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Who represents your business? Agency law in Australia (Part Two)

Who represents your business? Agency law in Australia (Part Two)

Commercial Law

In our last article, part one on a brief introduction to agency law, we looked at the basic idea of agency, the ways in which agency can come about, and the scope of the legal relationship of agency. Today, in part two, we look at the legal definition of agency and the duties that attach to an agency relationship including the impact of a recent decision of the High Court of Australia.

The legal definition of agency

In part one, we described the basic idea of agency as the relationship between one person who acts on behalf of or represents another. This basic idea has developed into the legal definition of agency to mean “an authority or capacity in one person to create legal relations between a person occupying the position of principal and third parties”.[1] At the heart of this definition is the agent having the legal authority to stand in place of another.

Duties of an agent  

Once someone becomes an agent of another, what obligations does that place on them? In many cases this will be specified by a legal agreement, but there are a range of duties that apply to agents in general. Breach of these duties can result in a range of different court actions based on tort, contract or equity. The duties include:

  • A duty to act as instructed by the principal, and to do it in person[2]

 

  • A duty of care, skill and diligence. An agent must exercise the care that is reasonably necessary to do what they have undertaken to do. If an agent holds themselves out as carrying out a particular trade, they will be required to exercise the degree of care which is exercised in the proper and ordinary course of that trade[3]

 

  • A duty to avoid conflict of interest/not to profit. Agency is generally considered to be a fiduciary relationship, which means that the agent is obliged to act in good faith towards the principal. If there is a conflict between the interests of the agent and the principal, or the possibility of profiting, the agent needs the consent of the principal[4].

Note, however, that the High Court of Australia held last year in Australian Competition and Consumer Commission v Flight Centre Travel [2016] HCA 49, that in spite of this duty, it is still possible for an agent and a principal to be in competition with each other. This means that the behaviour of an agent can count as anti-competitive under competition law

  • A duty to keep accounts.[5] An agent has a duty to keep proper accounts of transactions and provide them, if asked, to the principal.

Note, this is not an exhaustive list of the duties of an agent, and as with part one, is provided as a general introduction. If you need legal advice on any matter of agency law, let us know and we can put you in contact with the right expertise.

[1] International Harvester Co of Australia Pty Ltd v Carrigan’s Haselden Pastoral Co (1958) 100 CLR 644 at 652; [1958] HCA 16.  This definition was re-affirmed recently in Australian Competition and Consumer Commission v Flight Centre Travel [2016] HCA 49.

[2] Catlin v Bell (1815) 4 Camp 183; 171 ER 59.

[3] Beal v South Devon Railway Co (1864) 3 H & C 337 at 341; 159 ER 560.

[4] Hurstanger Ltd v Wilson [2007] 4 All ER 1118; [2007] 1 WLR 2351.

[5] Gray v Haig (1855) 20 Beav 219; 52 ER 587.

Who represents your business? Agency law in Australia (Part One)

Who represents your business? Agency law in Australia (Part One)

Commercial Law

When it comes to our personal finances, we regularly engage agents (or, at least, those who call themselves ‘agents’). When we want to sell a house, we use a real estate agent, we book our holidays with a travel agent and when we want a new job we use a recruitment agent. It is a term which also turns up constantly in the ordinary running of a business. Are employees, agents?  Are your distributors your agents? This article is part one of a two-part introduction to the law of agency.

Please note, this is general information, for legal advice about your specific situation, consult a lawyer.

The basic idea of agency

There is no legislation in Australia which provides an all-encompassing definition of the agency relationship. Rather, agency is a legal relationship defined primarily by the courts over several centuries (albeit with contributions from legislation, from time to time).

The basic idea of agency is that an agent is someone who acts on behalf of, or represents, another person. This other person we can call the principal. Of course, there is a lot more nuance involved to the legal concept of agency than this basic idea. We flesh this idea out by looking at how the relationship of agency comes about, its potential scope, and in our next article, the duties of agents.

How does agency come about?

There are several different ways in which the legal relationship of agency can come about:

  • Through express or implied agreement between two parties that one will act for the other
  • A principal approving of all ‘ratifying’ an act done on his or her behalf, after the fact
  • Operation of law, such as legislation
  • This doctrine, crafted by the courts, holds that, where one person leads a second person to consider some third person an authorised agent, and the second person relies on this, the first person is ‘estopped’ from denying that that third person is their agent[1].

It must be emphasised that a relationship of agency is not created simply by two individuals claiming that an agency relationship exists (whether in writing or otherwise). It depends on the nature of the underlying relationship.

What is the scope of the relationship?

Through the agency relationship, the principal provides an agent with the authority to do certain things. This is never an unlimited authority. For example, no one can authorise their agent to do unlawful acts.[2] This authority can be actual (such as through a written agreement) or apparent (such as in the case of ‘estoppel’, explained above). In turn, actual authority could come from what is explicit (such as written into an agreement), or implicit (such as is customary in a particular industry[3]).

