Law of Agency: Rules of Attribution

There are 3 main aspects of agency that affect the principal's legal relationships:

1) Actual Authority

2) Apparent Authority

3) Ratification 

Each of these will be explained in turn. 

Actual Authority

Actual authority comes under the 'internal' aspect of agency. It is the consensual authority given from the principal to the agent. The scope of this authority can be determined by contract, trade practices, or the course of dealing between the parties (per Diplock LJ Freeman & Lockyer v Buckhurst Park Properties). 

If the extent of the agent's actual authority is ambiguous, then in Ireland v Livingston the House of Lords stated that if the agent placed a reasonable interpretation on their instructions, then the principal would be bound by their actions pursuant to them. However, this was a 19th century case and since then there has been a vast improvement in communications. Now if there is ambiguity, the agent must seek clarification: European Asian Bank v Punjab Bank (No 2). The Ireland v Livingston licence only arises if it not possible or commercially realistic to communicate with the principal. 

Implied actual authority 

Authority is often implied. For example, when express authority is given for a task, there is an implied authority to take incidental acts to complete it. 

An agent may also gain implied actual authority from their position, for example the ordinary scope of authority for a company director: Hely-Hutchinson v Brayhead per Lord Denning MR. 

Authority can also be implied by trade customs in a certain market. If a principal appoint's an agent in such a market, they can expect to have certain actual authority (although this can be negated by the contract), and may assume the principal is happy to abide by these customs. Ungoed-Thomas J laid out the 3 requirements to establish the existence of a custom in Cunliffe-Owen v Teather. The custom must be:

1) Certain

2) Notorious

3) Reasonable

The last requirement is the one which is challenged the most. There can be obvious evidential difficulties in establishing a custom, as witnesses may depart widely from their original evidence under cross-examination, due to the nature of customs: per Devlin J Stag Line v Board of Trade. This was endorsed by Staughton J in Lambert International v El Nasr. He stated that because of this, the threshold to be passed is high: the custom must be regarded as binding, and cannot be simply something that is customarily done within that particular market.  

In the House of Lords case of Tucker v Linger Lord O'Hagan held that a custom is reasonable if it necessary for the proper functioning of the market (removal of flints in this case for agricultural management). 

A custom is unreasonable if it causes agents to work for conflicting principals. In Anglo-African Merchants v Bayley, Megaw J drew attention to the sacrosanct principle that an agent cannot work for another principal where doing so may cause inconsistent duties with the original principal, unless they are both fully informed and give full consent. 

A custom will also not be recognised if it is excluded by the contract, or the terms of the contract are inconsistent with it. 

Example of Customs

Appointing Estate Agent: Gives them authority to find a purchaser but not to conclude a sale: Hamer v Sharp. 

Solicitor: implied actual authority to compromise litigation without referring to their client first, providing the compromise involves nothing collateral to action: Waugh v Clifford & Sons

Authority to accept payment doesn't give a power to judge the creditworthiness of the payer, and thus no power to accept payment partly by cheque: Blumberg v Life Interests. 

An assured often gives authority to insurance brokers to receive claims money from insurers, this authority normally being evidenced by possession of the insurance policy (Legge v Byas, Mosley & Co). A Lloyd’s broker has no authority to receive payment in the form of a set-off on the general account between the broker and the insurer, although such practice is usual in Lloyd’s market, because = unreasonable. Aliter if assured confers authority to receive payment on broker w/ knowledge of custom (thereby impliedly consenting to it): Bartlett v Pentland

Circumstances and Dealings between the parties

In Waugh v Clifford & Sons Brightman LJ explained that the purpose underlying the concepts of apparent authority and implied actual authority are different: the former protects the expectations of third parties whereas the latter concerns the legal relationship between the agent and the principal. The two may coincide however: a company's director has an implied actual authority to perform certain tasks, which also creates an apparent authority to third parties that the director has such power to commit their company. Due to these expectations, if a principal qualifies their agent's implied actual authority, they have to make the third party aware of that. If a third party was expected to know what went on in a company's board room and had to take the risk of the principal's representatives having no actual authority, they would be very shy to engage in business dealings: Dey v Pullinger Engineering. 

If an act is incidental to the business in which the agent is engaged, they will have an implied actual authority. For example, a horse-dealer with authority to sell a horse is impliedly authorised to warrant the good health of the horse: Howard v Sheward. There is no reason to expect the third party to check whether the agent has the implied actual authority to perform a certain task: The Unique Mariner. 

