Law of Agency: Authority and Power (the paradigm case)

February 24, 2008

Introduction 

“Authority,” like “possession,” carries the image of a paradigm case justifying a legal result: “power” is neutral and simply states the result regardless of the reasons for it.’[1]

Authority, like possession, is conferred through consent by one person (principal) on another person (agent) who expressly or impliedly agrees to act on his behalf (the paradigm case). From this agreement power is derived to affect the principal’s legal relations with others. Where power is present without such ‘consent’, it is considered a legal concept deriving from some evidence of authority (usually apparent) in the first place.

This underlining rationale is the interpretation this writer generates from the theory outlined by the editors of Bowstead. Although Bowstead and Reynolds may have agreed on authority being the base of an agency agreement some writers have drawn a distinction to this theory indicating that ‘power’, which can derive without a consensual agreement, is the basis of the creation of true agency.

This Paper, for the most part, will seek to examine the nature of the law of agency and the basis of the conflicting theories of ‘authority’ and ‘power’ in modern English law of agency. It will look at the developing roles played by the various doctrines of agency in crafting the theories, ‘authority’ and ‘power’.

The definition of Agency[2] has engulfed in a war of words among academics mainly due to the distinction created between both authority/consent and power theories in defining agency. A fraction of academia, including Bowstead[3], Trietal, Anson and Cheshire and Fifoot have taken the view that agency is a consensual relationship between principal and agent.[4] While academics such as Fridman, Dowrick, Munday and Montrose have penned their interpretation of agency as a power-liability relationship, where an agent[5] is invested with a legal power to alter his principal’s legal relations with others regardless of the principal’s given ‘authority’. Here, the contrasting position is the use of power rather than authority in defining ‘true’ agency.

As the law of agency continues to play an integral role in the development of modern commerce – regulating commercial activity between traders, agents[6] and third parties – changes in the commercial environment has seen equally developing doctrines in the law of agency and it is believed such growth, whether anomalous in doctrine or easily rationalised, has led to the much debated issue of ‘true’ agency.

English law has recognised the agent’s power to affect the principal’s legal relations when there is some form of actual authority conferred expressly or impliedly through consent[7], or by apparent authority where the agent appears to have acted on behalf of the principal[8] – sometimes given that authority retrospectively[9] – but in fact acts with authority beyond which he possesses.

While in some instances the agent has power in law, as in the case of agency of necessity, to act on the principal’s behalf without his consent.[10]

Developing doctrines in English law, consensual model and its challenges

The developing role of doctrines in agency law, considered offshoots of ‘authority’ by some, can be considered as giving birth to the power-liability definition.

Where ‘authority’ conferred from principal to agent failed to cover expanding areas of relationships involving agents, English law has sort new approaches, mainly through an adaptation of public policy akin to vicarious liability,[11] to confer liability where the principal’s consent is absent.

For instance apparent authority, where the agent has exceeded his actual authority, is in fact categorised by some critics of the so-called paradigm case as no authority at all as contracts are binding on the person whose behalf the act is being carried out even if it was not his intention. Lord Diplock in Freeman and Lockyer[12] observed such authority as being based on estoppel.

Some have fingered this approach by English law as ‘awkwardly fictionalising’[13] liability on the principal to sustain some appearance of authority in the agent.

Though some cases have proven to justify an apparent authority where the agent has been placed in a position which itself leads a third party to believe that he is authorised even though he is not, as in First Energy Ltd,[14] where the Court of Appeal held that by virtue of the agent’s position as a general manager, he had apparent authority to communicate decisions of the bank’s head office and as such the bank as principal was bound. However, the much debated and controversial case of Watteau v Fenwick[15]cast some doubt on how authority is conferred. It is submitted that the facts of this particular case have boldly reflected the short comings of the ‘authority’-theory and shows the weak approach by English law in stretching it to its limits. The agent (Humble) in this case possessed no actual authority of any sort, thus the principal could be liable only on the basis of apparent authority, but an appearance of authority could not have been substantiated as the defendant was undisclosed and so was unable to represent that Humble was his agent. Here the third party believed that Humble was the proprietor of the business and he was unaware of the principal’s existence[16]. Nevertheless, the courts held that the agent had ‘implied usual authority’, making the principal liable for his actions.

