Class: M5001 Aspects of Commercial Law
Candidate #: 247418

To what extent is the law of agency coherent?

Introduction

The law of agency in the UK claims to take a “commercial convenience first” approach when managing party relationships and handling disputes. That being said, agency law is a far cry from coherency in its operation and functioning throughout English law. I will begin my argument by highlighting the enigmatic nature of undisclosed agency and how it strays from many of the foundational principles that govern instances of traditional disclosed agency. Next, I will argue that the lack of coherency in the various instances in which an agent acts beyond their actual authority, honing in specifically on scenarios involving incapacity of the principle as compared to continuing or apparent authority. Finally, I will be demonstrating how the lack of a definitive, all-encompassing definition of “agency” in UK law shows that we have yet to firmly establish a cohesive framework to operate within when determining an agency relationship.

The Uniqueness of Undisclosed Agency

Agency law in the UK has gone to great lengths in insisting that the promotion of “commercial convenience” is of the utmost importance when dealing with issues involving an agency relationship.¹ In scenarios involving a disclosed principal the court has, for the most part, been able to uphold this dogma while staying in line with the foundational principles of contract law with which it is so naturally intertwined with. That being said, this stubborn pursuit of commercial convenience in case law relating to undisclosed principals has led the law of agency down a tangled path that seems to fly in the face of much of those same contractual principles.

The main contract law issue at hand involves privity of contract. The doctrine of privity says that any person who is not a party to a contract can not attain the contract’s benefits or burdens.² At face value, the operation of undisclosed agency would seem to fall foul of this doctrine, since the third party is not actually aware of the existence of the principal, and believes it is in fact the agent that they are contracting with. The general rule that an undisclosed principal actually can gain contractual rights and burdens was finally put to rest in English case law over a century ago in Durant³ and remains good — albeit enigmatic

— law today. The concept was challenged by Blackburn J thirty years prior in the case of Armstrong,⁴ however he ultimately conceded that it was likely too late to change the law. Even in his dicta in Durant, Lord Lindley acknowledged the anomalous nature of holding one party bound to another that he knows

¹ Cheng-Han Tan, “Implied Terms in Undisclosed Agency”, (2021) 84 MLR 532, 532

² Robert Merkin QC and Séverine Saintier, Poole’s Textbook on Contract Law (15th edn, OUP 2021) ch 7, 272

³ Keighley, Maxsted & Co. V Durant [1901] AC 240 HL

⁴ Armstrong v Stokes (1872) L.R. 7 Q.B. 598, 604

nothing about and did not intend to enter contractual relations with.⁵ In justifying his position, Lord Lindley made the generalized statement that is is likely a matter of indifference in business transactions as to who the parties are actually contracting with.⁶ This position regarding the third parties openness to contract is backstopped by Lord Diplock in Teheran-Europe⁷. In this case he highlights a critical — and in my mind controversial — assumption regarding the contracting parties. He states that an agent may assume that the third party would be willing to contract with anyone, unless the third party manifests an unwillingness or there are circumstances which “should lead the agent to realize that the [third party] was not so willing”.⁸ This is a drastic assumption to make, as it presupposes the consent of a contracting party which may very well not be factually present. This is underscored by the understanding that one of the central purposes for allowing a principal to transact in an undisclosed capacity is in situations where the principal has a genuine belief that the third party may not deal with them if their identity were known to them.⁹

Another oddity of undisclosed agency is the exposure of the agent to potential suits against themselves personally. When dealing with disclosed agency, the general rule is that the contract is assumed to be that of the principal and the third party, and the agent is simply able to “drop out” of the transaction.¹⁰ This typically means that the agent will not be exposed to personal liability, assuming he acted within his actual authority. Agents can generally be absolved from liability in disclosed agency by making it expressly clear in a written contract that they are acting in an agency capacity¹¹, through an interpretation of the facts¹² in oral contracts, or by the intentions of the parties¹³ in cases of partly oral and partly written contracts.

