘anomalous’,149 and was famously outlined by Lord Lindley in Keighly, Maxsted & Co. v. Durant:
The explanation of the doctrine that an undisclosed principal can sue and be sued on a contract made in the name of another person with his authority is, that the contract is in truth, although not in form, that of the undisclosed principal himself. Both the principal and the authority exist when the contract is made; and the person who makes it for him is only the instrument by which the principal acts. In allowing him to sue and be sued upon it, effect is given, so far as he is
144 |
Bradgate, above n. 11, at 163.â 145â Munday, above n. 1, at 239. |
146 |
See, e.g., Oystertec v. Barker [2003] RPC 29, para. 5, as cited in Munday, above n. 1, at 239. |
147 |
Cheng-Han, above n. 131, at 488.â 148â Ibid. |
149 |
See, e.g., Welsh Development Agency v. Export Finance Corp. [1992] BCLC 148, 173, 182, CA. |
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6â Undisclosed agency |
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concerned, to what is true in fact, although that truth may not have been known to the other contracting party.150
He added:
as a contract is constituted by the concurrence of two or more persons and by their agreement to the same terms, there is an anomaly in holding one person bound to another of whom he knows nothing and with whom he did not, in fact, intend to contract. But middlemen, through whom contracts are made, are common and useful in business transactions, and in the great mass of contracts it is a matter of indifference to either party whether there is an undisclosed principal or not. If he exists it is, to say the least, extremely convenient that he should be able to sue and be sued as a principal, and he is only allowed to do so upon terms which exclude injustice.151
Further helpful guidance on undisclosed agency was provided by the Privy Council in Siu Yin Kwan v. Eastern Insurance Co. Ltd, in which Lord Lloyd of Berwick stated:
For present purposes the law can be summarised shortly. (1) An undisclosed principal may sue and be sued on a contract made by an agent on his behalf, acting within the scope of his actual authority. (2) In entering into the contract, the agent must intend to act on the principal’s behalf. (3) The agent of an undisclosed principal may also sue and be sued on the contract. (4) Any defence which the third party may have against the agent is available against his principal. (5) The terms of the contract may, expressly or by implication, exclude the principal’s right to sue, and his liability to be sued. The contract itself, or the circumstances surrounding the contract, may show that the agent is the true and only principal.152
An undisclosed principal is normally allowed to commence and be the subject of legal proceedings in respect of the actions of his agent. The most often quoted authority for this is the famous statement of Diplock LJ in TererhanEurope Co. Ltd v. ST Belton (Tractors) Ltd:
Where an agent has such actual authority and enters into a contract with another party intending to do so on behalf of his principal, it matters not whether he discloses to the other party the identity of his principal, or even that he is contracting on behalf of a principal at all, if the other party is willing or leads the agent to believe that he is willing to treat as a party to the contract anyone on whose behalf the agent may have been authorised to contract. In the case of an ordinary commercial contract such willingness of the other party may be assumed by the
150[1901] AC 240, 261.
151Ibid. 262. For a critical review of the decision of the House of Lords, see I. Brown, ‘The significance of general and special authority in the development of the agent’s external authority in English law’ (2004) Journal of Business Law (July) 391.
152[1994] 2 AC 199, 207. For a more detailed discussion of this case, see A. Tettenborn, ‘Insurers and undisclosed agency: rough justice and commercial expediency’ (1994) 53(2) Cambridge Law Journal 223.
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agent unless either the other party manifests his unwillingness or there are other circumstances which should lead the agent to realise that the other party was not so willing.153
Q6 What is an undisclosed agency?