Another example of an agent having implied actual authority is an auctioneer - such as describe the property they are selling. However, they have no authority for certain activities, such as warranting the property he's selling, or negotiating the sale privately if the auction isn't successful. 

Formalities 

There are no specific formalities to confer actual authority, even if the act the agent performs is subject to them e.g. in writing: Heard v Pilley. An exception to this is deeds: authority to execute a deed must be conferred by a deed: Berkeley v Hardy. Another case of agency is power of attorney which is construed strictly in conformity with the rules of deeds. Such power is given as is expressly written or necessarily implied: Reckitt v Barnett. Any general words/direction given in the deed are confined to what is necessary to perform the particular acts the deed was conferred for: Jacobs v Morris. The meaning is only extended when necessary: Coondoo v Watson. Even if not express, a deed must necessarily be construed to give ministerial powers. 

It is also the case that more often than not the extent of the agent's authority is determined by the construction of the contract. Where authority however is not conferred by a deed, the interpretation will be more liberal. The meaning of words in forming an agreement must be considered in light of the circumstances known to both parties: Ashford SC v Dependable Motors per Lord Reid. If authority is simply conferred in general terms, then the contract can be interpreted as giving authority to act in the usual manner (be it custom, because of previous dealings, or normal for that position). If the agent then proceeds to act in an 'unusual manner' then the principal will not be bound by the agent's acts: Wiltshere v Sims per Lord Ellenborough CJ. 

Necessity

Due to the historical formation of the law of necessity, it is an independent rule of attribution. However, its continued existence is somewhat artificial. When an agent is in an urgent circumstance and must conclude a contract (and they can't contact the principal), is the principal bound by the agent's resulting actions? The Choko Star confirmed that you can't rely on necessity if it is possible to contact the principal. However this may be analysed as an incident to the contract of salvage, and thus a form of implied actual authority. 

The only circumstance where this could occur in modern times is in relation to a master stranded at sea having to conclude a contract of salvage. International Salvage law has now dealt with this problem - under the International Salvage Convention Art 6(2) masters have authority to contract on behalf of the cargo owners. It would be impossible to contact all the individual cargo owners. 

A contract of salvage also concluded in appropriate circumstances binds the shipowner: The Renpor. 

It has been stated obiter that delay in land transit of perishable goods could generate an authority to sell (Sims v Midland Railway) – but the land context reduces the likelihood of an inability to communicate with the principal.

It is unclear whether English law would adopt a similar position to European law, that notwithstanding termination of authority, the agent continues to have authority to take such measures as are necessary to prevent harm to the principal’s interests. Or, it could alternatively decide that a principal who doesn’t prepare for this eventuality takes on board the risk.

Sub-Agency

There are 2 main questions with regard to sub-agency:

1) When is it allowed? 

2) What is the legal relationship that ensues?

In answer to (1) sub-agency is allowed when the principal expressly authorises it, unless it falls within the agent's implied authority: De Bussche v Alt. The only qualification to this is employing a courier (for example) to perform ministerial acts, as there is no personal element involved in such actions: Allam v Europa Poster Services. 

When is is authorised, the immediate question is one of privity of contract. In Callico Printers v Barclays Bank it was confirmed that there is no contractual privity between the principal and the sub-agent. 

But there is the statutory exception to the privity rule: the Contract (Rights of Third Parties) Act 1999. If the contract is for a third parties benefit, then they may enforce it between the contracting parties. From the principal's perspective, the sub-agency contract exists to benefit them. Additionally, the sub-agent can't sue the principal, as the contract would have to be formed. But, this depends on the contract's wording - and in the commercial context, parties often exclude the 1999 Act anyway. 

However, if a sub-agent is employed specifically because of their holding of special expertise, and this is then relied upon by principal, then there may be an assumption of liability by the sub-agent giving rise to a duty of care owed to the principal: Henderson v Merrett Syndicates. 

Delegation generates sub-agency, with contractual liabilities operating strictly in string: in the event of default, the delegate sub-agent is liable to the agent and the agent is liable to the principal: The Okeanis. The agent’s liability for the default of the sub-agent reflects not only the absence of liability of the delegate to the principal, but also the fact that authority to obtain assistance in performing cannot be construed as a licence to the agent by delegation to absolve itself of liability for non-performance or mal-performance.

Apparent Authority

The concept of apparent authority was well defined by Diplock LJ in Freeman & Lockyer v Buckhurst Park Properties. Although actual and apparent authority may coexist and coincide, they may be quite different. Apparent authority is a representation of the agent's authority by the principal, which the third party acts upon, creating a legal relationship between the principal and the third party to which the agent is a stranger. 