However with undisclosed agency, the distribution of rights and liabilities amongst the parties involved is quite precarious. Lord Lloyd in Eastern Insurance lays out some of the nuances that come with transacting with an undisclosed principal, most importantly being that on the contract both the agent and the principal can sue and be sued¹⁴. This is critically important for a number of reasons. The first being that the agent is in a much riskier position. Though they gain rights and burdens under the contract, their ability to maneuver and exercise their rights is limited to the decision making of their principal.

Should the principal intervene on the contract, the agent will lose their right to sue.¹⁵ However, the agent will still remain liable on the contract, and the third party could elect to sue them rather than the principal

⁵ Ibid n.3 above, 149

⁶ Ibid n.3 above, 149

⁷ Teheran-Europe Co Ltd v S. T. Belton (Tractors) Ltd [1968] 2 QB 545

⁸ Ibid n.7 above, 555

⁹ Ibid n.1 above, 533

¹⁰ David Fox and others, Sealy and Hooley’s Commercial Law (6th edn, OUP 2020) ch 4, 101

¹¹ Universal Steam Navigation Co Ltd v James McKelvie & Co [1923] AC 492, HL

¹² N & J Vlassopulos Ltd v Ney Shipping Ltd, The Santa Carina [1977] 1 Lloyd’s Rep. 478

¹³ Bridges & Salmon Ltd v The Owner of The Swan, The Swan [1968] 1 Lloyd’s Rep 5

¹⁴ Siu Yin Kwan and Another v Eastern Insurance Co Ltd [1994] 2 AC 199, 207

¹⁵ Atkinson v Cotesworth (1825) 3 B&C 64

depending on their views of parties’ liquidity.¹⁶ Effectively, the agent is agreeing to taking on elevated personal risk on behalf of their principal, while gaining a very minute benefit that rests on shaky ground. This is a significant contrast to traditional ideals of disclosed agency, where the agent is viewed more or less as a conduit for the principal to contract through, maintaining a relatively neutral position regarding liability and contractual benefits.

We then have the paradoxical fact that the undisclosed principal has gained the ability to sue and be sued under a contract they are technically not a party to. The ability for the undisclosed principal to step in to the contract remains something unique to American and English law. Lord Sumption in Banca Nationale commented that this ability “…survives in modern law on account of its antiquity rather than its coherence.”¹⁷ Lord Lindley in Durant tried to qualify the undisclosed principal’s capacity to sue by limiting it to “terms which exclude an injustice”.¹⁸ This idea was expanded on by legal scholar Cheng- Han, noting that Lord Lindley’s reference to “terms” are not express but implied, since the existence of the undisclosed principal is typically not anticipated and consequently no precautionary terms are added to the contract.¹⁹ This puts the court in a challenging situation, where they must make the determination of an “injustice” based largely on policy considerations. They can not rely on the contractual relationship between the third party and the principal, because no contractual relationship technically exists.

Issues with Cessation of Authority

Determining when the authority of an agent exists or ceases to exists remains in a confusing state of affairs. An agent’s lack of actual authority does not necessarily mean that they can not still affect the legal position of his or her former principal. This is seen through instances of continuing authority, as well as in cases involving ostensible or apparent authority. Some of these complexities are best examined by comparing the courts perception in cases of continuing authority following the dissolution of a corporate entity against the deterioration of the mental capacity of a principal.

In the case of Manches²⁰, a director of a company was held out to have actual authority involving the proceedings of a certain dispute. Before the dispute was resolved, the director was removed from his post on the dissolution of the company. A new company was formed, assumed the same office location as the previous, yet the former director continued to deal with the matters of the dispute on behalf of the former company, with the opposing parties having no knowledge of the change in his position. Despite all of this, the court found that the director had “continuing ostensible authority” to act in the way he did on behalf of the dissolved company, even though he no longer had actual authority.²¹ The court justified their

¹⁶ Eric Baskind, Greg Osborne and Lee Roach, Commercial Law (4th edn, OUP 2022) ch 8, 169

¹⁷ Banca Nazionale del Lavoro SPA v Playboy Club London Ltd [2018] UKSC 43, [12]