Some have praised the decision as being beneficial to third parties, where it is believed that the principal should carry the burden of risk as opposed to third parties who are totally unaware of any restriction[17]. Likewise, debates have surfaced as to the introduction of ‘apparent ownership’ in such instances where it appears the agent is in fact the principal[18]. Despite this ineffectual argument some cases in English Law have ‘rejected’ – though it has not been overruled – the decision of Watteau v Fenwick [19], while some academics have labelled it ‘the result of unsound reasoning, the errors in which involved a misstatement of the existing law.’[20]

Moreover, the adoption of agency of necessity in English law further stretches the term ‘authority’. It is possible for a person to be defined as an agent of another in emergency or unforeseen circumstances, if he finds it impossible to obtain instructions from the principal and acts to preserve his property or interest, as in the ruling of China Pacific SA v Food Corp. of India.[21] Clearly under these circumstances there is no actual consent given, but it is acknowledged that such an occurrence creates authority where there is no pre-existing relationship between the owner and bailee or to expand the existing authority of the agent. English law has commonly refused to award restitution outside of consensual agreements as the doctrine of agency of necessity operates within narrow confines, largely because the courts have not wished to encourage one party to interfere in the affairs of another and then charge for that intervention.[22] Nevertheless, under rare instances common law has deemed such performances as acts done with the ‘authority’ of the owner providing there is an actual and definite commercial necessity for the agent’s actions.[23]

These particular instances where an agent, by law or various reasons of pubic policy,[24] affects his principal’s legal relations without his consent has sort to limit the interpretation of ‘authority’ being the nucleus of true agency. 

Munday[25] notes that such cases of apparent and presumed ‘authority’, the agent has no real ‘authority’ to do the act in question… but is nevertheless given the power to affect the relations of his principal[26].  He quotes Professor Montrose’s idiom that such ‘power of an agent is not strictly conferred by the principal but by law: the principal and agent do acts which bring the rule into operation as a result of which the agent acquires power.”

The analysis used by some academics, chiefly Dowrick, sort to explain the reasoning behind power being the true nature of agency, whereby ‘the power conferred by law on the agent is a facsimile of the principal’s own power’[27]. In essence, the agent wears the same shoe as his principal, a view supported by Holmes in the Harvard Law Review[28] and Pollock’s commentary on contract[29]

On the concept of power and authority some writers have boldly challenged Bowstead’s theory and analyse power as a legal concept, determined by public policy, which exists where authority is lacking. One such writer, Munday, insist that in certain cases an agent who is neither expressly nor apparently authorised to do certain things may nevertheless have the power to bind his principal and confer rights on a third party. Though Bowstead agrees that such exceptional cases occur he explains that its justification is on the basis that there is authority which ‘stems from the principal’s objectively determined assent’[30].

Conversely, Dowrick agrees that the term power is not an offshoot of authority as it is an act by the agent, in some cases non-consensual, which exist in the eyes of the law[31].

It is interesting to consider the ruling in Pole v Leask[32] per Lord Cranworth: No one can become an agent of another person except by the will of the person, and Lord Person’s decision in Garnac Grain Co Inc. v HMF Faure & Fairclough Ltd.[33] where he expressed that the relationship of principal and agent can only be established by the consent of the principal and the agent.

With respect it is submitted that such a consensual model so profoundly expressed by his Lordships as the basis of agency falls short by some degree of accuracy.

Notably, the House of Lords in Boardman v Phipps,[34] held that an agency relationship existed even though there was no consent on the part of the principal.

It is submitted that ‘Authority’ essentially fails to fully cover what some academics describe as ‘non-core’ instances of agency, such as ‘apparent authority’ and agency of necessity. However, power according to the likes of Dowrick[35] seeks to encompass the different facets of agency law. Consequently, McMeel[36] notes that where the agent is invested with power to affect the principal’s legal relations…the task of jurists is to enumerate instances where the law recognises such power, not the need to focus on consensual instances.[37]

Having contrasted the arguments for the consent and power models this writer has identified what can be considered inherent flaws in the authoritative or consent model. Apart from treating contractual arrangements as a matter of fact and not law, it fails to fully account for the existence of developments in agency law, such as agency of necessity, and forcibly continues to stretch its limits to cover other doctrines such as undisclosed principal and apparent authority, and in so doing, unveils its apparent weaknesses.

