Agency
This is the contractual relationship by where an agent is employed by a principal to transact on their behalf with third parties.
Certain
... [Show More] persons, by the nature of their position and appointment, can be acting as agents for their principal, and are thus bound to the constructs of the law of agency without it being explicitly stated so.
Example: company director, due to hierarchy and the nature of their appointment, transacts and negotiates on behalf of the business as a whole - he is an agent, without it being explicitly stated.
3 components to the law of agency:
Agent - official engaged to act on behalf of principal
Principal - party on whose behalf the agent is acting
Third Party - contracts with agent on behalf of principal.
Capacity
The same rules of capacity apply to forming the agency relationship as to contract.
Youth
Unsound Mind
Intoxication
Enemy Aliens
Companies Prior to Registration
Fiduciary Relationship
"Fiduciary" means involving mutual confidence and absolute trust between parties.
All agency relationships are based around the principle of being fiduciary. It means a high level of trust and mutual confidence is required for the principal to transact on their behalf and represent their best interests.
The principal has entrusted the agent to do this, so the agent owes a "fiduciary duty" to the principal: they are obliged to act in the best interests of the principal.
3 aspects of Fiduciary Duty
There are 3 key aspects of the fiduciary duty:
Agent must not transact on their own behalf
Agent must not seek any profit, commission, or benefit from third party
Agent owes a duty of confidence in respect of information gained through agency
1. Agent must not transact on own behalf
This is the fundamental principle of establishing the fiduciary relationship. The agent must be acting, transacting and representing the best interests at all times.
MacPherson's Trustees v Watt (1879)
2. Agent must not seek any benefit
This principle dictates that the agent should not seek any financial advantage from the relationship and transactions, over and above what they are due as lawful remunerations. These alternative financial arrangements are known as "secret profit".
It is the secretive nature of the benefit which offends the fiduciary relationship. Only in special cases would the principal not object, but they are rarely given the opportunity to give consent otherwise, as secret profit is commonly not disclosed.
The principal may seek to terminate the agency relationship as a consequence, or even sue the third party.
De Bussche v Alt (1878)
Ronaldson v Drummond & Reid
3. Duty of confidence for information gained
This dictates that the agent is bound by a duty of confidence in respect of information gained through the formation of the fiduciary relationship. The most common breach of this duty is in respect to customer data, being immorally and illegally transferred from one business to another by way of a dismissed employee.
Any information gained through the fiduciary relationship is at the discretion of the parties it involves, and if this is breached, the agent may be dismissed.
LV v Houston (1900)
Duties of an Agent
Obey Instructions
Exercise Care and Skill
Avoid Delegation
Account
Act in Good Faith
Obey Instructions
The agent must carry out all lawful and reasonable instructions given to them from the principal. Where the agent fails to carry out the instructions, they will be held personally liable for the consequences. The agent loses the rights to lawful remunerations for periods in which they were disobeying instructions.
Commercial Agents Directive (1993) - where instructions given to an agent are ambiguous, they will not be held liable if they interpret them wrong.
Gilmour v Clark (1853)
Exercise Care and Skill
The agent must act to perform all contractual acts with the care and skill of the ordinary man, unless where they are a member of a particular trade or profession. In which case, they must conduct themselves with the level of skill of an ordinary member of this profession.
Avoid Delegation
Fiduciary relationships are built upon trust gained exclusively between the agent and the principal. The agent must act in person, and it is important that the agent does not delegate unless they are given the express authority to do so. When an agent delegates they are liable for the consequences, and thus failings and inaccuracies of the person they are delegating to. [Show Less]