¹⁸ Ibid n.3 above, 262

¹⁹ Ibid n.1 above, 537

²⁰ SEB Trygg Liv Holding AB v Manches [2006] 1 WLR 2276

²¹ Ibid n.20 above, at [29]

decision by citing Bowstead and Reynolds and Rockland²² in that the representation would remain valid until the true authority of the agent became known to the third party.²³

This contrasts interestingly against the court’s approach in the case of Yonge.²⁴ In Yonge, solicitors acting for the defendant were ordered to pay the court costs of the plaintiff after they continued to pursue a slander and libel suit on behalf of their defendant client when, unbeknownst to them, their client had been found medically incapacitated. Because their principal lacked the capacity to bring the action, the court found that the solicitors had ceased to have any authority to pursue the claims. This is a harsh and contentious approach to establishing agent liability by the court. The Court of Appeal in Blankley²⁵ acknowledged the potential need to re-examine the ruling in Yonge, conceding the unfairness of holding a solicitor personally liable if their authority is abruptly (or retroactively) terminated due to the unknown diminished mental capacity of their principal.²⁶ They also went on to say “that one might expect… the solicitor to retain authority to act so long as he is unaware of the incapacity” and that it might be preferable to deal with a “suspension” rather than a “termination” of authority.²⁷

Peter Watt QC has remarked on the inconclusiveness of continuing and apparent authority in English law.²⁸ Watt argues that the third party should lose the right to rely on the apparent or continuing authority of the agent when it becomes unreasonable to do so.²⁹ He says that existing case law has been made problematic since Lord Neuberger’s judgement in Akai Holdings³⁰, where it was argued and accepted that if a third party could prima facie establish a holding-out of authority by the principal, they could ignore contradictory indicators of lack of authority unless it was “irrational” to do so. This would effectively allow a third-party to recognize an agents authority whenever it may prove favourable to them. Watt critically examines obiter dicta in past case law to see if a duty to notify when an agents authority is terminated, but ultimately concludes that any such duty would be inconsistent with the principles of apparent authority.³¹

The Struggle to Properly Define Agency

Perhaps one of the most convincing arguments against the coherence of agency in English law is that lack of a concrete definition that encompasses all facets of agency, while also adding definite borders to its reaches. Legal Scholar Rachel Leow argues that agency law’s lack of a universal definition lends it

²² The Rockland Case [1980] 2 SCR 2

²³ Ibid n.20 above, at [32]

²⁴ Yonge v Toynbee [1910] 1 KB 215

²⁵ Blankley v Central Manchester and Manchester Children’s University Hospitals NHS Trust [2015] 1 WLR 4307

²⁶ Ibid n.25 above, at [36]

²⁷ Ibid n.25 above, at [36]

²⁸ Peter Watt, “Does Apparent Authority Wane? A Problematic Question in Agency Law” (2018) 8 JBL 663

²⁹ Ibid n.28 above, 663

³⁰ Akai Holdings Ltd v Thanakharn Kasikorn Thai Chamkat (2010) 13 HKCFAR 479

³¹ Ibid n. 28 above, 678

flexibility in its operation, which may first appear as a strength, but is likely more of a crippling weakness. She contends that its flexibility could put it at risk of losing its status of a distinct legal concept.³² This can be supported by Lord Wilberforce’s comments in Launchbury, where he stated that “agency” in the context of vicarious liability in tort is “nothing more than a concept” meaning that the owner ought to pay for the damage of the agent.³³ Regardless of Lord Wilberforce’s dicta, legal scholars have still attempted to accurately define agency law so as to maintain is “distinct legal concept” categorization. Most of the leading definitions today can have their core components traced back to Hohfeld’s “power-liability” relationship and Seavey’s “consent” centric model.

