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The award may be set aside by the court.

The arbitrator may be removed by the court (1950 Act, S.23).

It may be that negligence or carelessness could constitute grounds for refusing to pay the arbitrator's fee.

(b)Duty of Diligence

An arbitrator is required to proceed with reasonable diligence and the court may remove him under the 1950 Act, S.13(3), if he fails to do so.

(c)Duty to Be Impartial

This duty is fundamental. Breach of it gives grounds for his removal under S.24. It is not only actual impartiality which gives cause for invoking the Act, but also where it is shown that the arbitrator may not be impartial (e.g. because he is connected with one of the parties).

Thus in Re Brien and Brien's Arbitration (1910), it was held that the arbitrator had failed to act impartially when he inspected property, the subject of the arbitration, accompanied by only one party. In another case, during an enquiry into the question of liability for a collision between a Portuguese ship and a Norwegian vessel, the English arbitrator remarked that he did not believe the evidence of the Portuguese witnesses, "because the Portuguese, like the Italians, were all liars". It was held that such obvious bias made it imperative that the arbitrator should be removed from office.

Obligations of the Parties to the Arbitrator

In the same way as an arbitrator owes certain duties to the parties, so the parties owe duties to the arbitrator. The most important of these is a duty to pay his/her fees.

(a)Fees for a Completed Reference

An arbitrator is, normally, entitled to be paid at the time he/she hands down the award. The amount of the fee may have been agreed in advance, either on the basis of an inclusive fee or at an hourly or daily rate – or in any other manner. If it has not been so agreed, he/she is entitled to a reasonable fee.

An arbitrator can enforce payment of the remuneration by bringing an action for it. As either an alternative or an additional course of action, he/she can exercise a lien on the award – that is, withhold the delivery of the award until the fee has been paid.

Where no fee has been agreed, a reasonable fee may be fixed, as follows.

By the arbitrator him-/herself under the provisions of the 1950 Act, S.18(1). If such determination by the arbitrator is excessive, the parties can simply refuse to pay – in which case the arbitrator will be forced to ask the court to tax his/her fee. Or, the aggrieved parties can themselves ask the court to tax the fee, and pay what they consider a reasonable sum into court.

The arbitrator may, from the outset, apply for his/her fees to be taxed by the court under S.18(2).

The parties may pay a reasonable sum into court as a condition of releasing the arbitrator's lien on the award, and then have the actual fee taxed in the normal way.

(b)Remuneration for an Uncompleted Reference

If the reference is not completed, it may be because the parties themselves resolve their differences and determine the arbitration, or it may be because the arbitrator him- /herself terminates it, either with or without fault on his/her part.

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In the first case, the arbitrator is entitled to reasonable remuneration for the time spent and trouble taken up to the time of determination. This right can be enforced by normal action in the courts.

In the second instance, the right to remuneration is, obviously, dependent on the circumstances. The arbitrator may die, or become incapable of acting – in which case he/she will, probably, be entitled to a reasonable fee for time and trouble. If, on the other hand, the reference is not completed because the arbitrator is removed for fault, or his/her authority revoked, then he/she forfeits all fee.

(c)Remuneration where the Award is Invalid

Right to remuneration will, here again, depend on the circumstances of the case. The award may be a complete nullity, in which event the fee will depend on the degree of fault by the arbitrator; or the award may be appealed, then remitted by the court to the arbitrator for further consideration. He/she will be entitled to the fee, in this event, for the original award – but further work resulting from the remission will depend on the degree of fault of the arbitrator.

I.ARBITRATION AWARDS

The award given by an arbitrator may be an "interim" or a final one. As we have seen, interim awards are given in cases where the ultimate finding is dependent on the resolution of an initial point of law or fact – that is, if the initial point is decided in one way, it will automatically mean that the whole dispute is resolved – in which case it would, obviously, be pointless to proceed to a final award. However, if it is decided in another way, the final resolution must be proceeded with.

Unless this "either/or" situation pertains, an arbitrator will, normally, give only one final award.

The substantive requirements for an award are that it must be:

Cogent – that is, positive, and not merely an expression of hope or opinion;

Complete – it must resolve all the points of dispute submitted in the reference;

Certain – the award must state precisely what is the arbitrator's finding on each point;

Final – all the issues raised in the reference must be disposed of by the arbitrator, and none left over to be decided by some other party;

Enforceable – the award must be in such a form that any monetary award can be enforced by action.