7â Termination of agency
Under common law, an agency may be terminated by mutual consent, by the operation of law and by the unilateral act of the principal or agent.154 It is important that the revocation is communicated to the other party, as set out by Lord Wilberforce in Heatons Transport (St Helens) Ltd v. Transport and General Workers’ Union:
To be effective in law a withdrawal or curtailment of an existing actual authority of an agent must be communicated by the principal to the agent in terms which the agent would reasonably understand as forbidding him to do that which he had previously been authorised to do on the principal’s behalf.155
If there is an agency agreement or contract between the agent and principal, the relationship can be discharged by agreement. Furthermore, if the agent is appointed to perform a specific task or appointed for a certain period of time, the agency will be terminated once the task has been performed or the period of time has expired. One problematic issue as regards the termination of an agency agreement is where both parties seek to terminate the contract unilaterally. If an agency agreement contains provision for termination by notice, the agent and principal will be required to provide the requisite period of notice. However, if the agency agreement contains no specific notice period, the courts will imply a term permitting termination on reasonable notice. In Martin Baker Aircraft Co. Ltd v. Canadian Flight Equipment Ltd, the plaintiffs entered into an agreement under which the defendants were permitted to ‘manufacture, sell and exploit’ all of the plaintiffs’ goods on the American Continent. The plaintiffs wanted to terminate the agreement but the defendants argued that the agreement was only terminable by mutual consent. The court held that ‘the agreement was not one which the parties could have intended to be permanent, and, accordingly, there being nothing in the contract inconsistent with that view, the agreement was, on its true construction, determinable unilaterally on reasonable notice’.156 The decision in Martin was followed by the court in Stenborough Corp. v. Cooke Sons & Co.157 In this case, an agreement was entered into by the local authority and the defendant to regulate the release of the defendant’s trade effluents into the public sewerage system that belonged to the local authority. The agreement
153 [1968] 2 QB 545, 555.â 154â Bradgate, above n. 11, at 206.
155[1973] AC 15, 100, per Lord Wilberforce.
156[1955] 2 QB 556.â 157â [1968] Ch. 139.
55 7â Termination of agency
included a termination period of three months. A new agreement was entered into by the same parties in 1951 that replaced and changed the original agreement, and made no reference to express provision for the determination of the agreement. In 1966, the local authority gave the defendant 12 months’ notice of termination which was contested by the defendant. As the contract in question was for an indefinite duration and did not contain any express provision for its termination, the court determined that the agreement could be terminated by reasonable notice.
Consent is of central importance in the law of agency, and one party to an agency agreement cannot terminate it without the consent of the other party. This point was emphasised by Viscount Simon LC in Heyman v. Darwins Ltd: ‘repudiation by one party standing alone does not terminate the contract. It takes two to end it, by repudiation, on the one side, and acceptance of the repudiation, on the other.’158 It is important to note that if an agency is terminated, this does not necessarily bring to an end the operation of all the terms of the agreement. It was held at first instance in Yasuda Fire & Marine Insurance Co. of Europe Ltd v. Orion Marine Insurance Underwriting Agency Ltd, that ‘certain clauses remain alive and kicking despite the termination of a contract for repudiatory breach’.159
An agency agreement can be terminated by the operation of law. Bradgate noted that this can occur through various trigger events.160 An agency contract will be terminated by frustration if the performance of the agency becomes either illegal or impossible.161 An agency agreement will also be terminated by the death of either the agent or the principal. In Campanari v. Woodburn, the court considered the impact of the death of the principal on the agency agreement.162 In this case, prior to the agent fulfilling his obligations under the agency agreement, the principal died. The unscrupulous agent, although aware of the death of his principal, went on to fulfil his obligations and attempted to claim his commission. The court permitted the agent to recover some compensation on a quantum meruit basis for the services rendered. However, the court concluded that the agent was not permitted to claim the commission under the agency agreement, which had terminated on the death of the principal.
An agency relationship will also be terminated by operation of law if one of the parties is declared insane or becomes bankrupt. In Drew v. Nunn, a husband, who was represented by his wife, became insane but later recovered his sanity. During his period of insanity, his wife purchased goods from the third party, who had no knowledge of the husband’s mental condition. After the husband made a full recovery, he refused to pay the third party for the goods
158 [1942] AC 356, 361.â 159â [1995] QB 174.
160Bradgate, above n. 11, at 209.
161See, e.g., Marshall v. Granville [1917] 2 KB 87.
162(1854) 15 CB 400.
