BSL165 Foundations of Business Law: Case Study on Agency Liability

This case study delves into the principles of agency law, specifically focusing on the liability of a principal (Bianca) for the actions of their agent (Steve) in the context of caring for alpacas. The analysis applies Australian legal principles concerning agency relationships, including the duties of agents and principals, the concept of mutual consent, and the conditions under which an agent is entitled to reimbursement and indemnity. Key legal precedents are cited to support the argument that Steve acted within his authorized capacity and in the best interests of Bianca when incurring expenses for the alpaca's veterinary care. Ultimately, the case study concludes that Bianca is liable for the veterinarian's bill and transportation costs, as Steve's actions were lawful, authorized, and performed with due diligence, making him eligible for reimbursement and indemnification under agency law. Desklib provides access to this and other solved assignments.

Running head: BUSINESS LAW
Business Law
Name of the Student
Name of the University
Author Note

1BUSINESS LAW
Issue:
The issue in this case is that whether Steve is liable to pay the amount of $3500.
Rule:
According to the Australian Law of Agency, the relationship between the principal
and the agent is founded on mutual consent which was held in Garnac Grain Co. Inc. v
HMF Faure & Fairclough Ltd [1968] AC 1130 at 11371. In this regard, it is worth
mentioning that the consent must be given by either by express or through implied conduct2.
In UK Ltd v Hungarian International Bank Ltd [1993] 2 Lloyd’s Rep 194 at 1963, it was
held that “the reasonable expectations of an honest man should be protected”. In some cases,
the relationship between the principal and agent is referred to as the employer and employee4.
Therefore, the agent can be referred to as the employee who works for the principal or the
employer for a certain payment5. The acts of such employee are controlled by the employer
and therefore the employer is liable for the acts of omission on the part of the employee
during the course of employment which has held in General Accident Fire & Life Assurance
Corp v. Pro Golf AssociationGeneral Accident Fire & Life Assurance Corp v. Pro Golf
Association, 352 N.E.2d 441 (Ill. App. 1976)6.
The agent has specific duties towards the principal. These duties can be emphasized
as-
1. The agent must be loyal to the principal. The agent is at the authority to act for the
best interest of the principal and should not make any secret profit from such
principal.
2. The agent is bound to follow the instructions provided to him by his principal.
3. The agent is at the duty to maintain the account of the entire amount paid and received
on the behalf of the principal.
1 [1968] AC 1130 at 1137.
2 Riaz, Zahid, Sangeeta Ray, and Pradeep Ray. "The Synergistic Effect of State Regulation and Self-Regulation
on Disclosure Level of Director and Executive Remuneration in Australia." Administration & Society 47.6
(2015): 623-655.
3 [1993] 2 Lloyd’s Rep 194 at 196.
4 Easthope, Hazel, and Bill Randolph. "Principal–agent problems in multi-unit developments: The impact of
developer actions on the on-going management of strata titled properties." Environment and Planning A48.9
(2016): 1829-1847.
5 Neupane, Arjun, Jeffrey Soar, and Kishor Vaidya. "Anti-corruption capabilities of public e-procurement
technologies: principal-agent theory." Business law and ethics: Concepts, methodologies, tools, and
applications (2015): 355-373.
6 352 N.E.2d 441 (Ill. App. 1976).

2BUSINESS LAW
4. It is important on the part of the agent to make use of reasonable skill in performing a
specific task in the absence of the principal. In other words, the agent must act in due
care and diligence.
5. It is important on the part of the agent to notify the principal regarding the issues and
the matters which comes to the knowledge of the agent in relation to their agency
relationship7.
In Liley v.Doubleday (1881) 7 QBD 5108, it was observed that the agent has
performed his duty with due care and diligence and in such process has notified the principal
about the concerned matters.
The principal is also bound to certain duties towards the agent. These duties can be
classified as-
1) When certain services and acts are covered by the agent on behalf of the principal,
then the principal is bound to compensate the agent on the basis that the required
services were completed by the agent in time.
2) When there is disbursement on the part of the agent for the purpose of fulfilling the
request made by the principal, it is the duty of the principal to reimburse such agent. It
may occur that the agent has disbursed the amount in order to fulfill the expenses on
the part of the principal, in this matter; the principal is liable to reimburse the costs.
3) The principal is at the duty to compensate or indemnify the agent on the basis of the
liabilities arising on the part of the lawful and authorized acts of the agent on behalf of
the principal.
4) It is the duty of the principal to provide active cooperation to the agent during the
performance of duties.
In Lawrence Warehouse Co. v. Twohig, 224 F.2d 493 (8th Cir. Iowa 1955)9, it was
observed that the principal has reimbursed the agent on the ground that the agent has
disbursed the amount on behalf of the principal.
It is noteworthy to mention here that, the agent is at the authority to be reimbursed
and indemnified by his principal in relation to the expenses incurred by him during the course
7 Oliver, Justin, and Paul Schoff. "Agency and Competition Law in Australia Following ACCC v Flight Centre
Travel Group." Journal of European Competition Law & Practice 8.5 (2017): 321-328.
8 (1881) 7 QBD 510.
9 224 F.2d 493 (8th Cir. Iowa 1955).