The arbitrator is not, normally, required to give reasons for the decision. Whether he does or not is at his/her discretion. However, the reference may require reasons to be given and these days generally will.

The 1979 Act, S.1(5) provides that, in certain circumstances only, an arbitrator can be required by the court to give reasons for his/her decision. This will arise only in the event of an appeal on a point of law, and where the award does not contain reasons, or sufficient reasons, for decisions of law to enable the court properly to resolve the matter. Such an order for reasons can, however, be made by the court only if:

Before the award, one of the parties to the reference gave notice to the arbitrator that reasons would be required, or

There is some special reason why such notice was not given.

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Enforcement of Award

An arbitral award cannot be immediately enforced in the same way as a judgment of the court. It is, first, necessary for the successful party to convert the award into a court judgment. This can be done in two ways, as follows.

(a)By an Action on the Award

It is implied by any agreement to arbitrate that the parties will be bound by a valid award. Hence, if the losing party fails to pay, he/she may be sued for a debt that has arisen by virtue of the award.

(b)By an Application under the 1950 Act, S.26

S.26 states:

"An award on an arbitration agreement may, by leave of the High Court or a judge thereof, be enforced in the same manner as a judgment or order to the same effect, and where leave is so given, judgment may be entered in terms of the award."

In either event, the award is, thus, converted, and it can be enforced thereafter in exactly the same manner as if it had been a judgment of the court.

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259

Study Unit 11

Law of Agency 1: Agency Agreements and Agents

Contents		Page
A.	General Nature of Agency	261
	Definitions	261
	Other Types of Relationship	261
	Capacity	262
	Acts that May Be Done through or by an Agent	263
B.	How Agency Arises	263
	By Express Agreement	263
	By Implied Agreement	264
	By Estoppel	265
	Agency of Necessity	265
	Formalities of Appointment	266
C.	Ratification	266
	What Can Be Ratified?	266
	Who Can Ratify an Act?	267
	Rules and Conditions of Ratification	268
	What Constitutes Ratification?	269
	Effect of Ratification	269
D.	Categories of Agents	270
	Factors and Brokers	270
	Estate Agents	271
	Auctioneers	271
	Bankers	271
	Other Examples	271
	Del Credere Agents	272
E. Duties of Agents to their Principals		272
	Contractual Agents	272
	Gratuitous Agents	275
	Fiduciary Duties of all Agents	275
	Contracts between a Principal and a Third Party	278

(Continued over)

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F.	Rights of Agents against Principals	278
	Payment	278
	Indemnity	280
	Lien	281
	Goods Bought in an Agent's Name	281

G. Commercial Agents (Council Directive) Regulations 1993	282
Definition of a Commercial Agent	282
Summary of the Regulations	283

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A. GENERAL NATURE OF AGENCY

"He who does an act through another is deemed in law to do it himself."

This is a maxim of the common law, and it is the basis of the law of agency. Subject to the terms of the Contracts (Rights of Third Parties) Act (1999), under the normal rule of privity of contract, if one person contracts with another, a third party can derive no benefit, nor incur any obligations, under that contract. However, if one person authorises another to do an act on his behalf, that other becomes the agent of the first. The act of the agent, then, under the maxim quoted above, becomes the act of the first person – who, therefore, "steps into the shoes" of the agent, and becomes liable for the act (and able to enjoy its benefits) as if he himself had done it in the first place. The agent has no personal liability; he "drops out" of the transaction.

In commercial matters, the relationship of agency usually arises as a result of a contract between two people, for one (the agent) to effect a contract on behalf of the other. However, this is by no means the only way in which the relationship can arise, nor is the effecting of a contract the only duty an agent can perform.

The fundamental principle is that, by the agreement of both parties, the agent is enabled directly to affect the legal relations of another person. Except in the case of "agency of necessity" – about which we shall talk later in this study unit – nobody can have an agency relationship forced upon him/her, nor can it arise other than by agreement (express or implied).

Definitions

There are a number of definitions on which, even at this early stage, you should be clear. We shall be discussing them in greater detail later but, in outline, the essential ones are as follows:

Principal

The "principal" is the person who agrees, expressly or by implication, that another shall do an act for and on his behalf, and that he shall be legally bound by that act. (Note re spelling: it should be a principle to spell "principal" correctly!)

