Экзамен зачет учебный год 2023 / Busch, Indirect Representation and the Lando Principles. An Analysis of Some Problem Areas From the Perspective of English Law

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Thus, again, via different routes, the Principles and English law probably reach much the same results.

3.2.5.5 Misrepresentation

A fifth exception exists under English law where the contract is procured by a misrepresentation, whether fraudulent, negligent or innocent, by an agent or any other person.77 In such a case, the third party may have a defence to an action upon it,78 and may be able to rescind it.79 This is not, however, a situation where the intervention of the principal is excluded: the contract is simply unenforceable by anyone against the third party. Non-disclosure may sometimes constitute misrepresentation in the rare cases where there is a duty to disclose, but normally failure to mention the principal s existence does not without more constitute misrepresentation.80

This exception may overlap with other exceptions. For example, the agent who states that he is not acting as an agent for a person with whom the third party is unwilling to deal may be an agent who knows or should know that the third party is unwilling to deal with his principal (above, 3.2.5.4). In addition, it may be possible that the principal knows or should know that the third party is unwilling to deal with him (see 3.2.5.3).

In the Principles, misrepresentations are dealt with in Article 4:107 PECL. The third party may avoid the contract when he has been led to conclude it by the intermediary s or any other person s fraudulent representation (whether by words or conduct), or fraudulent non-disclosure of any circumstance which according to reasonable standards of good faith and fair dealing, he should have disclosed. This extent of the exception in the Principles is both wider and narrower than the misrepresentation exception in English law. It is broader because it covers cases of non-disclosure. But it is narrower in that it is confined to fraudulent representation and does not deal with innocent or negligent misrepresentation.

It thus appears that there are significant differences between the scope of this exception in the Principles and in English law. Nevertheless, it is submitted that these differences are not material in the context of agency. Under both the Principles and English law, a principal who makes a fraudulent misrepresentation is deprived of his right to exercise his actio directa. And the Principles may reach similar results even in other cases, because the misrepresentation exception overlaps with others. For example, even if a case falls within the misrepresentation exception under the Principles, but outside the exception in English law (for example, because it is a case of fraudulent non-disclosure), the direct action may be excluded by another exception which is recognised in English law.

77See the famous case Hedley Byrne & Co. v. Heller & Partners [1964] A.C. 465, which clearly acknowledges the possibility of misrepresentation by a third party.

78Archer v. Stone (1898) 78 L.T. 34.

79Garnac Grain Co. Inc v. H.M.F. Faure & Fairclough Ltd. [1966] 1 Q.B. 650 at first instance.

80REYNOLDS, p. 423.

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Thus it seems, once again, that the apparent differences between the Principles and English law should not render the Principles unacceptable to English lawyers.

3.2.5.6 Rights acquired on the principal s behalf

A sixth exception, contained in Article 3:302(b) of the Principles is that the principal may only exercise against the third party the rights acquired by the intermediary on the principal s behalf. This accords with common sense. It means, for example, that the principal is not allowed to sue for the agent s commission. This restriction will presumably be acceptable to English lawyers.

3.2.6 The right of election

In undisclosed principal cases under English law, it is probably81 the case that the agent and principal are alternatively liable on the contract. It is said that the third party may lose his right to sue one of them on the ground that he has elected to hold the other liable.82 The question then arises: what constitutes election? Probably, a binding election is constituted only by judgment.83 Only two cases are known where it was held that there had been a binding election short of judgment.84 It seems preferable to explain these cases on the basis that a third party should only be debarred from suing an undisclosed principal - short of an actual judgment against the agent - by an act which raises an estoppel against him. Examples are where after discovery of the principal he does an act leading the principal to suppose that he relied on the agent, or is paid by the agent, or in some other way waives the liability of the principal in a manner relied on.85 In any event, it is clear that a third party who obtains judgment against agent or principal cannot sue the other, even though the judgment is not satisfied.