The power-liability model of agency is based on Hohfeld’s “power-liability” relationship, wherein Party B is bestowed with a power to alter the legal position of Party A, while Party A is conversely under a liability to have his legal position altered.³⁴ Academic F. E. Dowrick proposed applying this to the agency relationship, but it has come with heavy criticism.³⁵ Gerald Fridman offered a similar analysis based on the “power-liability” model, focusing on the broad idea that the agency relationship is that of two people, where one is able to affect the legal relations of the other.³⁶ Unfortunately, these definitions of agency that rely centrally on the power-liability relationship tend to be overly broad and cover legal relationships that would fall outside the scope of agency. Leow argues that the power-liability agency definitions inadvertently extend to trustee-beneficiary relationships, such as in the cases of express trusts. Leow provides the example of a trustee using their power as trustee to sell trust property for the beneficiary, acting within his authority and according to his duty as trustee.³⁷

Another popular model originating from American law a century ago is Seavey’s “consent model”.³⁸ His definition of agency is that “it is a consensual relationship in which one (the agent) holds in trust for and subject to the control of another (the principal) a power to affect certain legal relations to that other.”³⁹ Seavey actually believed that agency was more analogous to a trust than to a contractual relationship, emphasizing the “doubtless” consensual nature of the relationship.⁴⁰ He agrees that every human is granted the capacity to hold a power, but in order for the the individual to be considered an agent they must also be a fiduciary.⁴¹

McMeel attempted to meld the elements of the two models together in what he dubs a “qualified consent” model.⁴² The issue at the heart of the models that rely on consent as one of the necessary

³² Rachel Leow, “Understanding Agency: A Proxy Power Definition” [2019] CLJ 78, 100

³³ Launchbury v Morgans [1973] AC 127 (HL), 135

³⁴ Ibid n.10 above, 105

³⁵ F.E. Dowrick, “The Relationship of Principal and Agent” (1954) 17 MLR 24, 36-38

³⁶ Ibid n.10 above, 102

³⁷ Ibid n.32 above, 104

³⁸ Warren A. Seavey, “The Rationale of Agency” (1919-1920) 29 Yale LJ 859

³⁹ Ibid n.38 above, 868

⁴⁰ Ibid n.38 above, 860

⁴¹ Ibid n.38 above, 869

⁴² Gerard McMeel, “Philosophical Foundations of the Law of Agency” (2000) 116 LQR 387, 400

features of the agency relationship is that they are too narrow in scope. Consent-based definitions of agency fail to encapsulate the “non-core” instances of agency — be it apparent authority, agency by necessity, etc. — while focusing solely on scenarios that involve actual or express authority.⁴³ Take for example the case of The Winson⁴⁴. When the shipmaster was placed in an emergency situation in which he had to contract with a salvor to save the owners cargo, he did not need to wait for the consent of the cargo owner. Because the interest or property of the principal was in peril, the shipmaster was granted authority by necessity to act in a reasonable way to try and save the cargo.⁴⁵ Seavey contends that in situations involving agency by necessity, there is not actually an agency relationship because the necessary control that resides with the principal does not exist.⁴⁶ He believes that in most of these situations, there is either the grant of an additional power, or the creation of a “quasi-contractual obligation”.⁴⁷

These explanations validating the consent based theory seem to run contrary to the “commercial convenience” mantra. Consider again The Winson. If there is no agency by necessity relation created in the emergency situation, the shipmaster would be assumed to be acting outside his actual authority and open to personal liability for damage to the cargo. Therefore, he would no longer have any incentive to act in such a way as to preserve the interests of the cargo owner. By extending the agent’s authority or granting an agency relationship in situations that necessitate it, commercial convenience can better be achieved as the “agent” can feel safe to act in such a way that will minimizes deterioration of commercial assets provided they are acting in good faith. In this context, consent-based agency can hardly be seen as lending to the traditional prioritization of “commercial convenience” that English agency law strives for.

Rachel Leow has attempted to solve the definition dilemma by proposing her own “proxy power” model. Her agency model says simply that legal persons are able to act through other legal persons via the grant of a proxy power.⁴⁸ She addresses the issue of the power-liability model by emphasizing that the principal is able to unilaterally bestow a proxy power upon an agent. Leow also differentiates the trustee- beneficiary relationship from the principal agent relationship. She says that the trustee’s ability to enter into contracts with third parties to the trust comes from their being a legal person rather than being granted a power from the beneficiary.⁴⁹

While Leow provides a detailed and compelling definition in her proposal that solves some of the problems with the two earlier definitions, all three of the above proposals are unable to avoid the fact that the debate of an agency relationship arises in an extremely wide array of legal relationships, and almost all of them court supporters and deniers of whether they can be viewed as relationships of agency.

