At LegalVision we often get clients looking to give third parties the authorization to sell their goods or services. For this type of commercial arrangement, our commercial solicitor will draft an agency agreement for our clients. This article will explain the operations and functionalities of this agreement, and in what circumstances a commercial solicitor can assist in drafting such an agreement.

An agency relationship involves one party (the Principal) authorizing another party (the Agent) to engage third parties in legal relationships. Speak with a commercial solicitor to get a solid understanding of the relationship between principal and agent.

Relationship between agent and principal

There are several means by which an agency relationship can come into existence, and this will usually impact on the legal relationship between the parties. For example, an agency relationship can emerge from an agreement, out of statute or common law, or by ratification.

  • Agreement – Agency relationships that are borne out of some agreement between the parties are governed by the terms of the agreement. In the agreement is usually a detailed explanation of the scope of the agency i.e. what the agent has authorization to do on behalf of the principal, where the agent can perform these acts, and in what timeframe these acts must be done.
  • Statute/Common Law – Agency relationships that arise from the operation of law usually develop because of there is some necessity for the Agent to protect the interest or property of the principal. For example, if you protect someone’s dog from being injured in a house fire, you are essentially acting in the best interests of the owner/Principal. For this agency relationship to exist, it must be impossible for the principal to give instructions i.e. they cannot communicate their wishes to the Agent.
  • Ratification – Ratification simply refers to the giving of retrospective consent to an act. For example, an Agent may perform an act that is outside the scope of the authority of the Agency Agreement and, typically, this would not bind the Principal. However, if an Agent performs an act and the Principal later decides to ‘ratify’ the actions of the Agent, this will count as authorization.

Responsibilities of each party

Any agency relationship that is established through an agency agreement will detail the obligations and rights of each party.

The agent’s responsibility when the agency relationship is not created by some agreement between the parties will depend on the conduct of the Agent. There are also certain obligations that arise out of principles of common law and equity. If you need the responsibilities of each part to be explained in more detail, speak with a commercial solicitor.

A fiduciary relationship

A fiduciary is a legal or ethical relationship based on the trust of two or more parties. An agency relationship is also a fiduciary relationship. This means that the Agent and the Principal have a number of specific duties that arise out of such a relationship, including the following:

  • The Agent must, at all times, act in the ‘best interests’ of the Principal;
  • The Agent must not prioritize its interests over those of the Principal, i.e. avoid conflicts of interest when possible;
  • The Agent must not disclose any confidential information about the Principal, unless otherwise authorized to do so; and
  • The Agent must not misuse any of the Principal’s money or property in its capacity as Agent.

Conclusion

For an Agency Agreement to be properly drafted, it is necessary to consult a commercial solicitor. Commercial solicitors have the expertise to ensure the Agency Agreement is drafted effectively so that it is legally binding on all parties. To speak with a commercial solicitor about having an Agency Agreement drafted, contact LegalVision on 1300 544 755.

Lachlan McKnight

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