 

In our next article, we look further at the legal concept of agency by exploring the legal duties of agents.

If you have any questions on this article please contact us.

[1] Rama Corp Ltd v Proved Tin and General Investments Ltd [1952] 2 QB 147.

[2] Collins v Blantern (1767) 2 Wils 341; [1558-1774] All ER Rep 33; (1767) 95 ER 847.

[3] Lienard v Dresslar (1862) 3 F & F 212; 176 ER 95.

Thinking of Selling Your Business?

Thinking of Selling Your Business?

Business Sale

Your Free Comprehensive Guide to Selling or Buying a Business

If you would like to access our complete guide to buying or selling a business simply provide your details below. 

So you are thinking of selling your business? Below, we share some important considerations from the legal side.

The information that follows is general in nature and does not replace individual advice. Individual advice will properly consider the application of the areas (i.e. tax considerations and legal risks) discussed below and identify other areas that you will need to consider.

PRE-CONTRACTUAL RISK

Your first legal challenge in the sale of the business is to work out how and what information to disclose.

There are both statutory and common law obligations that apply in relation to how you approach disclosure. Your solicitor will be able to advise you on your disclosure obligations.

In some States, you are required to provide particular information in a set form. Generally, the information you do disclose needs to be accurate.

Prospective purchasers are going to want to understand the profitability of your business. Overstating the profitability of a business is a clear risk in terms of breaching obligations with respect to misrepresentation. Australian Consumer Law contains prohibitions against misleading statements, including statements as to future circumstances.

The statutory prohibition on misleading conduct is found in section 18  of the Australian Consumer Law (contained in Schedule 2 of the Competition and Consumer Act 2010 (Cth)):

A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

You can read more about s 18 here.

There are additional sections of Australian Consumer Law that relate to statements about future matters. Remedies under Australian Consumer Law may include:

a. Section 236: Damages;

b. Section 232: Injunction;

c. Section 237: Compensation; and

d. Section 224: Pecuniary penalties.

There are three common law categories of misrepresentation:

a. Innocent misrepresentation:  misrepresentation that is not fraudulent;

b. Fraudulent misrepresentation: where there is:

  • Actual dishonesty;
  • An absence of belief in the truth of the representation; and
  • Reckless indifference as to whether the representation was true or not.

c. Negligent misrepresentation: where there is a duty of care to ensure that information provided was true and reliable.

The remedies available to a purchaser at common law dependent on the type of misrepresentation and may include rescission or damages.

SALE OF SHARES VS ASSETS

One of the first decisions you will need to make is whether to sell the assets or the shares of your business. This decision will be guided by your commercial objectives and the nature of your business.

The sale of 100 percent of the shares in your company will result in a transfer of control of all of the assets and liabilities. From the perspective of the buyer, the purchase of shares comes with additional risks in that all existing liabilities, both known and unknown, will be assumed.

The sale of assets allows for the selection of specific assets and reduces the risk of unintended assumption of liability from the perspective of the buyer.

If you propose to sell the assets of your business, the proper identification, valuation, and transfer of assets will be paramount. The buyer will want to ensure that they are acquiring all of the components that make up the business.

 

This is part one of a three part series on ‘Selling Your Business.’ If you have any questions on the above, please email us at info@lawquarter.com.au.

Energy Retail Law Key Definitions

Energy Retail Law Key Definitions

Energy Law, Regulatory Updates

There are some key definitions contained in the Energy Retail Law which need to be understood.  Chapter 10 of the National Electricity Rules (NER) contains the Glossary and it covers 114 pages. Often the definition of the word or phrase will contain words which also need to be defined.

Embedded Network

For example, the definition of an Embedded Network is:

distribution system, connected at a parent connection point to either a distribution system or transmission system that forms part of the national grid, and which is owned, controlled or operated by a person who is not a Network Service Provider.

Each of the phrases in italics has a separate definition within the Glossary. To understand all the meanings, you may watch a short presentation I created. Each phrase which is defined also has defined terms within it. You may need to go up to three steps within the definition to find the meaning of that phrase.

Distribution system

Let’s look at the phrase ‘distribution system’ which is contained in the definition of Embedded Network.

It is defined in the National Energy Retail Law as:

(a) for a distributor who is a regulated distribution system operator within the meaning of the NEL—a distribution system within the meaning of the NEL; or

(b) for a distributor who is a service provider within the meaning of the NGL who owns, operates or controls a distribution pipeline that is a covered pipeline under that law—a distribution pipeline within the meaning of the NGL; or

(c) for a nominated distributor under s 12—the nominated distribution system that is specified under that section.

Therefore, you need to determine if you are a distributor and which type of energy you are providing. The NEL is the National Electricity Law and the NGL is the National Gas Law.

