In this decision, the Full Court of the Federal Court of Australia considered what conduct by an alleged agent and an alleged principal is required to establish actual or apparent authority to bind the principal.

Key learnings

This case serves as a reminder that a relationship of agency will only arise between a principal and his or her agent where an express agency agreement exists between the parties, or where actual authority or apparent authority has been established by the parties’ conduct.

This case also demonstrates that where a person deals with a person who is alleged to be an agent of an alleged principal, the onus of proof is on that person to prove the agency. In these circumstances, mere assertions made by the alleged agent that he or she is acting for the alleged principal can never, by themselves, prove an agency relationship. Rather, there must be some conduct on the part of the alleged principal from which the relationship of agency can be inferred.

Case note

Prosperity Group International (“Prosperity”) entered into a contract for the provision of telecommunications services with Axis Telecoms (“Axis”) and five separate equipment leases – four with Australian Equipment Rentals (“AER”) and one with Quikfund (Australia) (“Quikfund”). Prosperity claimed it was induced to enter the contract and leases as a result of representations made by an individual named Jayson Croom (an employee of Queensland Communication Company (“QCC”)). Mr Croom made the representations whilst acting as the regional manager for Technix – an organisation which, according to Mr Croom, was the “authorised representative” of a group of companies, including Quikfund and AER.

At trial, Prosperity sought to be relieved from liability under the contract and leases, by reason of the misrepresentations made to Prosperity executives. In finding for Prosperity, the trial judge granted the orders sought and awarded damages in favour of Prosperity against the corporation which had since purchased Axis. Quikfund and AER appealed the decision to the Full Court.

The main issue on appeal was whether, in making various representations to the representatives of Prosperity, Mr Croom acted as the agent of Quikfund and AER in circumstances where Quikfund and AER should be held liable for the losses suffered by Prosperity as a result of acting in reliance upon those statements. The Court acknowledged that the onus lies upon the party alleging agency to prove the existence and terms of the agency, and the fact that, in dealing with that party, the agent acted within his or her actual or ostensible authority. Here, there was no express agency agreement, and therefore Prosperity was required to establish implied actual authority on the part of QCC and Mr Croom, or that Mr Croom acted with the ostensible authority of Quikfund and AER.

In agency relationships, there are two types of authority: actual authority and apparent or ostensible authority. Actual authority is the legal relationship between principal and agent created by a consensual agreement between those two parties. That agreement may be express or implied. Apparent or ostensible authority is a legal relationship between the principal and a third party created by the principal’s representation(s) to the third party that the agent has authority to bind the principal.

In the present case, the Court found that a common feature of both implied actual authority and apparent or ostensible authority is conduct on the part of the alleged principal which purports to give the alleged agent authority to bind that principal. Here, the only conduct on the part of Quikfund or AER capable of constituting the necessary representation as to Mr Croom’s ostensible authority comprised the actions of those corporations in making it possible for Mr Croom to have possession of their standard equipment lease forms and associated documentation. This was not enough to establish a relationship of agency.

In determining whether an agency relationship existed, the Court also considered the following factors, concluding that no such relationship existed:

Mr Croom was not employed by, or an officer of, either Quikfund or AER;

Mr Croom’s conduct merely comprised completing the lease forms, procuring the hirer’s signature on them and then submitting those forms to Quikfund and AER for their consideration; and

there was no other communication between Quikfund or AER, on the one hand, and Mr Croom and QCC, on the other, that could conceivably support a finding of agency.

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