AYB205 – LAW OF BUSINESS ENTITIES
LECTURE 3: INTRODUCTION TO AGENCY THEORY
QUESTIONS FOR MID-SEMESTER EXAM ARE DRAWN FROM THE SLIDES
An Agency involves three parties:
o The Principal
Employers another person (the agent) to act on their behalf
Right to represent must give rise to an obligation
o The Agent
Authority to act can be made known:
Impliedly or ‘By Conduct’ which gives rise to an ‘apparent’ or ‘ostensible’ Authority to
act on behalf of the Principal.
o The Third Party
An agency relationship usually arises from a contract
o Legal basis of an Agency relationship usually subject to common law of contract.
Some statute exists that modifies Agency terms and conditions in certain industries, such as the Property Agents
and Motor Dealers Act 2000 (Qld)
Agency Agreements, oral or written, would normally specify things such as:
o Agency duration
o Agency remuneration
o Scope (and specific limits) on the agent’s authority
A reasonable person examining the conduct and actions of the parties would conclude that the Agent was
properly empowered to act.
Apparent or Ostensible Authority Matter of Fact
o Where the words or conduct of the Principal lead a Third Party to reasonably believe that an Agent has
o It appears to the third party that the Agent has actual authority (even though they may not); and
o The Principal is responsible, to some degree at least, in creating this appearance.
Tooth & Co v Laws (1888) 9 lR (NSW) 154
Where apparent authority can be established, the Third Party is still able to enforce the contract with the
Obviously, if the Third Party is aware (or reasonably should have been aware) of the Agent’s lack of actual
authority, they can’t then rely on any apparent authority.
Panarama Developments v Fidelis Furnishings  3 WLR 440
An Agent’s duties include, but are not restricted to:
o Following the Principal’s instructions faithfully;
o Acting personally and not to delegate;
o Exercising due care, skill and attention; Mitor Investments v General Accident  WAR 365
o Acting in good faith Hewson v Sydney Stock Exchange (1967) 87 WN (NSW) 422
o Maintaining confidentiality of all information gained through the agency relationship;
o Keeping full and proper accounts;