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

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.

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