As mentioned, appointing someone to a directorship position for a company comes with it implied actual authority they have certain powers. However, the board of directors may choose to limit this power. If they do however, there is still an apparent authority that the director has all the powers a normal director would have. There has to be an external representation to limit the director's apparent authority as well. For example, they could write in the limits of the director's powers to their terms and conditions. If they do not do this, the principal will be estopped from denying their agent had authority to enter them into the transaction in question. 

This shows that apparent authority is essentially a form of estoppel. Slade J's widely accepted analysis in Rama Corp v Proved Tin & General stated that 3 ingredients are required: i) a representation (by the principal) ii) reliance (by the third party), and iii) an alteration of position. 

Our analysis of apparent authority will be divided into the above 3 requirements. 

i) Representation

Representations of authority are often made by the principal's conduct, such as by appointing someone to a particular position per Waller J Suncorp Insurance v Milano. Likewise, previous dealings with a previously authorised agent is conduct amounting to a representation: Summers v Solomon. An agent acting in the 'usual authority' of an agent of that type binds the principal without an external representation limiting their authority: United Bank of Kuwait v Hammoud. This conduct must be construed objectively. If a company organises its business in a way that would entitle the third party to reasonably assume they were dealing with someone with the necessary authority, then the company will be bound: ING Re (UK) v R&E Versicherung per Toulson J. Third parties are also entitled to assume that principal's will have control of their business premises, and will not allow unauthorised persons to meddle with their business: Barrett v Deere per Lord Tenterden CJ. 

Apparent authority exists for as long as the representation of authority does. If the withdrawal of authority is hidden, and not external, then it carries on: Summers v Solomon. But if the principal dies/goes insane/appoints a liquidator, all agents lose capacity as the principal can't act for himself: Pacific Insurance v General. But if someone deals with the agent, and the agent doesn't know of his new lack of authority, the principal will be bound: Drew v Nunn. However, if a principal clearly represents the agent's absence of authority, estoppel cannot operate: Overbrooke Estates v Glencombe Properties - in this case an auction catalogue stated that the auctioneer had no authority to make representations regarding the auctioned property. 

Representation Must be Made by the Principal

The Rule

Only the principal or an agent with authority to speak on their behalf (on this matter) may make a representation to as to an agent's authority. Only someone with actual authority to speak for a company may create an agent's actual authority: Freeman & Lockyer v Buckhurst. The chain of representations must be traceable back to the principal, so that they may be estopped from denying them: ING Re (UK) v R&V Versicherung. This will often be in a written contract, meaning the scope of actual authority is determined by contractual interpretation. But, post-formation statements or conduct will be admissible evidence in determining the scope of the agent's authority, due to the principal's power to vary an agent's authority at any given moment: James Miller v Whitworth Street Estates. However, an agent cannot make representations as to their own level of authority - apparent authority must be traced back to the principal: AG for Ceylon v Silva (PC). 

A leading authority on this question is The Ocean Frost. The House of Lords under Lord Keith gave its judgment which went against the Court of Appeal's decision. Lord Keith stated that an agent cannot make representations as to their own authority. Any other conclusion would mean that if an agent wrongly stated his level of authority, and thus entered into a contract with a third party, the principal would not be bound. But if they said they had then gone to the principal and gotten authority, then the principal would be bound. 

He stated it would be 'a most unusual and peculiar case' where this could happen due to circumstances created by the principal. 

Lord Keith categorises apparent authority into 'specific' and 'general' authority. General authority is authority to enter into a type of transaction generally. Specific authority is a unique instance of authority being granted for one specific contract. So without the former, an agent could still go back and get the latter from their principal. A principal represent to a third party that his agent will communicate his decision for a particular transaction (specific authority) but this doesn't confer a general authority for future transactions. He also referred to the Privy Council case Russo-Chinese Bank v Li Yau Sam where Lord Atkinson stated that a principal cannot be bound where the third party knows that the agent doesn't have specific authority for contracts of the type in question. He reinforces this with reference to Ruban v Great Fingall where it was held that when a third party knows the agent lacks authority, he is put on inquiry. The extravagant and unbelievable nature of the charter in The Ocean Frost was another factor putting the third party on inquiry. 

Representations as to Scope of Authority 

The courts may now be prepared to depart from the orthodox doctrine of agent's not being able to make representations as to their authority, as in the case of First Energy v Hungarian International Bank the Court of Appeal use Lord Keith's exception to the general rule in the Ocean Frost. 