⁴³ Ibid n.10 above, 105

⁴⁴ China-Pacific SA v Food Corp. of India, The Winson [1982] AC 939

⁴⁵ Ibid n.10 above, 145

⁴⁶ Ibid n.38 above, 864

⁴⁷ Ibid n.38 above, 863-4

⁴⁸ Ibid n.32 above, 114-115

⁴⁹ Ibid n.32 above, 119

Conclusion

On assessing the enigmatic nature of undisclosed agency, the confusing state of when authority ceases to exist with an agent, and the flimsy stature of a concrete definition, the current status of agency in English law may actually be equally as clear as it is unclear. There is no doubt that the courts efforts to hold high commercial convenience have created a “coherent” state of affairs internally — that is, if we focus solely on agency law in and of itself.

However, by committing to this internal goal for agency law, they have estranged agency from its various counterparts, be it contact law, tort, or the law of equity. In doing so, the court has lost sight of the bigger picture of law as a whole, and created a state of affairs that could not be further from coherent.

My closing argument comes in the form of a question. Has the court’s pursuit of coherence in agency law through the tenet of “commercial convenience above all” created an environment where the savvy commercial actor can advantageously leverage agency law in such a way as to traverse the necessary pitfalls in other areas of law, perhaps to even achieve fraudulent or nefarious ends?

Word Count: 2,939

Bibliography:

Case Authorities

Akai Holdings Ltd v Thanakharn Kasikorn Thai Chamkat (2010) 13 HKCFAR 479

Armstrong v Stokes (1872) L.R. 7 Q.B. 598

Atkinson v Cotesworth (1825) 3 B&C 64

Banca Nazionale del Lavoro SPA v Playboy Club London Ltd [2018] UKSC 43

Blankley v Central Manchester and Manchester Children’s University Hospitals NHS Trust [2015] 1 WLR 4307

Bridges & Salmon Ltd v The Owner of The Swan, The Swan [1968] 1 Lloyd’s Rep 5

China-Pacific SA v Food Corp. of India, The Winson [1982] AC 939

Keighley, Maxsted & Co. V Durant [1901] AC 240 HL

Launchbury v Morgans [1973] AC 127 (HL)

N & J Vlassopulos Ltd v Ney Shipping Ltd, The Santa Carina [1977] 1 Lloyd’s Rep. 478

SEB Trygg Liv Holding AB v Manches [2006] 1 WLR 2276

Siu Yin Kwan and Another v Eastern Insurance Co Ltd [1994] 2 AC 199

The Rockland Case [1980] 2 SCR 2

Teheran-Europe Co Ltd v S. T. Belton (Tractors) Ltd [1968] 2 QB 545

Universal Steam Navigation Co Ltd v James McKelvie & Co [1923] AC 492, HL

Yonge v Toynbee [1910] 1 KB 215

Books

David Fox and others, Sealy and Hooley’s Commercial Law (6th edn, OUP 2020) ch 4 Eric Baskind, Greg Osborne and Lee Roach, Commercial Law (4th edn, OUP 2022) ch 8

Robert Merkin QC and Séverine Saintier, Poole’s Textbook on Contract Law (15th edn, OUP 2021) ch 7

Journals

Cheng-Han Tan, “Implied Terms in Undisclosed Agency”, (2021) 84 MLR 532

F.E. Dowrick, “The Relationship of Principal and Agent” (1954) 17 MLR 24

Gerard McMeel, “Philosophical Foundations of the Law of Agency” (2000) 116 LQR 387

Peter Watt, “Does Apparent Authority Wane? A Problematic Question in Agency Law” (2018) 8 JBL 663 Rachel Leow, “Understanding Agency: A Proxy Power Definition” [2019] CLJ 78

Warren A. Seavey, “The Rationale of Agency” (1919-1920) 29 Yale LJ 859