Chapter 10: Agency
What is an agent?
The primary function of an agent is to make contracts on behalf of the principal
If the party wishes to sue, they must sue the principal and not the agent:
International Harvester Co of Australia Pty Ltd v Carrigan’s Hazeldene Pastoral Co
Indicators of an agency relationship:
o Does the 'agent' keep the profits it makes or does it have to pay them across
to the principal?
o Is the ‘agent’ paid a commission?
o Does the ‘agent’ have an obligation to account to the principal for sales?
o Potter v Customs and Excise Commissioners 
Functions of an agent:
Most common function: to bring about a contractual relationship between the
principal and a third party
A person who has no authority to make contracts on behalf of his/her principal may
be an agent if he/she has authority to:
o receive money on behalf of principal
o pay money on behalf of principal
o make representations for which principal is responsible
o receive representations on behalf of principal
o Petersen v Moloney (1951) 25 ALJR 566 (High Court)
Common commercial relationships in agency:
Employer/Employee: not all employees are agents because not all employees have
the authority to affect their employer’s legal position with respect to 3 parties.
Independent contractor: may be an agent with wide authority, limited authority or
not an agent at all: Perpetual trustees Vic Ltd v Ford 
Bailor/Bailee: A bailee is a person who has lawful possession of the bailor’s goods.
Partnership: Each partner is an agent for each other partner
How is an agency created?
The relationship of principal and agent may be created by deed, by agreement in writing or
orally, or by operation of law.
Agency may be created by express agreement: Between the principle and agent. Does
not have to be binding.
Agency may be created by implied agreement: can be implied from conduct. Will
occur where it is reasonable to infer from all the circumstances that the parties have
conducted themselves in such a way that a principal-agent relationship exists:
Norwich Fire Insurance Society Ltd v Brennans (Horsham) Pty Ltd  Agency may be created by Estoppel: Pole v Leask [1861-73]:
Elements for establishing agency by estoppel:
o a representation by the supposed principal to the effect that the supposed
agent is the principal’s agent
o a third party has relied on such representation
o it was reasonable in the circumstances that the 3 party rely on the
o there has been an alteration in that 3 party’s position as a result of reliance
upon the representation
Agency may be created by necessity: agent by necessity must act reasonably and
prudently in the circumstances: China-Pacific SA v Food Corporation of India 
AND Sachs v Miklos  not an agent my necessity
Agency may be created by cohabitation (wife/husband)
The Agent’s Authority:
o Express actual authority: the power expressly invested in the agent by the
o Implied actual authority: Certain powers which may have to be implied.
The courts may imply powers based on:
custom or trade usage: See Con-Stan Industries of Australia Pty Ltd v
Norwich Winterthur Insurance Ltd (1986) AND Bell Group Ltd v
Herald & Weekly Times Ltd 
a course of past dealings: See Hely-Hutchinson v Brayhead Ltd 
a need to make the agency agreement effective: See ANZ Bank Ltd v
Ateliers de Constructions Electriques de Charleroi (1966)
o Where the agent appears to have authority.
o Is an issue where the agent exceeds his/her actual authority (both express
o Three requirements must be shown for ostensible authority:
The ‘holding out’: a representation was made to the third party that
the agent had the authority to engage in activity of the kind that
occurred, on behalf of the principal.
A person with ostensible authority cannot create ostensible authority
in another: Freeman & Lockyer v Buckhurst Park Properties Ltd
The third party must have been induced by such ‘holding out’ to act
upon it – reliance: same case as above
o Cases on ostensible authority:
o Heperu Pty Ltd v Morgan Brooks Pty Ltd 
o First Energy (UK) Ltd v Hungarian International Bank Ltd 
Principal may ratify agent’s unauthorised acts:
Ratification: involves the principal’s (retrospective) adoption or approval of the
Rules applying to ratification: o The agent must contract as an agent and the 3 party must be aware that
the person they are dealing with acts as an agent only, and the principal is