Agency is the legal relationship that exists between a principal and a person appointed with the power to act on their behalf and has the power to legally bind a principal to arrangements. The key concept that underpins the law of agency is authority, for only if there is a grant of power will the relationship exits.

There are two main types of authority: actual or ostensible. Actual authority is when an agent is explicitly authorised to act as such and exists as a matter of fact. This may be achieved through an oral or documented grant of authority. The second type of authority is ostensible (or apparent) authority. This type of authority is when a person does not have actual authority to act on behalf of a principal. If, through a principal’s words or conduct, a reasonable person in a third party’s position believes that the agent was authorised to act, a transaction may be upheld. In these cases the principal and third party will have a legal relationship, however the principal will have an action in contract against the purported agent for acting outside the scope of authority.

There are three main types of agents:

  1. Special agents – agents that are authorised to conduct either only a single transaction or a specified series of transactions over a limited period of time;
  2. General agent – agents that that hold an authority to conduct a series of transactions over a continuous period of time and have the authority to bind the principal in all matters dealt with in a particular business or profession; and
  3. Universal agents – agents that may be appointed under a power of attorney and hold broad authority to act on behalf of a principal and have unlimited power to transact with third parties on their behalf.

In the context of company law, a person dealing with a corporation and contracts with it in good faith, may assume that its agents are duly appointed and have the power to act on the corporations behalf. This rule resulted from the case of Royal British Bank v Turquand (1856) 119 ER 886 and is known as the ‘indoor management rule’.

In the context of the Corporations Act 2001 (Cth) this rule has been codified in sections 128 and 129. In particular, section 129 states that:

(3) a person may assume that anyone who is held out by the company to be an officer or agent of the company;

(a) has been duly appointed; and

(b) has authority to exercise the powers and perform the duties customarily exercised or performed by that kind of officer or agent of a similar company.