In this case Steyn LJ said that the Senior Manager had general authority to communicate decisions of the bank when granting specific authority (i.e. to make representations of fact), otherwise the reasonable expectations of the parties would be defeated, and would fly in the face of the way negotiations are conducted between banks and customers negotiate loans. Customers can't be expected to check whether the person approving their loan actually has authority to do so. As Evans LJ stated, this would defeat the entire point of having a senior manager. 

This decision however, has received strong criticism. Reynolds for example stated that, if a person known to have no authority could then communicate the contrary, the entire basis of apparent authority deriving from a representation from the principal is defeated. HHJ Behrens in Habton Farms v Nimmo described First Energy as a special case on its own facts. 

So what is the current position? Can The Ocean Frost and First Energy be reconciled? 

The tendency is to treat this as a case of implied authority. By his position as senior manager, he had implied authority to communicate the decisions of the bank's head office, and thus the third party were entitled to rely on his apparent authority: Sun Life Assurance v CX Reinsurance per Potter LJ. 

More recently however, it has been said that First Energy reflects the realities of modern commerce: companies need officers to warrant that particular procedures have been complied with and that the documents the third party receives are in fact genuine (per Davis J Lovett v Carson Country Homes), and that some agents have apparent authority to make representations of fact, rather than a representation of their own authority (per Mance LJ Primus Telecommunications v MCI WorldCom accepting Steyn LJ's proposition). 

It seems that First Energy isn't the revolutionary decision that was first anticipated, but Steyn LJ's judgment does open the way for a fundamental reappraisal of how we handle apparent authority. It could now be used to acknowledge the realities of modern commerce, which can be very impersonal and complex. If third parties were required to conduct intrusive investigations, economic efficiency would be damaged as it would a) take unnecessary time and resources b) be unwise and without commercial common sense c) be unrealistic. This upholds the basic contract law principle of protecting the reasonable expectations of honest men. 

Provided it can be traced back to the principal, it is clear that agents can make representations as to the authority of other agents: HL British Bank of the Middle East v Sun Life Assurance. 

Responsibility really should lie with the principal who puts his agent in a position where third parties could interpret their authority as including certain undertakings/communicative powers. Toulson J in ING Re (UK) v R&V Versicherung made it clear he can see no reason why the third party should be prejudiced due to the principal's mismanagement of his internal affairs. This runs contrary to the traditional idea of apparent authority however, that it derives from a representation by the principal. 

[Previously apparent authority was only possible when the misrepresentation was one of fact, but since Kleinwort Benson v Lincoln CC it seems there would be no reason to hold that apparent authority may not come from a representation of law.]

Reliance

The requirement for reliance isn't the same as the 'detrimental reliance' in contractual misrepresentation, as the third party naturally contracts for their own benefit. They are also exposing themselves to the possibility that the principal may ratify (although this may likely be to their benefit). It would seem unrealistic for the reliance to have to be detrimental. 

There are circumstances which the third party cannot be said to have relied: where the third party knew the agent didn't have authority, or if the principal qualified the agent's representation. But even if a reasonable person in the third party's position wouldn't have relied, English law doesn't recognise such a thing as 'negligent reliance'. It is only if the third party's reliance was irrational, dishonest or reckless that the third party will be prevented from relying: CA Quinn v CC Automotive Group approving Lord Neuberger's judgment in the Hong Kong CA in Thai Chamkat v Akai Holdings. The test is a subjective one, although 'irrational' may bring in an objective element. 

Fraud and Forgeries

If the agent has apparent authority, then the principal will be bound by his fraudulent acts: Lloyd v Grace, Smith. This provides for greater legal certainty where third parties already have difficulty guaranteeing the validity of binding documents. 

The same applies with forgeries: if a forged signature appears to be due authorisation by the principal, then apparent authority exists: Uxbridge Building Society v Pickard. 

Undisclosed principals: usual authority?

It is hard to see how the third party can rely on a representation from the principal if the third party thinks that the agent is in fact the principal. There is an awkward case: Watteau v Fennick. In this case an undisclosed principal was bound by their agent's unauthorised acts. There seem to be 3 broad responses to this case, i) it's wrong, ii) some say the pub landlord in this case has 'usual' rather than 'apparent' authority. iii) Apparent authority simply doesn't work here, as there is no representation so as to create an estoppel. However, if estoppel is modified so that the representation is the principal holding out to the world that their agent has all the necessary authority due to the position they have been placed in. There are now a couple of cases which support this analysis. Otherwise, in every UDP case the secret limitation of authority would prevail. 

