Insight · Contracts

What Is the Law of Agency in Australia?

Published 20 July 2026

Who can bind your business — and when apparent authority overrides your internal rules.

In short

The law of agency is the body of Australian law that determines when one person (the agent) can create binding legal relationships between another person (the principal) and a third party. It is the machinery that makes companies, employment, sales representatives and directors work — and the source of significant accidental liability where authority is unclear.

The law of agency is the body of Australian law that decides when one person (the agent) can create binding legal relationships between another person (the principal) and a third party. It is the machinery that makes companies, employment, sales representatives and directors work — and it is the source of a lot of accidental liability when businesses do not pay attention to who has authority to sign what.

How agency is created

Agency can arise in several ways:

Express agreement — a written or oral appointment.
Implied from conduct — a course of dealing that treats one person as authorised to act for another.
By operation of law — for example, directors as agents of the company under section 198D of the Corporations Act 2001 (Cth).
By ratification — where the principal later adopts an act done without authority at the time.

The types of authority

1. Actual authority

The authority the agent actually has, either expressly given ("you can sign contracts up to $50,000") or implied from the nature of the role. An office manager, for example, has implied authority to place ordinary supply orders.

2. Apparent (ostensible) authority

Even where actual authority is missing, the principal can be bound if it represents to a third party that the agent has authority. The classic example: a company allowing someone to hold themselves out as a "director" or "manager" without actually being one. If the third party reasonably relies on that representation, the company is bound. See Freeman & Lockyer v Buckhurst Park Properties (1964) as the foundational statement of the rule.

3. Ratification

Where an agent acts without authority, the principal can later ratify the act — adopting it retrospectively. Ratification must be with full knowledge of the material facts and made within a reasonable time.

The agent's duties

Agents owe both contractual duties and fiduciary duties. The core fiduciary duties are:

Loyalty — act in the principal's best interests.
No conflict of interest without informed consent.
No secret profit — any benefit from the agency must be disclosed and (usually) accounted for.
No misuse of confidential information.
Account and disclose — keep proper records and disclose all material information.

Alongside these, agents owe duties to act within authority, follow lawful instructions, exercise reasonable care and skill, and not to delegate without authority.

The principal's duties to the agent

Pay agreed remuneration and commission.
Indemnify the agent against liabilities properly incurred in the agency.
Reimburse expenses.
Not obstruct the agent's ability to earn commission (in appropriate cases).

Where businesses get caught

Sales reps signing beyond authority. If the customer reasonably believed the rep had authority (email signature, job title, past dealings), the company is bound — even if the internal policy said otherwise.
Junior staff issuing quotes. Quotes given in the ordinary course of business can be binding, especially if the pricing was accepted before the "mistake" was raised.
Directors signing without the section 127 formalities. Even where actual authority is missing, apparent authority can still bind the company if the third party was entitled to rely on section 129 assumptions.
Introducer / referral arrangements. If not documented, courts may find an implied agency creating fiduciary duties and disclosure obligations.

Written agency agreements — what to cover

Scope and territory.
Express limits on authority (dollar caps, product limits, exclusion clauses).
Commission structure and payment timing.
Exclusivity, non-compete, and non-solicit.
Duration, renewal, and termination rights.
Post-termination commission entitlements (the classic dispute point).
Confidentiality and IP.
Insurance and indemnity.

Agency vs employment vs contractor

Agency describes a legal relationship — not an employment classification. An agent can be an employee, an independent contractor, or a separate business. The label matters for tax, superannuation, workers' compensation, and the recent contractor-vs-employee reforms; the agency analysis matters for whether the principal is bound to third parties. Both need to be settled in the same document.

Undisclosed principals and who the third party can sue

Where an agent contracts without revealing that it acts for someone else, the third party can generally enforce the contract against either the agent or, once discovered, the undisclosed principal — but not both. This matters in two practical settings. First, procurement through a buying group or intermediary: if your entity is not named, expect to be joined to any dispute. Second, agents who sign in their own name: an "agent" who signs a supply contract without the words "as agent for [principal] ABN …" is at real risk of personal liability, and the principal loses the benefit of privity it assumed it had.

The drafting fix is dull and effective. Every document signed by an agent should name the principal, state the capacity, and be signed "[Agent] for and on behalf of [Principal]".

Terminating an agency — and the commission fight that follows

Most agency disputes we see are not about authority at all. They are about money on the way out. Three issues recur:

Trailing commission. Is the agent paid on business introduced before termination that settles afterwards? If the agreement is silent, a court may imply an entitlement based on the parties' conduct.
Notice. An agency with no stated term is usually terminable on reasonable notice. What is reasonable depends on duration, exclusivity, the agent's investment and how much of the agent's revenue the principal represents — not on a convenient 30-day assumption.
Post-termination conduct. Apparent authority does not evaporate the day the agreement ends. Until you tell customers, update the website, revoke email access and withdraw letterhead and business cards, a former agent can still bind you.

Unconscionable conduct and unfair contract terms under the Australian Consumer Law also bear on agency arrangements with small business agents, particularly unilateral variation clauses and one-sided termination rights. Since the November 2023 amendments, an unfair term in a small business standard-form agency agreement is not merely void — it exposes the principal to penalties.

Industry-specific agency regimes

General agency principles are overlaid with statutory rules in several sectors. Real estate agents are licensed and regulated state by state (in NSW, under the Property and Stock Agents Act 2002), with prescribed agency agreements and trust accounting rules. Insurance intermediaries operate under the Corporations Act licensing regime and must be clear about whether they act for the insurer or the insured — a distinction that decides who bears the consequences of a non-disclosure. Travel, freight forwarding and customs broking each have their own conventions about when the intermediary is principal rather than agent. If you operate in one of these fields, the sector rules come first and the common law fills the gaps.

A five-step authority audit

Write down who can sign what. A one-page delegation schedule with dollar limits, by role, not by person.
Match job titles to reality. "National Sales Manager" on an email signature is a representation of authority. Either the authority exists or the title changes.
Put limits in the customer-facing documents. A clause stating that quotes are not binding until countersigned by a director defeats most apparent authority arguments — but only if customers actually receive it.
Control the tools. Letterhead, templates, e-signature accounts and the CRM are all sources of ostensible authority. Revoke them on the day a relationship ends.
Notify third parties on termination. A short written notice to key customers costs nothing and closes off the risk.

Where this fits in your setup

Agency issues surface across almost every commercial relationship we advise on — sales agents, distributors, franchisees, introducers, employed reps. We deal with them as part of Business Contracts and, for ongoing coverage, under Fractional General Counsel.

Frequently asked questions

What is the law of agency?

The law of agency is the body of law that governs when one person (the agent) can create legal relationships between another person (the principal) and a third party. If an agent acts within their authority, the principal is bound as if they had contracted directly.

What are the types of authority an agent can have?

Australian law recognises actual authority (express or implied), apparent (ostensible) authority based on the principal's representations, and authority by ratification, where the principal later approves an unauthorised act.

Do you need a written agency agreement?

Not always. Agency can arise by conduct, by course of dealing, or by law. But for commercial agency arrangements — sales agents, distributors, licensees — a written agreement is strongly recommended to define scope, duration, commission, and termination rights.

Are employees agents of the employer?

Employees are generally agents of the employer within the scope of their employment. Directors are agents of the company under general law and section 198D of the Corporations Act.

What duties does an agent owe the principal?

Agents owe fiduciary duties to the principal — loyalty, no conflict of interest, no secret profit, no misuse of confidential information — plus duties to act within authority, to exercise reasonable care and skill, and to account for money and property received.

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