The main issue which becomes clear from the case study presented here is whether or not the work done by Kevin is binding upon Mudkey, on the basis of different aspects of agency law, particularly with reference to the authority given to Kevin.
Agency law refers to such a law, whereby the principal is made liable for the work undertaken by the agent, to a third party. The reason for holding the principal liable for the work of the agent is due to the fact that the agent works on behalf of the agent. So, the agent represents the principal in front of a third party (Busch, Macgregor & Watts, 2016). And a deal made with the agent is deemed to be a deal made with the principal. The rationale behind making the principal liable towards the third party stems from the need of protecting the third party, as they are not aware about the magnitude of authority given to the agent and also not about the relationship between an agent and their principal (Munday, 2010).
Broadly, there are two kinds of authority which are given to the agents in the nation; these include the actual authority and the apparent authority. The first category of authority is one where the actual authority is given to the agent. And it can be classified into express or implied authority. In the former one, the authority is given to the agent in an express manner, and in the latter, the authority is given to the agent in an implied manner. So, either the authority is given by being exactly told to do so, or by implying the same through actions (Murdoch, 2014).
Apparent authority, or as is otherwise known as the ostensible authority, a perception is formed before the third party which leads them to believe that the agent has the required authority to act on behalf of the principal and to undertake a particular task, where the reality is that such an authority is never granted to the agent. There are a number of cases which help in establishing this concept more clearly (Patterson Law, 2012).
Watteau v Fenwick [1893] 1 QB 346 is the most common case, where it “Humble” operated the beer house in which the plaintiff was supplier of the cigars. The business operated under Humble’s name and also the sign displayed his name (McKendrick & Liu, 2015). Once the interest had been assigned to the defendant by “Humble”, the supply of cigars was continued and “Humble” remained the manager of the beer house. Though, “Humble” was not aware of the participation of Fenwick as “Humble” did not have the requisite authority to work for Fenwick and to represent him as an agent. Upon the non-payment, Fenwick was sued as the principal for 25 pounds and this case was made by Watteau, the third party. It was held by the county court that Humble had the required general authority and the defendant had to be made liable for the claims made by the plaintiff (Smith, 2012).
Another noteworthy case is that of Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 4. The defendant in this case held the position of director in the company and started a legal battle with the plaintiff for the undertaken architect work for which the fee was unpaid. Even though Shiv Kapoor, the director in question, was not appointed as the managing director in a specific manner, it was portrayed like that that he held the position of the company managing director. And the other directors of the company were well aware that Shiv was being portrayed as the managing director of the company, but did not do anything to reverse or stop this situation. And due to this very awareness of the directors, the company was held accountable for the unpaid architect fees and the defendant had to pay the amount sought out by the plaintiff (PQ Magazine, 2017).
In this very case, four conditions were given which had to be fulfilled in order to bind the company for the undertaken acts of their agents, pursuant to the applicability of ostensible authority. On the Australian companies, only three of these conditions are relevant. The very first condition is holding out. As per this very condition, there is a need for representation, either through conduct or words, towards the third party, where the agent works on company’s behalf and which depicted that the agent had the needed authority for getting forward with the contract. The second condition which was given in this case was the representation had to flow from the company or from such an individual, which held the actual authority for acting on company’s behalf. The third and the final condition relates to the reliance of the third party over the agent’s representation while formulating the contract (Krawitz, 2002).
A similar ruling was given in the case of Devren Pty Ltd v Old Coach Developments Pty Ltd and Ors [2015] QSC 53, where the authority of Clair was under dispute and it was held by the court that Claire was not the company director, yet he had the requisite ostensible authority and so, the company was bound by the actions undertaken by Clair (Roberts & Ditton, 2015).
In the given case study, the agent of the company would be deemed as Kevin as he works on behalf of Mudkey. This is because Mudkey had appointed him as their agent after the business opportunity came to the knowledge of Mudkey. In this case, Kevin would be deemed to have the requisite authority to undertake the contract, and would have both implied and ostensible authority. For the implied authority, reference needs to be made to the case of Watteau v Fenwick, where the authority was established on the basis of implied authority. Similar to the quoted case, in the case study, the name of Kevin was prominently displayed on the website as being the development manager of the company and also indicated that he played a leading role in development of business. This implied that he had the requisite authority to undertake the business opportunity and to place the business service order. So, on the basis of this case, Kevin had the implied authority and due to these reasons, the company would be bound by his actions, and would have to make the payment, as was rightly done in this case.
With reference to the points particular for the Australian companies, the three points made under Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd need to be applied. In this case, it is very clear, that Kevin was being held out as the agent of the company, through the displays. There were clear representations in this regard, which flowed from the company, as the same was displayed on the website of the company. And lastly, Anthony had relied upon the authority being present with Kevin. So, even on the basis of ostensible authority, Mudkey is liable. Just because the business failed, it cannot be stated that the authority was not present and denying the same would be wrong. And on the basis of Devren Pty Ltd v Old Coach Developments Pty Ltd and Ors, Mudkey would have to pay Anthony the payment demanded. And by making this payment, Mudkey had done the right thing.
Conclusion
Hence, Kevin had both implied and ostensible authority in this case, which binds Mudkey for the transaction undertaken by Kevin with Anthony. And by making the payment to Anthony, Mudkey safeguarded itself from a legal action.
