Application Of The Australian Agency Law

Application of the Australian Agency Law 1

APPLICATION OF THE AUSTRALIAN AGENCY LAW

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Application of the Australian Agency Law 2

APPLICATION OF THE AUSTRALIAN AGENCY LAW

Question 1

Issue to be Resolved

The information on the case study of Jevan, The Thin Heads band, Jimbo, and John

concern the legal interpretation of the powers of an agent. Specifically, it is needful to determine

if Jevan had the power to contract John for the guitar maintenance service and if it was necessary

that Jimbo has the obligation to pay for the repair.

Rule

The Australian agency law provides that companies enter into contracts through agents

for the fact that they are abstract entities. Therefore, the case study may be interpreted using the

agency law of Australia.

Application

According to section 126 of the same law, the power of an organization to make contracts

could be exercise by persons who act under implied or express authority conferred to him by

their principle, the company on whose behalf they act (Chapple and Lipton, 2002, p. 4). There is

no limitation in law concerning who an agent should be in terms of their relationship with the

firm since they could be either employees or non-employees of the companies that they

represent. The general law of agency covers whether companies are liable for under contracts for

the actions of their agents. It should be understood that in Australia, the agency principles re

codified into the Corporations Act because of the need for the recognition of the abstract nature

of corporations. Another significant issue to note is the fact that the Corporations Act covers the

rules of agency in sections 128-130.

Application of the Australian Agency Law 3

As mentioned, it is needful to determine whether Jimbo was liable to the contracts

entered on its behalf by Jevan. This case revolves around the issue of the authority that the agent

has in dealing with contracts. Of course, the case study does not suggest the fact that Jevan had

express power to contract John for the guitar repair services. Under the agency law, actual

authority exists only in case where the principles have given consent to their agents to act on

their behalf (Woodward, 1997, p. 165). It is also imperative noting that the authority would be

drawn from implied or express conferral of authority by the principles to their agents to act or

enter into some types of transactions. Though the issue of actual authority does not concern the

case that emerged in the relationship between the Thin Heads Band and its agent, it has

significant contribution to the development of the argument. It is already apparent that Jevan had

express authority to act on behalf of his band through organizing for events and other issues that

concern the operations of the group. The complication would arise from considerations that

within the corporate contexts, agents would often act with actual implied authority. Existing

literature suggests that implied actual authority emerges in the event, because of the positions of

agents and their companies, the agents are anticipated to have the authority to enter into contracts

(Griffiths, 1993, p. 245).

According to (8), the appointment of an individual as the managing director of a

corporation, for instance, causes them to have implied actual authority that relates to their

position. Such implication occurs because the appointment of the individuals as places the

individuals at the center of decision-making processes for their companies. The case of Brick and

Pipe Industries Ltd v Occidental Life Nominees Pty Ltd is one of the examples of cases in

Australia that involved the need for the court to determine whether a director of the company

acted under implied authority (Chapple and Lipton, 2002, p. 8). In this case, implied authority

Application of the Australian Agency Law 4

needed to be established concerning the actions of the director in the capacity of his company

during a time when he was in charge of shareholding, which caused him to assume the roles of

the managing director of the company. Therefore, the case study of Jevan and John represents a

scenario in which the court would be required to determine whether the agent, Jevan, acted in

exercise of implied actual authority in his move to contract a third party to repair the guitar.

Should the court find implied actual authority applicable to the case, then Jimbo would be

obliged to honor the contractual terms entered with John on behalf of the band.

Still in consideration of the powers of the agent, the court may want to determine if Jevan

exercised apparent authority when he contracted John to repair the guitar, especially when it

finds that he did not have implied authority in doing so. Literature suggests that the term

ostensible power may be used interchangeably with apparent authority. Apparent authority

creates the relationship of a company and its agent since it defines the authority of that the firm

confers to its agent. In this case, apparent authority does not rely on agreements of any form or

any relationships that would be existing between agents and the principals (Grantham, 1996, p.

39). On most occasions, outsiders do not understand if the agents have actual authority and the

extent to which they may exercise such powers. In most cases, the third parties rely on the

appearance of authority. The degree to which agents the agents may apply their ostensible

authority would be equal to their actual power to contract or it might surpass the range of their

actual power depending on circumstances. For instance, agents may have ostensible ability in the

performance of specific actions on behalf of their principles when such people may not have

been allowed actual power to make the contracts being contested (Chapple and Lipton, 2002, p.

