INDIRECT REPRESENTATION AND THE LANDO PRINCIPLES

The unpublished second report of the Lando Commission on The Principles of European Contract Law (‘the Principles’ or ‘PECL’) contains an important recent attempt to harmonise the laws of agency of European jurisdictions. Chapter 3 of the Principles deals with ‘Authority of Agents’. Following the civil law model, Article 3:102 PECL distinguishes between direct and indirect representation.

Direct representation exists where an agent acts ‘in the name of’ a principal (Art. 3:102(1) PECL). If the agent acts within the scope of his authority (real or apparent), his acts bind the principal and third party directly; the agent drops out. Indirect representation covers two types of case in which a principal enlists the assistance of an intermediary to act for him in transactions with third parties (Art. 3:102(2) PECL). The first can be termed ‘undisclosed agency’. In these cases, the principal confers authority on the intermediary to create privity between him (the principal) and third parties. As it happens, however, the third party neither knows nor has reason to know that the intermediary acts as an agent. The second category of indirect representation can for convenience be termed ‘commission agency’. In this case, by contrast, the principal does not confer authority on the intermediary to create privity of contract between him (the principal) and third parties. The intermediary is to act ‘in his own name’: he is to contract with third parties in a personal capacity. In both cases of indirect representation, intermediary and third party are bound to each other; principal and third party are not (Art. 3:301 PECL). Even so, in two situations the principal is entitled to exercise against the third party the rights that are acquired on his behalf by the intermediary: if the intermediary goes bankrupt or is guilty of a fundamental non-performance of his duties to the principal (Art. 3:302 PECL). The third party is entitled, in similar circumstances, to exercise against the principal the rights that the third party has against the intermediary (Art. 3:303 PECL).

This article compares the indirect representation provisions of the Principles (Arts. 3:301-3:304 PECL) with the relevant body of English law. The aim is to ascertain whether it would be acceptable to adopt the indirect representation provisions for England. At first sight, both categories of indirect representation may cause difficulties for English law.

The first category (‘undisclosed agency’) is problematic because, at first sight, English law and the Principles take opposite positions on the legal relationships which result where an undisclosed agent contracts with a third party. Under English law, undisclosed principal and third party are generally allowed to sue each other. By contrast, the starting point under the Principles is that they are not entitled to do so. Nevertheless, the Principles allow important exceptions to that starting point. The result is that, contrary to first appearances, the application of the Principles and English law would produce largely similar results. The provisions of the Principles in relation to the first form of indirect representation are unlikely, for that reason, to prove unacceptable to English lawyers.

The second category (‘commission agency’) is problematic for a rather different reason. This concept refers to intermediaries with two important characteristics. First, the intermediary does not have authority to create privity of contract between principal and third party. Secondly, if the intermediary does contract with a third party, he only creates a relationship between him (the intermediary) and the third party; he will not create a relationship between principal and third party. In general, therefore, principal and agent will not be entitled to sue each other. The difficulty here is that it is unclear whether English law recognises such a concept. Even so, this should not render the provisions of the Principles on the second form of indirect representation unacceptable to English lawyers. Recognition of the possibility of commission agency in English law would increase the options of commercial parties when deciding how to structure their transactions.

1. Introduction

1.1 The desirability of unification of the law of agency

1.2 The Principles of European Contract Law

1.2.1 General

1.2.2 Direct and indirect agency in the Principles

1.2.3 The legal significance of the agency provisions in the Principles

1.3 The subject matter of this article

2. Terminology used in the Principles

2.1 General

2.2 Agents acting in the name of their principal and agents acting in their own name

2.3 Intermediaries acting in their own name but on behalf of their principal

3. The position of the undisclosed principal

3.1 General

3.2 Comparison between Articles 3:302-304 PECL and the English undisclosed principal doctrine

3.2.1 When are direct actions available?

3.2.2 Legal basis

3.2.3 Effect of performance by principal or third party

3.2.4 Defences and rights of set-off

3.2.5 Restrictions

3.2.5.1 Express and implied terms of the contract

3.2.5.2 Personal rights

3.2.5.3 Personality of the parties and knowledge of the principal

3.2.5.4 Personality of the parties and knowledge of the agent

3.2.5.5 Misrepresentation

3.2.5.6 Rights acquired on the principal’s behalf

3.2.6 The right of election

4. The position of the commission agent

4.1 General

4.2 Cases supporting the possibility of ‘commission agency’ in English law

4.3 Cases opposed to the possibility of ‘commission agency’ in English law

4.4 The implications of an analysis of the case law

5. Conclusions

Appendix

Bibliography

Notes