3BUSINESS LAW
of performance on behalf of the principal10. In this regard, it is important to note that, an
agent is entitled to recover the expenses made during the period of agency and such expenses
may include travelling expenses, registration fees and similar other expenses. It was held in
Weathersby v. Gore, 556 F.2d 1247 (5th Cir. Miss. 1977)11, that the agent is entitled to
recover expenses related to travelling allowances and the authority given to such agent to
carry on the duty of care need not necessarily be in writing. It is worth noting that, in some
cases the right of reimbursement or indemnity may not be vested on the agent on certain
conditions. These conditions can be emphasized as-
I. Unauthorized act on the part of the Agent:
The action of the agent is considered to be unauthorized when it is performed
exceeding the functions entrusted to him by the principal. The act of the agent can be
declared as unauthorized, if it was not previously ratified by the principal.
II. Negligence:
The agent can be considered to act in negligence, if during the course of agency, he
has conducted breach of his agency duties.
III. Unlawful Act:
The agent shall not have the right to reimbursement, if the act carried by him is
unlawful. In B.P. Australia Ltd. V. Federal Commissioner Of Taxation [1965] Hca 35; 112
Clr 386; [1965] Ac 22412, it was observed the agent was reimbursed by the principal on the
ground that the act of such agent was not unlawful and unauthorized.
It can be mentioned that in some cases, the services rendered by the agent to its
principal contains an implied term. Due to the presence of an implied term in the agency
agreement, the agent may not be in the position to claim remuneration prior to the occurrence
of the actual event13. If the specified event does not take place, then the agent is not at the
authority to claim remuneration from the principal which was held in Codelfa Construction
Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 33714.
10 Hedges, Jasper, George Gilligan, and Ian Ramsay. "Banning orders: An empirical analysis of the dominant
mode of corporate law enforcement in Australia." Sydney L. Rev. 39 (2017): 501.
11 556 F.2d 1247 (5th Cir. Miss. 1977).
12 [1965] Hca 35; 112 Clr 386; [1965] Ac 224.
13 Daly, Angela. "The introduction of data breach notification legislation in Australia: a comparative
view." Computer Law & Security Review (2018).
14 (1982) 149 CLR 337.

4BUSINESS LAW
Application:
In the present scenario, it can be observed that Steve was employed by Bianca for the
purpose of taking care of the alpacas. In this regard, Steve charged an amount of $100 per
week. Therefore, it can be observed that the nature of agency prevailing between Steve and
Bianca is constituted on the basis of mutual consent. In this regard, the case of Garnac Grain
Co. Inc. v HMF Faure & Fairclough Ltd [1968] AC 1130 at 1137 can be referred where the
agreement of agency was based on mutual consent between the principal and the agent. It can
be observed that during the course of agency period, Steve performed his job honestly.
Therefore, the case of UK Ltd v Hungarian International Bank Ltd [1993] 2 Lloyd’s Rep
194 at 196 can be applied in which it was observed that the expectations of honest men were
protected by the law. In the present scenario, there existed a employer-employee relationship
between Steve and Bianca, as Steve was working under the instructions of Bianca for a
certain amount. In this case, it can be stated that Bianca is liable for the acts of omission that
took place on the part of Steve during the course of employment of tenure of agency. Steve
was supposed to take care of the alpaca which he diligently performed. Therefore, the case of
General Accident Fire & Life Assurance Corp v. Pro Golf AssociationGeneral Accident
Fire & Life Assurance Corp v. Pro Golf Association, 352 N.E.2d 441 (Ill. App. 1976) can
be referred in this case in which the principal or the employer was liable for the acts of
omission on the part of the agent or employee. It can be stated that in the present case study,
Bianca is liable to pay the costs which Steve spent on the treatment of the alpaca. It is evident
that that an agent owes certain duties to the principal. Therefore, in the present case study
Steve had certain duty of care towards Bianca which is to take care of the alpaca. It can be
observed that Steve was loyal to Bianca and the motive to save the alpaca was not done with
an intention to make secret profit. Steve has performed his duty in the absence of Bianca with
due care and diligence. It can also be seen that there was an active effort on the part of Steve
to notify Bianca regarding the condition of the alpaca. However, such attempt failed because
there was no response on the part of Bianca. It can be noticed that Steve even informed
Bianca’s housemate however, he failed in this attempt. Therefore, it can be stated that Steve
has performed his duties towards Bianca in relation to the duties of an agent. The case study
of Liley v.Doubleday (1881) 7 QBD 510 can be applied in this regard.
The principal owes certain duties to the agent as well. The principal is bound to
compensate the agent, if the nature of the services covered by the agent were performed
within the right time. It can be observed that Steve has completed the work in the right time