The Principles do not provide an answer to the question whether a third party is barred from pursuing intermediary or principal where he has exercised his rights against the other, but is not able to recover the full amount from that other. It is, however, necessary that they take a position and it is disappointing that they do not do so. It is doubtful whether the current position under English law would be an appropriate one for the Principles to adopt. The English doctrine of election is criticised in legal literature.86 It is, in particular, hard to see why one party should be released merely because the third party has elected to hold the other liable. Only satisfaction of the claim should be a bar, unless the behaviour of the third party raises an estoppel. It would be useful to incorporate such a rule into the Principles. However, it is unnecessary to introduce the notion of estoppel, because the

81This is not entirely clear. REYNOLDS, pp. 446-48. 82Ibid., pp. 454-55, 457-58; TREITEL, p. 653. 83REYNOLDS, pp. 447, 451.

84MacClure v. Schemeil (1871) 20 W.R. 168; Smethurst v. Mitchell (1859) 1 E. & E. 622. 85REYNOLDS, p. 455.

86Ibid., p. 446; TREITEL, p. 653.

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fundamental principle of good faith (Art. 1:201 PECL)87 would produce the same result. If the third party sought to exercise the right to sue either principal or intermediary in circumstances which would raise an estoppel, the third party could be held to be acting contrary to good faith and fair dealing (see Art. 1:201 PECL).

It is therefore suggested that neither English law nor the Principles are wholly acceptable on this point. Both would benefit from reformulation. This would require the abandonment of the judgment rule in English law, which seems to have little to commend it.

4. The position of the commission agent

4.1 General

Commission agent is a convenient shorthand for a person, who in the terminology of continental jurisdictions, acts on behalf of his principal but in his own name .88 Such a person does not have authority to create privity of contract between his principal and third parties with which he (the agent) deals. He can only contract in a personal capacity. If he does contract with the third party, the effect is that he (the agent) and the third party become contractually bound to each other. No contractual relationship is created between third party and principal. Direct actions between third party and principal are only permitted under the conditions already described.89

It is unclear whether English law recognises the possibility of commission agency . There are two key elements to the concept. First, the agent does not have authority to create privity of contract between his principal and third parties. Secondly, if the agent does contract with third parties, the result is a contract between him (the agent) and the third party, not between his principal and the third party, with the result that in general90 principal and third party cannot sue each other.

There have been said to be three lines of authority in English law.91 One line of case suggests that such commission agency can be created.92 A second group has been said to suggest that, even where an intermediary does not have authority to create privity, he will be an ordinary agent of an undisclosed principal and the undisclosed principal rules will apply. Thus the principal can sue the third party (and be sued by him), whatever the parties intentions. A final group of cases is said to indicate that where an intermediary does not have authority to create

87On good faith and fair dealing: LANDO and BEALE, pp. 53-58. 88See section 2.

89See section 3.2.

90But see section 3.2 on Articles 3:302-304 PECL. 91REYNOLDS, pp. 11-12, 412-14; REYNOLDS, p. 130.

92As to which especially D.J. HILL, The Commission Merchant at Common Law , Modern Law Review, 31, 623-41, (1968) p. 623.

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privity, there is no agency at all. The principal must alone be party to any contract and must deal with his principal as principal.

The following sections analyse the leading cases which tend to favour and to negate the possibility of commission agency in English law, in order to ascertain whether English law really is unclear on the point. The broader implications of the analysis are then considered in the final section (4.4).