9). Therefore, apparent and actual authority rest wholly on different bases even though their

application may overlap.

Application of the Australian Agency Law 5

The establishment of apparent authority of the agent would create agency through

estoppel. Such a situation suggests that as between the outsiders and principals, the principle

does not have legal ground for arguing that their agents did not have authority to act on their

behalf. Therefore, exercising agency by estoppel results in the creation of valid contracts

between principals and outsiders in the same way agents do using actual authority. It ought to be

noted that the principal needs to make representation of the authority of the agent to outsiders.

Again, the principals are not liable merely on the representation of their agents. In cases where

outsiders deal with specific persons, determining if deals concern the persons or the company

would be cumbersome. In specificity, should a representation done by an individual who acts as

an agent be considered a representation of the firm? The principals may make the representations

to outsiders expressly. It is more normal for the representations to arise by the conduct of the

principles. The following forms describe the manner in which representations by conduct may

occur:

a) It might occur when principals permit their agents to occupy specific positions. In cases

such as these, the principals hold out or represents that the agents have the customary

power of the individuals in such positions. Therefore, the authority of the agents is the

same as that of agents who act under implied actual authority that results from the

positions occupied (McLennan, 2006, p. 329).

b) It might occur when the conducts of the principals permit the agents to perform specific

tasks on the behalf of the principals past the range of the normal ability of the agents. For

instance, directors might be allowed by their companies to act on their behalf in several

transactions. This situation suggests that the authority of such agents would be greater

than what it would have been in the normal conditions (Jooste, 2013, p. 468).

Application of the Australian Agency Law 6

c) It might also occur when the agents hold no formal positions within their companies and

the conduct of the principals, but leads the outsider into believing that they hold such

authority.

In Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd, the court set

forth four conditions that should be considered in the determination of the whether the

actions of an agent would bind their company when the authorities of such agents is in

question.

i) The representations need to have been made by people with the actual power to

make these types of contract that the outsiders seek to impose (Chapple and

Lipton, 2002, p. 10).

ii) Individuals who have the power to handle the businesses of their companies or at

least the power to act in relation to the matters concerning the contract in action

should do such representations (Chapple and Lipton, 2002, p. 10).

iii) The outsiders need to have been encouraged by the agents into contracting the

deals in question and depended on such representations (Chapple and Lipton,

2002, p. 10).

iv) The articles or memorandums are not limiting to the capacities of the companies

to deal with the types of contract in concern as well as that concerning the

delegation of such power (Chapple and Lipton, 2002, p. 10).

Conclusion

Jimbo has the legal obligation to honor the contractual terms entered between Jevan and

John since the legal terms for both the implied actual authority and apparent authority identify

that Jevan had the authority to do so. In this case, Jevan did not violate the situations that make

Application of the Australian Agency Law 7

the contract illegal even though he did not have express actual authority to let John repair the

guitar on the behalf of the Thin Heads Band.

Question 2

Third parties may still be in a position to enforce the contracts that they entered with

agents even when the companies had not granted such agents the actual authority to enter into

contracts in question. However, in such cases, the third parties are always required to prove that

the agents acted with implied authority. The question concerning whether agents acted with

implied authority dependents largely on the manner in which the agents were presented by their

corporations to such third parties. In this case, the establishment of implied authority may be

established based on four situations. The first of the four conditions arises when the corporations

made representations to the third parties that the agents had the power to enter into the type of

contracts that the third parties in question seek to enforce. Secondly, such situations would arise

if the representations were made by persons with the actual authorities to manage the affairs of

their companies related to the matter in contention (Finn, 1993, p. 102). The determination of

implied authority may also be established when the third parties depended on and were

persuaded by the representations to enter the contracts being contested. Lastly, the third parties

may succeed in the enforcement of contractual terms on companies if it would be possible for the

firms to establish that their constitutions do not deny it of the capability to contract directly or

through delegated power to do so through agents.

It is imperative noting that last of the conditions that would create implied authority for

the agents to enter into contracts relate to actions that are ultra vires to the corporations for the

fact that they might fall outside the provisions of their constitutions (Chapple and Lipton, 2002,

p. 9). For this case, the Corporations Act now governs contracts that are ultra vires separately

Application of the Australian Agency Law 8

from those of the normal operations of the firms. The policy that informed this statutory reform

was the need for the abolishment of the relevance of the ultra vires doctrine concerning the

contracts that organizations enter with third parties (Tomasic, Bottomley, and McQueen, 2002, p.

