Irrevocable Authorities

Friday, October 7, 2016

Where the relationship of principal and agent has been created by agreement, it is open to the parties to agree to terminate the relationship.   It is also generally possible for the parties to unilaterally terminate the relationship, that is, to withdraw agreement.   This may be by the giving of notice or by implied revocation.   This right to unilaterally terminate is subject to rules dealing with irrevocable authorities. (G Masel, The Laws of Australia, Thomson Lawbook Online, [8.1.80])

In agency law, an irrevocable authority is an authority given by a principal to affect a security or to secure the interest of the agent, and that cannot be revoked where the agency was created by deed or for valuable consideration (P Nygh & P Butt, Butterworths Concise Australian Legal Dictionary (1998), 2nd Edition, Lexis Nexis Butterworths, pg 244).

An authority is not irrevocable simply because it is stated to be so, however, revocation is not permitted, except by mutual agreement, where the authority to act for the principal has been given as security for the repayment of a debt or other obligation owed by the principal to the agent.   In such circumstances, the authority is said to be "coupled with an interest" and is irrevocable.   In Smart v Sandars (1848) 5 CB 895; 136 ER 152, an agent was given authority to sell goods on behalf of the principal and he made advances to the principal on the security of those goods.   However, it was held that in such a case the authority was revocable because at the time the agent was given authority he did not have an interest.   The right to earn a commission will not be a sufficient "interest", so that if the sole purpose of the agency is to allow the agent to earn commission, it will not be irrevocable (Frith v Frith [1906] AC 254 (PC)).   Where the authority is irrevocable at common law it will not be terminated by the death, insanity or bankruptcy of the principal. (G Masel, The Laws of Australia, Thomson Lawbook Online, [8.1.83])

In most Australian jurisdictions, legislation provides that where a power of attorney is expressed to be irrevocable, and is granted to secure a proprietary interest or the performance of an obligation owed to the attorney, then, provided the attorney has that interest or the obligation remains undischarged, the power is irrevocable by the donor without the consent of the attorney, or by the death, incapacity or bankruptcy of the donor (see for example section 86(1) Property Law Act 1969 (WA)). (G Masel, The Laws of Australia, Thomson Lawbook Online, [8.1.83])

The principal will not be able to revoke if the agent has done what he or she was authorised to do, and if to do so at this point would compromise a third party's rights.   Thus, if A, acting on authority from P, enters into a contract with T, P may not revoke A's authority to so contract.   T has rights under the contract which P cannot affect through revocation of the agency.   The principal will also be barred from revoking if the agent had begun to execute the authority, and would thereby incur personal liability or be otherwise adversely affected. Thus, stockbrokers were entitled to complete a sale of shares where the transaction was commenced before the principal purported to revoke (Seymour v Bridge (1885) 14 QBD 460), and a principal was not allowed to revoke a bookmaker's authority to place bets for him after the bets were lost but before they were paid. Although statute protected the bookmaker from liability, his reputation would have been compromised (Read v Anderson (1884) 13 QBD 779 (CA)). (G Masel, The Laws of Australia, Thomson Lawbook Online, [8.1.83])

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