It is what some academics in English law purport to be a limitation, by the expression of the principal’s will as contained in an agreement with the agent. As such, in certain cases an agent who is neither expressly nor apparently authorised to do certain things may nevertheless have power to bind his principal and confer rights on a third party.[38]  

Though Bowstead appears to highlight a distinction between the consent and power theory, more so in favour of the consent model, it is believed that the power-liability theory posses a more comprehensive approach of the nature of true agency law.[39]

The power-liability theory, according to McMeel, seeks to unite the various instances of agency into a single formulation which applies to each equally, such a marriage this writer supports as necessary to cover the developing doctrines in agency law such as ‘necessity’, ‘apparent authority’ and ‘undisclosed principal’. Additionally, while academics such as Fridman and Dowrick argue that the consent model focuses predominantly on the relationship between principal and agent the power model expands its branches to external relationships between both parties and third parties which is essentially a more realistic understanding of true agency.  

Convergent and complimentary approach

McMeel appears to have constructed a thought provoking analysis in his thesis which this writer considers somewhat of a breakthrough in the war of theories in agency law. He flagrantly  admits that the new found strengths of power-liability in agency, though clearer, weakens and eventually collapses into what he describes as a qualified consensual approach, reconcilable  and compatible with each other.[40]

Agreeably the consent theory is seen as readily identifiable with the traditional principal-agent relationship where there’s actual authority conferred expressly or implied on the agent acting on behalf of the principal. This theory is not to be completely written off and put to hang at the gallows for its limited use in expanding agency relationships but should nevertheless be seen as a fundamental aspect of agency law along with the accommodating role of the power-liability theory. It is with such analysis that this writer poses the argument that power, created by law, supports the developing doctrines in agency which consent/authority fails to cover and in some instances where the power theory, according to McMeel, collapses into a consensual logic.  It seems more evident to view it as a supplement to authority and not replace it.

Accordingly, they both work in a definitive marriage, by fact and through public policy (law) as Authority is self-imposed from principal to agent while power is an obligation given by law regardless of consent. There is essentially the need for such obligation to protect rights of all parties in agency, especially where fiduciary duties are not clearly expressed.

Thus it is acknowledged that consensual approach, so well promoted by Bowstead fails to take into account situations in which authority may not be able to be expressly vested in the agent,  as well as the changes in the commercial environment that necessitate more than an authority based justification of agency.

Likewise, it is the legal concept of “power” as opposed to “authority” that is seen more of a “catch-all” in terms of liability so that one cannot hide behind the defence that authority was not conferred and thus as a result greater protection is afforded to third parties.

Once it can be shown that some degree of power was vested in the individual to act the law can step in, this is preferred to an authority approach which is rather limiting, but nevertheless should not be written off but seen as accommodating concept of agency.

 

-30-


[1] Bowstead and Reynolds on  Agency (2006) 18th Edn p6[2] Markesinis and  Munday, An outline of the Law of Agency, 4th edition, comments on the counteracting  definitions of  Agency: “Academics have been quick to criticise each other’s definitions and find in them errors and omissions. There is, therefore, little justification for yet another definition which, more likely than not, would prove unsatisfactory.” p1.[3] Bowstead on Agency (2006) 18th Edn: Agency is the fiduciary relationship which exist between two persons, one of whom expressly or impliedly manifest assent that the other should act on his behalf  so as to affect his relations with third parties and the other whom similarly manifest assent so as to act or so acts pursuant to the manifestation.[4] Treital The Law of Contract, Cheshire and Fifoot Law of Contract

[5] The use of the term agent in some agreements such as real estate or sales fails to do justice to the commercial and legal meaning of the term agent. This question focuses on agents as defined in Statute by the Commercial Agents (Council Directive) Regulations 1993 as amended by the Commercial Agents (Council Directive) Regulations 1998.

[6] Markesinis and  Munday, An outline of the Law of Agency, p5 describes the non-existence of such middlemen as grinding commerce to a halt.

[7] Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 573

[8] Lord Denning in Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 573 described it as the authority of an agent as it appears to others.

[9] As in the case of Agency created by Ratification: Beswick v Beswick [1968] AC 58; [1967] 2 All ER 1197

[10] This we will discuss in detail later.