77). For this reason, as directed by the Corporations Act, the acts of an agent who acts ultra vires

in the exercise of apparent authority bind the companies. It is also needful comprehending that

the last condition also demands that corporate constitutions to authorize the delegation of the

power to deal with the contested contracts.

The second issue described above is the one that has resulted in the largest form of

uncertainty from the perspectives of the outsiders (Chapple and Lipton, 2002, p. 10). The issue

needs the representations to be orchestrated by individuals with the actual power to handle the

businesses of the firm or according to the issues that relate to the contested contract. However, it

is notable that in Freeman v Lockyer, the court did not have real problems in the determination of

this issue by the outsider. The reason for the easiness was the fact that the board of the company

in question had made representation through its acquiescence to the director who acted as the

managing director of the corporation (Cain 1989, p. 10). In most cases, outsiders will enter into

contract with the persons to whom the boards of directors of specific companies have delegated

authority to act on their behalf. In this case, it would be cumbersome for the outsiders to

establish the extent and nature of such authority to bind the corporations and the person

facilitating the contract and such persons purport to cloak other individuals with apparent

authority. It is critical noting that a situation such as this fails to meet the second condition

described above, as it was the case of Crabtree-Vickers Pty Ltd v Australian Direct Mail

Advertising Co Pty Ltd (Tomasic, Bottomley, and McQueen, 2002, p. 101; Baxt 1990, p. 450).

Application of the Australian Agency Law 9

The law of agency in Australia has also provided statutory assumptions that would make

third parties enforce contracts entered with companies through agents. For instance, third parties

are supposed to assume the following while contracting with corporations:

1) That the contract complies with the constitution of the company (Craddock Murray

Neumann Lawyers Sydney, 2018, p. 1).

2) The secretary and director of the firm have been duly appointed and have the normal

authority related to their positions (Craddock Murray Neumann Lawyers Sydney, 2018,

p. 1).

3) Anyone who represents the company as agents have been duly appointed and they

exercise in the authority conferred on them (Craddock Murray Neumann Lawyers

Sydney, 2018, p. 1).

4) The agents and officers execute their obligations to the firm properly (Craddock Murray

Neumann Lawyers Sydney, 2018, p. 1).

5) All documentation is executed duly (Craddock Murray Neumann Lawyers Sydney, 2018,

p. 1).

6) The agents have authority to warrant the issuing of documents (Craddock Murray

Neumann Lawyers Sydney, 2018, p. 1).

Application of the Australian Agency Law 10

References

Baxt, R., 1990. Company Law: Directors Cannot Escape Liability by Doing Nothing. Australian

Business Law Review, 18(6), p.405.

Cain, T.E., 1989. The Rule of British Bank v Turquand in 1989. Bond L. Rev., 1, p.i.

Chapple, L. and Lipton, P., 2002. Corporate Authority and dealings with Officers and Agents.

CCH Australia.

Craddock Murray Neumann Lawyers Sydney, 2018. The authority of an agent to enter into

contracts on behalf of a corporation - Craddock Murray Neumann Lawyers Sydney.

[Online] Available at:

http://www.craddock.com.au/Document/The+authority+of+an+agent+to+enter+into+con

tracts+on+behalf+of+a+corporation.aspx [Accessed 1 May 2018].

Finn, P., 1993. The Liability of Third Parties for Knowing Receipt or Knowing

Assistance. Equity Fiduciaries and Trusts.

Grantham, R., Contracting With Companies: Rule of Law or Business Rules?’(1996). New

Zealand Universities Law Review, 17, p.39.

Griffiths, A., 1993. Agents without principals: pre‐incorporation contracts and section 36C of the

Companies Act 1985. Legal studies, 13(2), pp.241-253.

Jooste, R., 2013. Observations on the impact of the 2008 Companies Act on the doctrine of

constructive notice and the Turquand rule. South African Law Journal, 130(3), pp.464-

475.

McLennan, J.S., 2006. Contracting with business trusts. S. Afr. Mercantile LJ, 18, p.329.

Tomasic, R., Bottomley, S. and McQueen, R., 2002. Corporations law in Australia. Federation

Press.

Application of the Australian Agency Law 11

Woodward, S., 1997. " Ultra Vires" Over Simplified Changes to Company Powers Under the

Second Corporate Law Simplification Bill. Company and Securities Law Journal, 15,

pp.162-173.

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