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purchased by his wife. The court decided that the husband was liable for the price of the goods. Brett LJ took the view that:
The principal is bound, although he retracts the agent’s authority, if he has not given notice and the latter wrongfully enters into a contract upon his behalf. The defendant became insane and was unable to withdraw the authority which he had conferred upon his wife: he may be an innocent sufferer by her conduct, but the plaintiff, who dealt with her bonâ fide, is also innocent, and where one of two persons both innocent must suffer by the wrongful act of a third person, that person making the representation which, as between the two, was the original cause of the mischief, must be the sufferer and must bear the loss. Here it does not lie in the defendant’s mouth to say that the plaintiff shall be the sufferer.163
In Yonge v. Toynbee, the Court of Appeal was faced with a set of circumstances where a firm of solicitors had been instructed by a client to represent him in proceedings brought against him. However, prior to the instigation of the legal proceedings, the client was certified as being of unsound mind. The solicitors, in ignorance of the state of mind of their client, delivered a defence against the cause of action. Subsequently, the plaintiff in the action made an application that the proceedings should be struck out and the defendant should be compelled to pay the plaintiff’s costs because the defendant’s solicitors had acted devoid of any authority. The court held that, as the defendant’s solicitors had continued to act for their client, they had ‘impliedly warranted that they had authority to act’ and accordingly were personally liable.164 It has been argued that the decision in this case is extremely unfair to agents and, as a result, the Power of Attorney Act 1971 now provides an element of protection .165 Section 5 of the Act relates to protection of the donee and third persons where a power of attorney is revoked. Section 5(1) provides:
A donee of a power of attorney who acts in pursuance of the power at a time when it has been revoked shall not, by reason of the revocation, incur any liability (either to the donor or to any other person) if at that time he did not know that the power had been revoked.
Under section 5(2):
Where a power of attorney has been revoked and a person, without knowledge of the revocation, deals with the donee of the power, the transaction between them shall, in favour of that person, be as valid as if the power had then been in existence.
In Collen v. Wright, the defendant professing to act as an agent for a third party, made an agreement with the plaintiff for the lease of a property that was owned by the third party. However, the defendant had no authority to lease the
163 (1879) 4 QBD 661, 667–8.â 164â [1910] 1 KB 215.
165See, e.g., A. Martin, ‘Powers of attorney: peace of mind or out of control?’ (2008) 1 Conveyancer and Property Lawyer 11.
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property and the plaintiff successfully sued the agent for the cost of his unsuccessful action against the third party. Of particular relevance here is the following passage in which Wiles J stated:
The fact that the professed agent honestly thinks that he has authority affects the moral character of his act; but his moral innocence, so far as the person whom he has induced to contract is concerned, in no way aids such person or alleviates the inconvenience and damage which he sustains. The obligation arising in such a case is well expressed by saying that a person, professing to contract as agent for another, impliedly, if not expressly, undertakes to or promises the person who enters into such contract, upon the faith of the professed agent being duly authorized, that the authority which he professes to have does in point of fact exist.166
Evans noted that:
The principal reason justifying the doctrine appears to be that the agent is better placed to know about his authority than the third party. That reason has considerable weight. A solicitor will know whether his correspondence with the client gives him express authority to commence or defend litigation, whereas the third party will not. Such cases are likely to be very rare. In the slightly less unusual case of a client lacking capacity, the solicitor will have contact with the client and be able to form a view from their discussions of the case as to whether there should be any concerns as to his capacity. If the solicitor does have concerns, he should be able to insist on a medical examination. The third party has none of these advantages.167
As outlined above, the Commercial Agents (Council Directive) Regulations 1993 include a minimum period of notice which must be given to terminate the agency agreement.168 The Regulations also provide that ‘if the parties agree on notice periods longer than the prescribed minima, the notice period to be observed by the principal must not be shorter than that to be observed by the commercial agent’.169 These measures have been described as ‘significant and novel’.170 It is important to note that if a commercial agent’s agreement is terminated he is entitled to compensation; this has been described as ‘one of the most important protective features of the Directive … [giving] commercial agents, on termination of the agency relationship, the right to claim a lump sum payment’.171 The rights contained in regulation 17 of the 1993 Regulations have
166Collen v. Wright [1910] 1 KB 215.
167H. Evans, ‘Warranty of authority in litigation’ (2010) 26(2) Professional Negligence 96.
168SI 1993/3053, reg. 15.
169P. Ellington and B. Carr, ‘Legislative comment: the UK Commercial Agents Regulations 1993 (Council Directive 86/653/EC)’ (1995) 1 International Business Law Journal 51, 58.
170C. Bankes, ‘Termination of agreements with commercial agents: the effect of the Commercial Agents Directive in the United Kingdom’ (1994) 5(7) International Company and Commercial Law Review 247.
171S. Saintier, ‘Final guidelines on compensation of commercial agents’ (2008) 124 Law Quarterly Review (Jan.) 31. For an illustration of this regulation in practice see Claramoda Ltd v.
Zoomphase Ltd (t/a Jenny Packham) [2009] EWHC 2857 (Comm).