The scope of authority, on which an agent acts and which binds the principal towards the third parties depends upon the manner in which the particular authority is granted to the agent, i.e., the kind of authority which is granted to the agent. In the following parts, a discussion has been carried whereby the scope of agency authority, as is changed in the basis of the manner of agency creation, is discussed.
As has been discussed earlier also, there are two broad categories of agency creation, which is the actual authority and the apparent authority (LexisNexis, 2017). In the actual authority, the authority is raised through a mutual agreement and its existence depends upon the question of the fact. As a general rule, the agent is permitted to be indemnified by the principal, for the actions undertaken by them, which are within the scope of the actual authority given to them. And in case the agent acts beyond the scope of their actual authority, the principal is not bound to the third party. Instead, in such a case, the agent is held liable for breaching their agency contract and is also made liable towards a third party for the breach of implied warranty of authority (Thampapillai et al, 2015).
The ratio given in the case of TB Bright v Kerr [1939] SCR 63 highlighted that the principal has to be accountable for agent’s work only till they act as the agent, on behalf of the principal, within the scope of their given authority (Case Brief, 2017). So, for the express authority, where the agent is expressly told to do a particular task on behalf of the agent, in case the agent does something which is outside this express authority, the principal would not be liable. Under the implied authority, the agent undertakes such tasks which are necessary or are incidental for the proper execution of the express authority in a casual manner. So, where the agent has been given the express authority to sell out the cars, and he takes the future buyer on a test ride, it would be deemed as within the authority of the agent (Latimer, 2012).
However, when it comes to the apparent authority, the principal is made liable even for the authority which is not given to the agent. This is because in such cases, the agent appears to have the requisite authority, from the conduct or wordings of the principal and any reasonable person would construe that the agent has the required authority to undertake the particular task. As the third party is led into believing that the agent had the relevant authority, even when they did not, the principal is made accountable towards the third parties (Beaton-Wells & Brent Fisse, 2011). An example of this was presented in the case study given in question 1, where the person was appointed on a position which had agency like powers, and the ones who were aware of the appointment, were likely to assume that there was presence of the required authority for doing such tasks, as have been entrusted upon the person occupying this position. Where the impression is created by the principal that the agent had the authority, even when no actual authority was present, the third parties are safeguarded, as long as they act in a reasonable manner. This is often referred to as “doctrine of holding out”, whereby the principle is estopped from rejecting the allowance of this authority where the third party relied upon the representation which was made (Thampapillai et al, 2015).
A leading example of this authority being upheld was the case of Hely-Hutchinson v Brayhead Ltd [1967] 1 QB 549. In this particular case, Richards had made a contract with Brayhead even when he did not have the express authority. But the judges held that there was apparent authority in this case as Richard acted as the chief executive officer of the company and the conduct of the board gave a perception that Richard held the post of CEO. And so, even though this was beyond the express authority of Richard, the company was made liable (Webstroke Law, 2017).
Conclusion
In short, the manner in which the authority was given to the agent would be dependent the possibility of the principal being made liable for the acts undertaken by the agent. So, where an agent having an express authority, does something beyond his authority, the agent would be personally made liable for the undertaken action and the principal would have to bear no liability. Hence, the scope of authority changes on the basis of creation of agency.
References
Beaton-Wells, C., & Fisse, B. (2011). Australian Cartel Regulation: Law, Policy and Practice in an International Context. Victoria: Cambridge University Press.
Busch, D., Macgregor, L., & Watts, P. (2016). Agency Law in Commercial Practice. Oxford: Oxford University Press.
Case Brief. (2017). Casebriefs about: scope of agency. Retrieved from: https://casebrief.me/casebriefs/tag/scope-of-agency/
Krawitz, A. (2002). Protecting Outsiders to Corporate Contracts in Australia. Murdoch University Electronic Journal of Law, 9(3).
Latimer, P. (2012). Australian Business Law 2012 (31st ed.). Sydney, NSW: CCH Australia Limited.
LexisNexis. (2017). Overview — Agency. Retrieved from: https://lexisweb.lexisnexis.com.au/Practical-Guidance-Topic.aspx?tid=1804
McKendrick, E & Liu, Q (2015). Contract Law: Australian Edition, London: Palgrave.
Munday, R. (2010). Agency: Law and Principles. Oxford: Oxford University Press.
Murdoch, J. (2014). Law of Estate Agency. (5th ed). London: Routledge.
Patterson Law. (2012). The Doctrine of Ostensible Authority. Retrieved from:
https://pattersonlaw.ca/NewsArticleView/tabid/179/ArticleId/169/The-Doctrine-of-Ostensible-Authority.aspx
PQ Magazine. (2017). A Quick Look At… Freeman & Lockyer V Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480. Retrieved from:
https://www.aiaworldwide.com/international-accountant/editors-blog/quick-look-%E2%80%A6-freeman-lockyer-v-buckhurst-park-properties
Roberts, G., & Ditton, J. (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.lexology.com/library/detail.aspx?g=cf83e574-5066-48dc-b0d3-f43eee2ae229
Smith, J.C. (2012). Watteau v Fenwick. Retrieved from: https://h2o.law.harvard.edu/collages/1557
Thampapillai, D., Tan, V., Bozzi, C., & Matthew, A. (2015). Australian Commercial Law. Melbourne: Cambridge University Press.
Webstroke Law. (2017). Hely-Hutchinson v Brayhead Ltd [1968]. Retrieved from: https://webstroke.co.uk/law/cases/hely-hutchinson-v-brayhead-ltd-1968
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