4.2 Cases supporting the possibility of commission agency in English law

The starting point of our discussion must be the judgment of Blackburn J. in Ireland v. Livingston.93 In this case, the defendant (a merchant at Liverpool) instructed the plaintiff (merchants and commission agents at Mauritius) to buy sugar on the defendant s behalf. The defendant refused to accept the 400 or so tons of sugar which the plaintiff had arranged, on the ground that he had required between 450 and 500 tons. The plaintiffs claimed that the defendant was not entitled to refuse to accept the sugar: the amount of sugar in the defendant s order was only a maximum and they were only obliged to use due diligence to fulfil the order. Blackburn J. resolved the dispute by (in effect) recognising a concept ofcommission agency . He said, that the order named a limit and that therefore the plaintiff did not bind himself absolutely to supply the goods, but merely accepted an order, by which he bound himself to use due diligence to fulfil it, so that he was bound only to get the goods as cheaply as he reasonably could. Furthermore, the defendant paid the plaintiff commission, so that the latter did not take upon himself any part of the risk or profit which might arise from the rise and fall of prices. Therefore, as between plaintiff and defendant there was a contract of agency not sale, and the defendants were not entitled to refuse the 400 tons of sugar because the plaintiff was not in breach. However, as between the plaintiff and the seller there was a contract of sale: the seller supplied the goods to the plaintiff and not to his unknown foreign principal so that there was no privity between the defendants and the seller.94 This judgment clearly acknowledges the notion of commission agency .

The difficulty with Blackburn J. s decision is that he does not convincingly explain why no privity of contract was created between third party (the seller) and principal (the defendant) on the facts. The only reason he offers is that the sellers intended to sell to the plaintiff. But this is not a satisfactory explanation. The seller knew that the plaintiff was buying on behalf of a foreign principal. Thus, the defendant was a disclosed principal (whether named or unnamed) and should in principle have been able to sue the seller on the contract which would arise between them.

An alternative and preferable explanation is suggested by subsequent decisions. That is that the reason why no privity of contract arose between seller and defendants was that the plaintiff (the agent) did not have authority to create privity

93(1872) L.R. 5 H.L. 395.

94At pp. 407-9.

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between the defendant (the principal) and the seller (the third party). Ireland v. Livingston95 involved a foreign principal. In Hutton v. Bulloch96 it was said that a foreign principal does not usually give his English agent authority to create privity between himself and the third party.97 Blackburn J. agreed with this analysis in his dissenting opinion in the famous case Robinson v. Mollett.98 Ireland v. Livingson could therefore be explained as a case in which it was presumed that the defendants (foreign principals) had not given authority to create privity between themselves and the seller (third party). In Robinson v. Mollett99 Blackburn J. said:

Any person, if he chooses, may give an order to an agent to buy as his agent, not only with an express dispensation from any obligation to establish privity of contract between him and the person from whom the agent buys, but even expressly refusing authority to the agent to establish such privity.

This is the ordinary authority given to a foreign commission merchant who (on account of the great inconvenience which would result from establishing privity of contract between the foreign producer and the home merchant) is not allowed (far less required) to establish privity of contract between them ... This, however, in no way interferes with the existence of a fiduciary duty ...

These foreign principal cases suggest that whether commission agency can exist depends in the first place on whether the principal gave his agent authority to create privity of contract between himself (the foreign principal) and third parties. Whether this authority is given is, in principle, a question of fact. However, there was once a strong presumption that a foreign principal did not give his agent such authority (the foreign principal doctrine ). That presumption was rejected in

Teheran-Europe Co. Ltd. v. S.T. Belton (Tractors) Ltd.100 In that case, Diplock L.J. said that three conditions had to be satisfied in order to create privity between principal and third party. First, the principal must have given his agent authority to create privity. That is a question of fact in relation to foreign principals also.101 Secondly, the agent must intend at the time of the contract to enter into the contract with the third party on behalf of the principal.102 Finally, it must be determined whether or not the third party was willing, or led the agent to believe that he was willing, to treat as a party to the contract the agent s principal, and, if he was so willing, whether the mutual intention of the other party and the agent was that the agent should be personally entitled to sue and liable to be sued on the contract as well as his principal.103

95(1872) L.R. 5 H.L. 395.

96(1874) L.R. 9 Q.B. 572.

