Agency

The effect of this is that the real parties to the contract are the principal and the third party and the principal and third party can sue each other directly on the contract. There are exceptions to this rule where:

• the agent agrees to be personally liable;
• trade custom or usage makes the agent personally liable
• the agent personally signs a bill of exchange;
• the principal is non existent; or
• the agent exceeds authority.

2. Liability in tort

Where the agent commits a tortious act while acting within authority, the victim of the tort can either sue the agent or the principal. However, the person seeking damages from the principal must prove that the agent committed the tort and the agent committed the tort whilst acting within authority. If the agent is acting outside authority, the person cannot recover from the principal.

3. Breach of warranty of authority

An agent who wrongfully represents to a third party that he or she is acting within the principal’s authority can be sued for damages by the third party for breach of warranty of authority.

The remedy for breach of warranty of authority is damages and the measure of damages will be the actual loss incurred.

4. Liability for representations

An agent may be liable for statements or representations made, or information or advice given in circumstances that do not arise out of the contract of agency or in the exercise of authority as an agent.

THE AGENCY AGREEMENT

LAC Lawyers strongly recommends that all agency arrangements are in writing, and that both the principal and agent get legal advice before signing an agency agreement.

It is important that an agency agreement, like other agreements, deals with each party’s expectations and that it details the rights and obligations of each party. Typical, and important, terms in an agency agreement include:

Term

The contract should specify how long the agreement lasts, and include any options to renew it.

Scope of agency

Is the agency exclusive or non-exclusive? What are the agent’s functions and powers? To negotiate offers? To sign agreements? Does the principal want to retain the right of final approval of any deals before they are signed off on?

Territory of the agency agreement

Where can the agent act for the principal?

Payment/Commission

Agents are usually paid by commission based on the gross income received for the principal. The agreement should give details of the way in which the commission is to be calculated and the timing and method of payment.

Accounting requirements

The agent should be obliged to pay all money received for the principal into a trust account, and to keep good accounts that properly document the income and expenses associated with the agency. The principal should be given reasonable access to those accounts.

Insurance

Who is required to have and bear the cost of insurance to cover the risks that may flow as a result of the agency agreement, and the amount of appropriate insurance.

Termination

The contract should set out the circumstances in which the principal or the agent is able to end the agency relationship.

Disputes

LAC Lawyers recommends that there is a mediation clause in the contract. When compared to litigation and arbitration, mediation is a less formal and less expensive dispute resolution process. In addition, instead of imposing a solution, in mediation an independent person helps the parties in conflict to formulate their own solution to a dispute.

For competent professional advice on the law of agency, drafting agency agreements or advising on an agency agreement, please contact us at LAC Lawyers Pty Ltd.