From the outset, an important distinction must be made between two separate relationships, viz. that between the principal and the agent, and that between the third party and the principal which may or may not come about as a result of the agent’s activity on behalf of the principal.
A. Agent – principal
It is necessary to analyse how the legal obligations between the agent and the principal are established, e.g. via an agency contract (whether oral or written), apparent (ostensible) authority, etc.
In absence of an express governing law clause, the English court or tribunal will apply the Rome Convention 1980, which states in Article 4(2) a presumption making necessary to determine the party who is to effect the performance which is characteristic of a contract between the principal and the agent.
According to English case law, the characteristic performance is that of the agent. Moreover, the law applicable to the contract between the principal and the agent will determine the terms of the agent’s appointment, his liability, remuneration, and similar matters.
Importantly, it will also determine, at least between the principal and the agent, the authority of the agent.
B. Principal – third party
Turning to the relation of the principal and the third party, it must be noted that the rights and liabilities of the principal as regards third parties are, in general, governed by the law applicable to the contract concluded between the agent and the third party.
Furthermore, where the agent lacks authority from the principal, the law applicable to the contract between the agent and the third party should determine whether the principal is bound. According to Dicey, “this responds to the requirements of commercial intercourse”.
Therefore, as between the principal and the agent, the scope of the agent’s authority is necessarily determined by the law which governs their relationship, however, the third parties must be able to assume, at least where the agent has no actual authority, that the agent’s authority covers everything which would be covered by the authority if an agent appointed under the law applicable to the contract between the agent and the third party.
Thus, the extent to which the agent must be deemed to be authorised by the principal to enter into other contracts, i.e. the definition of the agent’s ostensible authority, is a matter for the law applicable to the contract which he concludes, as are the consequences of lack of authority and the effect of later ratification.
Furthermore, although the agent’s ostensible authority rests on the principle of estoppel according to English domestic law, nevertheless, Dicey suggests it cannot be regarded as a matter for the lex fori as such.
In any event, the position with regard to the actual authority is less clear: since actual authority (express or implied) involves determining what the particular agent is actually authorised to do, there is something to be said for determining the existence and scope of such authority by reference to the law governing the relationship between the principal and the agent.
C. Agent – third party
Finally, as between the agent and the third party, the applicable law will be determined by the rules of the Rome Convention 1980, and the law so applicable will depend on the application of the general rules of the Convention to the particular circumstances of the contract which the agent has made.
Thus the law applicable to that contract will determine whether the agent has created privity of contract between himself and the principal’s customer.