Agent

The agent is the person who acts on behalf of her principal, and binds her principal in law.

Authority

The authority of an agent is the act(s) and thing(s) which he is permitted or is authorised to do by his principal, and which will bind the principal. There are several different types of authority – some express, some implied – but, in general (subject to exceptions), the principal will be bound by an act only if that act is within the authority of the agent to do on the principal's behalf.

Other Types of Relationship

There are certain basic relationships which arise out of a contract whereby one person commits an act (or several acts) for another but which are not (or not wholly) agency relationships.

Master and Servant (this covers most employer/employee situations)

This is not primarily a matter of agency. A servant is under the contract and direction of the master, and the master is vicariously liable for the acts of the servant. However,

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vicarious liability arises by virtue of the relationship, not by reason of the servant's acting as an agent and the relevant liability is generally in tort, particularly negligence. If a servant makes a contract on behalf of his employer, then he does so as agent for the employer. However, the liability of the employer is much wider than if it were a strictly agency relationship, and it extends to torts (e.g. negligence) committed by the servant in the course of his employment. There is inevitably an overlap between the two relationships, that of agency and that of master and servant, but essentially an employee acts by virtue of a contract of employment, and it is only when he has occasion to contract on behalf of his employer that he assumes the mantle of an agent for that matter only. Some employees cannot be said to be servants because they are not sufficiently under the control of their employers, but even most doctors working in hospitals are now regarded as "servants".

Independent Contractor

This is not an agency relationship. Again, the concept arises principally in negligence. An independent contractor carries out duties or work or services for another by virtue of a contract. However, the "employer" of an independent contractor is not liable for the acts of the contractor (except in rare instances). If the contractor makes a contract with a third party in connection with his/her employment, he/she is solely liable in respect of it. The "employer" is not liable either vicariously or under the law of agency.

Partnership

By virtue of the Partnership Act 1890, S.5:

"Every partner is an agent of the firm and his other partners for the purpose of the business of the partnership."

That is to say, a partner can bind the firm by an act done in the course of the business of the partnership. The "firm" is not a legal entity in England (unlike in some other jurisdictions) but each partner is jointly liable for all the debts of the partnership. Their liability for debts incurred by their other partners arises by virtue of the agency, not vicariously. However, the relationship of partners with each other extends far wider than that of principal and agent.

Capacity

(a)To Act as Principal

Any person who is capable of acting in his/her own name is capable of so acting through the agency of another. For instance, a minor can be a principal – but only in respect of those matters which the law permits him/her to do so. As Lord Denning MR said in G(A) v. G(T) (1970):

"Whenever a minor can lawfully do an act on his own behalf, so as to bind himself, he can instead appoint an agent to do it for him."

A corporation can appoint an agent to do an act which is intra vires (within its powers permitted by its Memorandum of Aassociation). Conversely, an appointment of an agent to do an ultra vires act does not bind the corporation, nor is it bound by any contract entered into by an agent which is ultra vires the corporation (Ashbury Railway Carriage Co. v. Riche (1875)).

Of course, in such circumstances an innocent third party is not left without a remedy. Under the common law, any director who authorised such a contract would be personally liable. By virtue of the European Communities Act 1972, S.9, the company may itself be bound notwithstanding the fact that the contract was ultra vires, if it was one entered into by the directors. The company may be liable but it cannot, normally, enforce the benefit of an ultra vires contract against the other party.

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An alien enemy cannot appoint an agent, because it is unlawful to contract with an enemy in time of war.

A possible exception is in the case of mentally disordered persons. You will remember that a contract with such a person is voidable, unless it is made during a lucid period. However, it has been held that a power of attorney executed by a person under a mental incapacity is void (not merely voidable), and a deed executed under the power was likewise void (Daily Telegraph Newspaper Co. Ltd v. McLaughlin (1904)). Furthermore, it was held in Yonge v. Toynbee (1910) that, where the principal (unknown to the agent) was insane, then the agency was terminated. It seems, therefore, that such persons are incapable of acting as principals, even though, in lucid periods, they are quite competent to contract on their own behalf.

(b)To Act as Agent

Strangely enough, people can validly be agents even though they cannot validly act on their own behalf. All people of sound mind are competent to act, and to contract, as agents. This includes minors, and others with limited or no capacity to contract on their own behalf.