5BUSINESS LAW
otherwise the alpaca could not be saved. Therefore, Bianca is at the duty to compensate
Steve. It can be observed that there was disbursement on the part of Steve when he fulfilled
the expenses which were needed to carry out by Bianca. Therefore, Bianca is bound to
reimburse Steve. There is a duty on the part of the principal to indemnify the agent on the
account of the lawful and authorized acts of the agent performed for the best interests of the
principal. It can be observed that the act of Steve to save the alpaca was lawful and
authorized and it was carried in the best interests of the principal. Therefore, Bianca is liable
to indemnify Steve and compensate the amount of the veterinarian’s bill and the cost of
transportation. It can be stated that Steve has authorized the surgery for the best interests of
Bianca, so therefore Bianca is liable for the payment. The case of B.P. Australia Ltd. V.
Federal Commissioner Of Taxation [1965] Hca 35; 112 Clr 386; [1965] Ac 224 can be
applied because Steve was not negligent, unlawful or unauthorized.
Conclusion:
In the conclusion, it can be stated that Steve is not liable to pay the amount of $3500
for the expenses towards the veterinarian’s bill and the transportation costs.

6BUSINESS LAW
References:
Case Laws:
B.P. Australia Ltd. V. Federal Commissioner Of Taxation [1965] Hca 35; 112 Clr 386;
[1965] Ac 224.
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337.
Garnac Grain Co. Inc. v HMF Faure & Fairclough Ltd [1968] AC 1130 at 1137.
General Accident Fire & Life Assurance Corp v. Pro Golf AssociationGeneral Accident Fire
& Life Assurance Corp v. Pro Golf Association, 352 N.E.2d 441 (Ill. App. 1976).
Lawrence Warehouse Co. v. Twohig, 224 F.2d 493 (8th Cir. Iowa 1955).
Liley v.Doubleday (1881) 7 QBD 510.
UK Ltd v Hungarian International Bank Ltd [1993] 2 Lloyd’s Rep 194 at 196.
Weathersby v. Gore, 556 F.2d 1247 (5th Cir. Miss. 1977).
Journals:
Easthope, Hazel, and Bill Randolph. "Principal–agent problems in multi-unit developments:
The impact of developer actions on the on-going management of strata titled
properties." Environment and Planning A48.9 (2016): 1829-1847.
Neupane, Arjun, Jeffrey Soar, and Kishor Vaidya. "Anti-corruption capabilities of public e-
procurement technologies: principal-agent theory." Business law and ethics: Concepts,
methodologies, tools, and applications (2015): 355-373.
Oliver, Justin, and Paul Schoff. "Agency and Competition Law in Australia Following ACCC
v Flight Centre Travel Group." Journal of European Competition Law & Practice 8.5 (2017):
321-328.
Riaz, Zahid, Sangeeta Ray, and Pradeep Ray. "The Synergistic Effect of State Regulation and
Self-Regulation on Disclosure Level of Director and Executive Remuneration in
Australia." Administration & Society 47.6 (2015): 623-655.

7BUSINESS LAW
Hedges, Jasper, George Gilligan, and Ian Ramsay. "Banning orders: An empirical analysis of
the dominant mode of corporate law enforcement in Australia." Sydney L. Rev. 39 (2017):
501.
Daly, Angela. "The introduction of data breach notification legislation in Australia: a
comparative view." Computer Law & Security Review (2018).