Ratification 

The principal retrospectively authorises the agent's previously unauthorised act. The act is treated as if had been authorised all along. As Lord Sterndale has described it, it is an 'antecedent authority' (Koeniggsblatt v Sweet). 

Pre-requisites of ratification

a) A Ratifiable Act 

There has to be an act purported to have been done on the principal's behalf. Illegal acts cannot be ratified. To determine whether an illegal act can be ratified depends on the nature of the illegality. Sometimes an act may be technically illegal, but complying with a formality removes this. If it would be impossible to give legal authority to perform the act, then it cannot be ratified: Brook v Hook (forgery). As Parker J said in the Bedford Insurance case: 'life cannot be given by ratification to prohibited transactions'. Boston Deepsea Fishing v Farnham - illegality due to war. 

b) The agent must have acted for an Ascertainable Principal

This also applies to agents with multiple principals: only the principal on whose behalf the contract was made may ratify (per Thesiger LJ: Jones v Hope). 

If this principle is entirely correct then undisclosed principals can never ratify, as the agent doesn't purport to act on anyone's behalf: HL Maxted v Durant. 

c) Competence and Existence of Principal 

I.e. a principal who is alive, formed (a company) and has capacity to act for themselves. This derives from the general principle of agency law that agents cannot perform acts which their principal could not perform. 

They must be competent to perform the relevant act both at the time of performance and ratification. 

d) Knowledge of the Principal

The principal needs knowledge of all the material circumstances of the act, as you cannot ratify something you do not know about: Suncorp Assurance v Milano. However, the principal doesn't have to know the act was unauthorised in the first place. 

If a principal ratifies in ignorance of some matters, but these are all found to be immaterial, then the ratification will be upheld: OPM Property v Venner. 

Methods of Ratification

Ratification is a unilateral manifestation of will to adopt an unauthorised act (Sea Emerald v Prominvestbank per Andrew Smith J). There is no need to communicate this to the third party, as long as it is manifested in some way: Yona v La Reunione Francaise per Moore-Bick J). This may be implied by conduct (e.g. Waithman v Wakefield - not returning goods). This shows that inaction may constitute ratification, specifically if the principal appreciates the material facts and does not assert otherwise within a reasonable time: Suncorp Insurance v Milano. The same goes for failing to correct an incorrect impression the principal knows the third party is relying upon: Yona v La Reunione Francaise. The test for silence is whether ratification is the only reasonable conclusion to draw in all of the circumstances: ING Re (UK) v R&V Versicherung per Toulson J. 

As ratification implies a choice, where the principal has no choice but to take the benefit of the unauthorised contract, he doesn't have to ratify and can take the benefit regardless e.g. the repairing of a ship in Forman v The Liddesdale. 

You can only ratify the whole of a contract, not part. If you ratify part, you are taken to ratify the entire contract: Suncorp Assurance v Milano. 

Retrospectivity and limits of Ratification

Between the principal and third party, ratification is fully retrospective, even though this may seem unfair on the third party. A third party cannot revoke their offer if an agent accepted it. Even if they were unauthorised, if the principal ratifies, the revocation is ineffective: Bolton Partners v Lambert. However, as this could lead to third parties being left in very precarious and uncertain positions, the principal cannot ratify where the time length they took to ratify would cause 'unfair prejudice' to the third party: The Borvigilant. 

If there is an express time limit (by statute) then you have to look at the purpose for having the limitation. For example if ratifying a solicitor's mistaken action in issuing proceedings against some, there is no prejudice in ratifying as the third party thinks they're being sued anyway, even if the principal doesn't ratify until after the limitation period for suing (6 years contract) expires: Presentaciones Musicales v Secunda. 

If there is no express time limit, then the principal must ratify within a reasonable time. If holding off allows the principal to speculate the market at the third party's expense, then it may be considered unfairly prejudicial to the third party: Dibbins v Dibbins. The circumstances and nature of the act in question will be imperative. If there is no fixed time, then the principal must ratify within a reasonable time of receiving notice: Re Portuguese Consolidated Copper Mines. 

Consequences of Ratification

If the principal communicates that he isn't going to ratify, he cannot subsequently change his mind: McEvoy v Belfast Banking per Lord Atkin. 

If the principal does ratify, the agent is entitled to financial reward: Verschures Creameries v Hull Steamship 

Whether the agent is entirely off the hook may be another matter however. There are a trio of first instance cases that decide the opposite to the CA in Verschures. But, there may be a possibility that they are reconciliable. If the principal can prove he had no commercially realistic choice but to ratify, then he may be able to sue the agent as well. However, this was only speculated in one of the cases, and the CA authority is binding.