[11] Vicarious liability, which derives from the law of tort, gives rise only to liabilities pertaining to employees, while the power-liability model caters for independent contractors outside the scope of employment.

[12] Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 Q.B 480: It was laid down that when an agent does an act, the principal is estopped from denying the agent’s authority and is bound by the contract which has been made even though there was no intention to give the agent power.

[13] Brown, Ian – The significance of general and special authority in the development of the agent’s external authority in English law, J.B.L (2004) 391

[14] First Energy Ltd v Hungarian International Bank Ltd [1993] 2 Lloyds Rep 194

[15] [1893] 1 Q.B. 346

[16] It is argued by critics that in this case Humble may have contracted not as agent but as principal, and as such the undisclosed principal should not have been liable, as in the case of Keighley Maxsted v Durant (1901)

[17] Cohen, G. M The Collusion problem in agency law (1998). [working paper - Cornell Law School]

[18] Micheal Conant, The Objective Theory of Agency: Apparent Authority and the Estoppel of Apparent Ownership 47 Nebraska (1968) LR 678

[19] Likewise, majority of the provinces in Canada has removed it as authority from there jurisdiction, while it is doubted whether or not it is good law in Australia

[20] Montrose, J.L Liability of Principal for acts exceeding actual and apparent authority (1939) 17 Canadian Bar Review 693, 695.

[21] [1982] AC 939; Great Northern Railway Co v Swaffield (1874)

[22] Binstead v Buck (1776) 2 W B1 1117, where a finder of a dog could not claim from the owner monies he has spent looking after it because the owner had never agreed to bailment. It was held that no agency cannot arise if someone takes it upon themselves to look after someone else’s property; A contrasting decision to the ruling in China Pacific SA v Food Corp. of India [1982] AC 939 where it was held reasonable for someone to recover in such circumstances.

[23] Prager v Blatspiel Stamp & Heacock Ltd. [1924]

[24] Llyod v Grace, Smith & Co [1912] AC 716

[25] Markesinis and  Munday, An outline of the Law of Agency

[26] ibid, p7. He also added that in such cases which relationships arise irrespective of or contrary to the real wishes of the parties, to speak of ‘consent’, is only to distort its real and usual meaning. p5

[27] Dowrick, Relationship of Principal and Agent , (1954) 17 M.L.R. p37

[28] ibid. p37 per Agency,  4 Harv. L. R. 345 p5: “by fiction the principal and agent were one person in law.”

[29] ibid. p37 per Pollock on Contract, 13th ed., p45: “by agency the individual’s legal personality is multiplied in space.”

[30] Bowstead and Reynolds on Agency (2006) 18th Edn p7.

[31] Dowrick, Relationship of Principal and Agent , (1954) 17 M.L.R., p37: the term power is not a synonym for ‘authority’. A power is a legal concept: it connotes the ability of a person to alter legal relations by doing some act: an agent’s power is such an ability existing in the eyes of the law. Authority is a mater of fact: it connotes that one person has given instructions or permission to another to act on his behalf. (fnote 69)

[32] (1863) 33 L.J Ch. 155

[33] [1968] A.C 1130n

[34] [1967] 2 AC 46

[35] Dowrick (1954) 17 M.L.R. p.36, notes that the essential characteristic of an agent is that he is invested with a legal power to alter his principal’s legal relations with third persons: the principal is under a correlative liability to have his legal relations altered…this power-liability relation is the essence of the relationship of principal and agent.

[36] McMeel (2000) 116 L.Q.R

[37] ibid, p.395, notes that the principal, consequently, is under the liability to any third parties who deal with a legally constituted agent. His consent is not conclusive of the legal determination.

[38] Markesinis and  Munday (1998), An outline of the Law of Agency 4th edn, p.9

[39] McMeel (2000) 116 L.Q.R p.392, conveys that academics including Fridman and Munday regards the consent theory as an “Aunty Sally, to be considered and rejected, before turning to more apt modern theory.

[40] Ibid, p396: The danger of the modern ‘power-liability’ analysis of agency collapsing into a qualified consensual model is not accidental…the ‘power-liability’ and ‘consensual’ model are not opposing accounts of the same legal doctrine. Rather they are examples of different types of legal theory. In truth, rather than being in opposition to one another, the two theories are readily reconcilable.

   

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