What Is the Law of Agency in Australia?

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

1. 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.
2. 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.
3. 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.
4. Introducer / referral arrangements. If not documented, courts may find an implied agency creating fiduciary duties and disclosure obligations.