Distributor

Distributor, under the National Energy Retail Law means

(a) a regulated distribution system operator within the meaning of the NEL; or

(b) a service provider within the meaning of the NGL who owns, operates or controls a distribution pipeline that is a covered pipeline under that Law; or

(c) a nominated distributor, to the extent provided by section 12.

Under the National Energy Law the definitions are contained in the NER as:

Distribution System Operator

A person who is responsible, under the Rules or otherwise, for controlling or operating any portion of a distribution system (including being responsible for directing its operations during power system emergencies) and who is registered by AEMO as a Distribution System Operator under Chapter 2.

Distribution system

A distribution network, together with the connection assets associated with the distribution network, which is connected to another transmission or distribution system. Connection assets on their own do not constitute a distribution system.

Under the NGL the phrase ‘service provider’ is defined in s 8 of the National Gas (South Australia) Act 2008 as:

Service provider

(1) A service provider is a person who—

(a) owns, controls or operates; or

(b) intends to own, control or operate, a pipeline or scheme pipeline, or any part of a pipeline or scheme pipeline.

Note— A service provider must not provide pipeline services by means of a scheme pipeline unless the service provider is a legal entity of a specified kind: see section 131, and section 169 where the scheme pipeline is an international pipeline to which a price regulation exemption applies.

(2) If AEMO controls or operates (without at the same time owning) a pipeline or scheme pipeline, or any part of a pipeline or scheme pipeline, AEMO is not for that reason to be taken to be a service provider for the purposes of this Law.

Distribution pipeline

means a pipeline that is classified in accordance with this Law or the Rules as a distribution pipeline and includes any extension to, or expansion of the capacity of, such a pipeline when it is a covered pipeline that, by operation of an applicable access arrangement or under this Law, is to be treated as part of the pipeline;

Note— See also sections 18 and 19.

Section 12 of the National Energy Retail Law provides:

12 — Nominated distributors

(1) The regulations under an application Act of a participating jurisdiction may nominate an entity (being an entity that is licensed or otherwise authorised under jurisdictional energy legislation of that jurisdiction) to provide customer connection services as a nominated distributor for the purposes of this Law.

(2) A nomination of an entity may be made for any or all of the following:

(a) the whole or a specified part of the geographical area of a jurisdiction; or

(b) the whole or a specified part of a distribution system that is owned, controlled or operated by the entity.

(3) A nomination of an entity has the effect of applying this Law and the Rules (in whole or in part as specified in the regulations and with any specified modifications) to the entity as if it were a distributor within the meaning of this Law, and references in this Law and the Rules to a distributor are accordingly taken to include references to the nominated distributor.

What to do?

As you can see there are many steps to clarify the definition of words and phrases under the National Energy Laws. To understand a phrase the first step is to determine whether it has a definition under the relevant legislation.

If there is a definition then you should take note of the italicised words. This will indicate that the word or phrase has a defined meaning under the legislation. You should therefore also check these definitions.

Words can also be defined by judges when deciding cases. The term ‘explicit informed consent’ was considered by the Federal Court in Australian Competition and Consumer Commission v EnergyAustralia Pty Ltd [2015] FCA 274 at [70]:

‘Section 39 of the NERL SA and the NERL ACT provides that “explicit informed consent” is given where the retailer, or a person acting on the retailer’s behalf, has clearly, fully and adequately disclosed all matters relevant to the consent of the customer, including the purpose or use of the consent, and the customer gives consent. Consent by the consumer must be given in writing signed by the customer, verbally (provided it is evidenced in such a way that it can be verified), or by electronic communication generated by the customer’ (emphasis added).

As further cases come before the courts, a more detailed definition will be created. It is important therefore to be aware of any decisions which may come before the courts.

We have introduced a new section on our news page which will cover cases of interest. Our first decision will be Privacy Commissioner v Telstra Corporation Limited [2017] FCAFC 4. We have selected this decision as it contains important information for all businesses which collect personal information from customers which of course includes the energy retail sector.

The superannuation overhaul: seven areas of reform in the draft bill out for consultation

The superannuation overhaul: seven areas of reform in the draft bill out for consultation

Regulatory Updates

Today we look at proposed changes to regulatory obligations for those operating in the superannuation sector. Namely, the seven key changes contained in the draft Treasury Legislation Amendment

Today we look at proposed changes to regulatory obligations for those operating in the superannuation sector. Namely, the seven key changes contained in the draft Treasury Legislation Amendment

 

Today we look at proposed changes to regulatory obligations for those operating in the superannuation sector. Namely, the seven key changes contained in the draft Treasury Legislation Amendment

Today we look at proposed changes to regulatory obligations for those operating in the superannuation sector. Namely, the seven key changes contained in the draft Treasury Legislation Amendment