97At p. 576 per J. BRETT.

98(1875) L.R. 7 H.L. 802, 810.

99At pp. 809-10.

100[1968] 2 Q.B. 545.

101At p. 555.

102At p. 556.

103At pp. 556 and 558.

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It is submitted that Diplock L.J. s judgment indicates that commission agency could be created under English law. The first prerequisite will be that the principal has not given his agent authority to create privity between him (the principal) and the third party. To ensure that this is the case, it may be wise to conclude the contract of agency in writing and to include a provision which unequivocally states that the principal does not give his agent any authority whatsoever to create privity between him (the principal) and the third party. But this is unlikely to be a sufficient basis for commission agency . Even though the principal does not actually grant authority to create privity to his agent, he may still be treated as having granted such authority under the doctrine of apparant authority . In that event, the principal could be sued (and could sue) as a party to a contract with the third party. To avoid this, the principal should expressly require his agent to include in contracts which he is instructed to make with third parties a provision that he (the agent) is the only principal. This will exclude any right which the third party might otherwise acquire to sue the agent s principal.104 A final prerequisite is that the agent must, at the time of the contract, intend to contract on the principal s behalf. Unless the agent has such intention at that time, he will contract personally and there will be no agency at all. But it is submitted that this requirement will normally be satisfied.

4.3 Cases opposed to the possibility of commission agency in English law

The first important case which has been said to suggest that commission agency could not be created in English law is Maspons y Hermano v. Mildred, Goyeneche & Co.105 The case is said to be authority for the proposition that, even if an intermediary does not have authority to create privity, he will nevertheless be a normal agent of an undisclosed principal. The undisclosed principal rules will apply and the principal will (as a rule) be entitled and liable whatever the intention of the parties.106 The facts of the case were as follows. The defendants, an English firm, traded with Demestre Chia & Co. ( the intermediaries ), shipping agents, bankers and importers in Havana, Cuba. The plaintiffs, who were Spanish merchants at Havana, consigned a cargo of goods to the defendants through the agency of the intermediaries. The defendants knew that the latter were acting for a party that was alluded to as interesado, but the name of the plaintiffs was not disclosed. The defendants insured the cargo in London at the request of the intermediaries. The ship was subsequently lost and the policy money was paid to the defendants. The interesado, Maspons y Hermano, intervened to claim the money. Spanish law applied in Cuba at the time. On the basis of provisions of the Commercial Law of Spain commission agency was possible. However, Lindley L.J. said:107

104See 3.2.5.1.

105(1882) 9 Q.B. 530; affd (1883) 8 App. Cas. 874.

106F.M.B. REYNOLDS, Practical Problems of the Undisclosed Principal Doctrine , Current Legal Problems, 36, 119-40, (1983), p. 130.

107At p. 539.

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The Spanish law appears to us to be a circumstance to be taken into account in considering the nature and extent of the authority given by the plaintiffs to Demestre & Co.; but the Spanish law is not, in our opinion, material for any other purpose. The contract between Demestre & Co. and the defendants is governed by English law, not Spanish, and the persons who can sue and be sued on that contract in England must also be determined by our law, and not by the law of Spain.

Consequently, applying English law, the plaintiffs could sue the defendant for the policy-money as undisclosed principals (although they were unnamed rather than undisclosed).

It is submitted that Maspons y Hermano does not suggest that the undisclosed principal doctrine will apply even where the principal did not give his intermediary authority to create privity of contract. The passage quoted merely states that Spanish law is one of the circumstances which has to be taken into account in determining the nature and extent of the authority which the principal granted, but that the effects of the authority vis-à-vis the third party must be determined by English law. It does not address the question whether authority to create privity was in fact granted. There is another passage in Lindley L.J. s judgment which says that the foreign principal doctrine did not apply on the facts of the case. Lindley LJ states that the doctrine produces the rule that a foreign principal does not give his agent authority to create privity.108 This clearly shows that in Maspons y Hermano the principal was taken to have given his agent authority to create privity. On that basis, the case is reconcilable with the existence of commission agency .