However, any personal liability of an agent arising out of exceptional circumstances from a contract entered into on behalf of a principal will arise only if she would have had the capacity to contract on her own behalf. Normally, as we shall see, an agent is not liable personally in respect of contracts into which she enters in her capacity as agent. However, in certain circumstances (e.g. if she exceeds her authority) she may be personally responsible. It is only this latter liability that will be affected by her own legal capacity or incapacity to contract. An example of where a person under a legal incapacity can validly act as an agent is Foreman v. GWR (1878). In this case, a farmer sent some cattle by rail. His driver, who was unable to read, signed a consignment note which contained the railway's conditions of carriage.

HELD: The farmer was liable. The personal liability of the driver was limited because he would not have been fully liable if he had entered into the contract personally.

Acts that May Be Done through or by an Agent

A person may appoint an agent to do any act which he himself is capable of, except such acts that require his personal skill, knowledge or discretion, or which he must, by statute, do himself.

Certain contracts can only be executed by the principal personally. For example, I would be extremely cross if I engaged a well-known surgeon to carry out an operation, and he appointed his 16-year old son to carry it out as his agent!

Equally, statute decrees that certain acts must be done personally. A will, for example, can only be executed personally.

B. HOW AGENCY ARISES

An agency relationship can arise in a number of ways.

By Express Agreement

By far the commonest way is by agreement between principal and agent. Such agreement can be contractual or not. If contractual, the normal rules of contract apply – that is, there must be offer, acceptance and consideration. Such mitigating factors as misrepresentation, mistake, duress or illegality affect an agency contract in exactly the same

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way as any other contract. Unless the agency is of a character which requires it to be in writing (e.g. a power of attorney), it is equally valid whether written or oral.

However, an express agency agreement need not be contractual. There may be no consideration, or one or both parties may lack contractual capacity. As we have seen, minors can be both principals and agents, so an express agency agreement between two young people is perfectly valid as between themselves. Alternatively, if it is not intended that legal relations between principal and agent shall subsist, the relationship cannot be contractual. For instance, a husband may agree to be the agent of his wife, or a son agent of his mother and so on. Relations between such parties would rarely have a legally intended basis. Nevertheless, such an agent can effectively bind his principal to a contract, or act in some other way on his behalf. The principal is legally bound by the act of the agent, regardless of whether the relationship inter se is contractual or not. The only difference is that the degree of care which the agent must exercise must differ. We shall discuss this further in a later study unit.

Of course, we are assuming that the contract entered into by the agent on behalf of the principal is itself legally binding, and is not a domestic arrangement as in Merritt v. Merritt (1970) or Gould v. Gould (1970).

In Merritt v. Merritt (1970), during a period of formal separation, the husband prepared and signed a document stating that in consideration of his wife paying all the charges relating to the matrimonial home, including the mortgage repayments, he would agree to transfer the home to his wife's sole ownership. The wife paid the mortgage off, but the husband did not subsequently transfer the property to her, contending that the agreement was a family arrangement not intended to create legal relations.

HELD: The agreement was enforceable by the wife – it had been made during a period of formal separation, the husband had received valid consideration in that he had been personally relieved of the responsibility of the mortgage repayments, and the wife was entitled to the relief sought.

In Gould v. Gould (1970) a husband, on leaving his wife, agreed to pay her £15 per week "so long as I can manage it".

HELD: The uncertainty of this term negatived a legally binding agreement.

To make the position clear, we list four situations:

An adult principal and an adult agent – a commercial transaction. The agent oversteps her authority and may be personally liable.

Same situation, but the agent suffers from a disability. If he would not be personally liable on his own contract, he cannot be on his principal's.

A family arrangement, simply domestic, not legally binding. No different if negotiated through an agent.

A simple case of a husband acting as his wife's agent. No need for an agency contract.

By Implied Agreement

An implied agency arises where both principal and agent have behaved towards each other in such a way that it is reasonable to infer from their conduct that they have both agreed to the relationship.

The consent of the principal is likely to be implied where he/she has put another person in such a position that, in accordance with ordinary principles and practice, that person could be understood to be his/her agent. The same applies where the principal has used such words that a reasonable person would infer that he/she had agreed to another acting as

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