Critical Evaluation of Agency Duties in Law

Assignment Brief

In this paper, you are required to critically evaluate the given statement based on case law in which you have to focus on the following points:

• The concept and characteristics of agency relationship

• Evaluation of common and fiduciary duties of an agent

• Compliance of the legit and reasonable instructions

• The duty of care, skill, avoid conflict of interest, account, and avoid delegate authority

• Give pertinent references

Instructions 

Legal Aspects of Business

ASSIGNMENT QUESTION

"An agent is subject to a number of duties imposed by the general law as legal incidents of the agency relationship. Where the agency is contractual, some of the duties may take effect as implied term in the contract, or be modified by its express terms. However, certain duties are imposed on the agent automatically."

Critically discuss this statement by referring to relevant case law in the area of agency law.

POINTS TO CONSIDER

• Definition and key features of an agency relationship

• Analysis of general and fiduciary duties of an agent.

These should include:

1. The duty to follow the lawful and reasonable instructions of the principal

2. The duty of care and skill

3. The duty to avoid conflict of interest

4. The duty to account

5. The duty not to delegate authority 

Relevant case law in the area of agency law

Sample Answer

Critical Evaluation of Agency Duties in Law

Agency law forms a core component of commercial and business law, establishing a legal relationship between a principal and an agent. The relationship arises when one party, the agent, is authorised to act on behalf of another, the principal, in dealings with third parties. The principal-agent relationship is both contractual and fiduciary, incorporating duties that safeguard the interests of the principal while regulating the agent’s conduct. This paper critically evaluates the statement that “an agent is subject to a number of duties imposed by the general law as legal incidents of the agency relationship,” drawing on relevant case law to illustrate the legal principles involved.

An agency relationship is characterised by consent, control, and representation. The principal authorises the agent to act on their behalf, while retaining ultimate control over the agent’s actions. Consent between the parties is essential, and the agent must be acting within the scope of authority granted. Key features include the agent’s capacity to create legal relations between the principal and third parties, the fiduciary element of trust inherent in the relationship, and the binding effect of the agent’s actions on the principal. The case of Freeman & Lockyer v Buckhurst Park Properties Ltd [1963] 2 QB 480 illustrates how the agent’s authority, whether actual or apparent, establishes binding obligations on the principal, underscoring the importance of clearly defined roles.

Agents are subject to general and fiduciary duties arising automatically under law. One fundamental duty is to follow the lawful and reasonable instructions of the principal. The agent must act strictly in accordance with the authority granted and must not exceed the limits of that authority. In Armagas Ltd v Mundogas SA [1986] AC 717, the House of Lords emphasised that an agent acting beyond the scope of authority does so at their own risk, potentially exposing themselves and the principal to legal consequences.

The duty of care and skill requires agents to perform their functions with competence and diligence appropriate to their role. Agents must exercise reasonable skill and judgement in conducting business on behalf of the principal. In Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549, the courts held that directors acting as agents owed a duty to exercise due skill and care when managing company affairs, demonstrating that professional competence is a legal obligation.

Continued...