There is a second group of cases which have been said to indicate thatcommission agency could not be created in English law for a different reason. The idea is that if an intermediary has no authority to create privity of contract between his principal and third parties, the undisclosed principal rules do not apply at all. The agent must alone be a party to the contract he has performed for the principal, and deal with his principal as principal. Such an approach can be found in the dissenting opinion of Diplock L.J. in Anglo-African Shipping Co. of New York Inc. v. J. Mortner Ltd.,109 in which the court had to decide what are the rights and duties of a confirming house. Diplock L.J. seems to assume that because a confirming house has no authority to create privity between the importers and the seller, the relationship between the confirming house and the importers cannot be a relationship of agency.110 His Lordship expressed the same view in a different context in Garnac Grain Co. Inc. v. H.M.F. Faure & Fairclough Ltd.111 He clearly denied the existence of indirect agency: there is direct agency or no agency at all.

108At pp. 541-43.

109[1962] 1 Lloyd s Rep. 610.

110At p. 621.

111[1966] 1 Q.B. 650.

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4.4The implications of an analysis of the case law

It is therefore not wholly clear whether English law recognises a concept ofcommission agency . And because the proper legal analysis under English law of cases where intermediaries do not have the authority to create privity of contract is uncertain, it is unclear what principles govern the relationships between principal, intermediary and third party in such situations. Adoption of the Principles could therefore make a positive contribution to the development of English law in this area in two respects. First, it would facilitate recognition of the concept ofcommission agency in England. Even though few English intermediaries may operate on such basis, it would be beneficial if the option of doing so were available to them.112 Secondly, the Principles should provide a clear and acceptable body of rules to govern cases where intermediaries do not have authority to create privity. Under the Principles commission agency is a clear example of indirect representation, and the rules governing indirect representation are (as we have seen) substantially the same as the rules which English law already accepts for undisclosed principals.

5. Conclusions

This article has been concerned to ascertain whether the provisions of The Principles of European Contract Law on indirect representation could be acceptable in England. The description of indirect representation in Article 3:102(2) of the Principles covers two types of case: undisclosed agency andcommission agency . Each appears at first sight to pose difficulties for English law.

The apparent difficulty in cases of undisclosed agency is that English law and the Principles proceed from radically different starting points. Under English law, undisclosed principal and third party are generally allowed to sue each other. By contrast, the starting point under the Principles is that they are not entitled to do so. Closer examination of the rules nevertheless revealed that an application of English law and the Principles would generally produce much the same results. There are some differences. The major difference seems to be that, under English law, where the undisclosed principal is sued by the third party he may not plead the defences which he has against the agent, whereas he may do so under the Principles. Nevertheless, it was argued that the Principles provide a more balanced approach which takes into account the conflicting interests of principal and third party. As the Principles offer a preferable rule, that difference should not render the Principles unacceptable for England.

The apparent difficulty in cases of commission agency is a different one: that it may be unclear whether the continental concept of a commission agent is

112At present a document, said to be devised by accountants, known as the commissionaire agreement , circulates in London. It is, however, used for tax purposes.

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principal, respectively. Upon receipt of the notice, the third party or the principal is no longer entitled to make performance to the intermediary.

Sale of Goods Act 1979

Section 31(2): Instalment Deliveries

Where there is a contract for the sale of goods to be delivered by stated instalments, which are to be separately paid for, and the seller makes defective deliveries in respect of one or more instalments, or the buyer neglects or refuses to take delivery of or pay for one or more instalments, it is a question in each case depending on the terms of the contract and the circumstances of the case whether the breach of contract is a repudiation of the whole contract or whether it is a severable breach giving rise to a claim for compensation but not to a right to treat the whole contract as repudiated.