An agency may come into existence through the more common way of an agreement between the parties, however, it can also arise in other ways including by:

• • express or implied agreement of the parties if the elements of a contract at law are established, eg offer, acceptance and consideration or alternatively there is sufficient evidence to show that the actions and conduct of the parties impliedly established an agency agreement;
• • operation of law, eg because of circumstances of necessity the agent has been conferred authority, beyond that given by any contract between the parties, to do an act in relation to the principal’s property. Statute can also create an agency, eg every partner in a partnership is an agent of the firm; or
• • ratification where the principal adopts the acts of its agent and becomes bound by the contract with the third party.

Methods of appointing an agent

What follows the appointment of the agent is the creation of three legal relationships:

• • between the principal and the agent;
• • between the agent and third parties; and
• • between the principal and third parties.

See Methods of appointment.

The agent’s duties and the principal’s duties

The law recognises various rights and duties on the agent and on the principal. These duties arise from the agency agreement, common law and equity.

The agent’s duties

Examples of the types of duties imposed on an agent include:

• • the duty to exercise due care, skill and diligence;
• • the duty to act in the principal’s interests; and
• • the duty to keep the agent’s property separate from the property of the principal.

The standard of care expected of an agent will vary depending on whether the agent is being paid or whether the agent is providing agency services at no cost to the principal. A paid agent will usually be expected to exercise a higher standard of care than the standard of care expected of an agent providing agency services gratuitously.

In addition to the agent’s duties at law or by virtue of the contract of agency, an agent also has fiduciary duties due to the agent holding a position of trust and confidence. If an agent benefits from his or her position as agent to the detriment of the principal, the principal can apply to court to seek equitable relief.

See The agent’s duties.

The principal’s duties

A principal’s main duties to the agent are:

• • the duty to remunerate; and
• • the duty to indemnify.

Unless it is agreed that the agent will not be paid for their services, the principal is obliged to compensate the agent with a fee for services and reimburse the agent for expenses incurred while performing the agent’s duties.

See The principal’s duties.