When you think of the word ‘agent,’ a 007 Bond type character may spring to mind. However, in the far more textured but mundane corporate world when a company agent goes rogue, the company (‘the principal’) might find themselves liable under contracts they never intended to be party to.
What is a Company Agent?
An “agent” for a company is someone, usually an employee, who has the authority to create legal relationships on behalf of the company with third parties. [1] This is not to say that an agent has unlimited power to bind the company; the critical issue is “where does that limit lie?”. An agent can only bind the company when the agreement in question falls within their ambit of their ostensible authority or their actual authority.[2] An employee is not an “agent of a company” merely because they are an employee, as their “authority” flows from the role the employee is required to perform. There are several ways that an agency relationship can develop, and this includes:
Expressly stating that a person is an agent of a company does not indicate they are in fact an agent (though it does tend to imply that some authority is held), rather, the actual nature of the relationship between the alleged agent and the company will determine whether the person is truly the company’s agent. [6]
The Nature and Scope of an Agent’s Authority
A company will not usually be bound by their agent if the agent enters into an agreement on behalf of the company that is outside their authority.[7] If an agent acts outside of their authority, they may be liable to both the company for a breach of contract and, also, to the third parties of the agreement. An agent can have:
In conclusion, it always pays to give good instructions and to clearly set out the boundaries of your employees’ authority to minimize the risk of ‘rogue agents’. Better still if an agent has limited authority, communicating the limitation (i.e. subject to approval by management) to the “other side” provides the best defence.
Please get in touch with our Business & Commercial team if you have any concerns regarding ‘rogue agents’ or the scope of you business’ liability.
Written by Riley Berry with assistance from Claudia Weatherall.
[1] Clive Turner and John Trone, ‘Australian Commercial Law 31st Edition’, (Thomson Reuters, 2016) 222.
[2] Collins v Blantern (1767) 2 Wils 341; [1558-1774] All ER Rep 33; (1767) 95 ER 847.
[3] Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68 at 82.
[4] Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 498.
[5] Sachs v Miklos [1948] 2 KB 223 at 35.
[6] International Harvester Co of Australia Pty Ltd v Carrigan’s Hazeldene Pastoral Co (1958) 100 CLR 644 at 652.
[7] Clive Turner and John Trone, ‘Australian Commercial Law 31st Edition’, (Thomson Reuters, 2016) 226.
[8] Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 502 – 503.
[9] Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 at 583.
[10] Panorama Developments Ltd v Fidelis Furnishing Fabrics Ltd [1971] 2 QB 711 at 717 – 718.
[11] Panorama Developments Ltd v Fidelis Furnishing Fabrics Ltd [1971] 2 QB 711 at 717 – 718.