Revisiting the self-authorizing agent.

Author:Studniberg, Brian M.
Position:Canada, United Kingdom, Singapore

This article considers the concept of a "self-authorizing" agent given modern forms of commercial dealings, particularly those involving projects characterized by extensive functional specialization. The article begins by reviewing Canadian Laboratory Supplies and, more specifically, Chief Justice Laskin's dissenting opinion at the Supreme Court as the starting point for revisiting the self-authorization question in Canadian agency law. The article then considers two recent cases decided at the Federal Court of Appeal before extending their facts to contemplate a hypothetical (but perhaps not far-fetched) illustration of how the problem might arise in a contemporary setting involving public infrastructure procurement. With this scenario in mind, the case law on apparent and implied authority is examined with reference to the prospect of agent self-authorization. Recent English authority, in particular, may have provided some impetus to return to the prospect of a self-authorizing agent. The article follows by contemplating the acquiescence or passivity of the principal in face of the would-be agent's conduct as well as the related possibility of a finding that the principal's conduct has ratified the agent's earlier behaviour. The article concludes by noting that, to the extent any common position emerges from a discussion of what has historically been a rare situation in the case law, it is that the courts will strive to protect the 'innocent' party in such scenarios, but if there is no innocent party at hand, it would seem that there is little to protect.

Dans cet article, on examine le concept d'agent > dans le cadre des formes modernes de transactions commerciales, particulierement celles qui ont trait a des projets caracterises par une vaste specialisation fonctionnelle. Dans cet article, l'auteur commence par examiner l'arret Canadian Laboratory Supplies et, en particulier, l'opinion dissidente du juge en chef Laskin a la Cour supreme a l'epoque, comme point de depart pour revisiter la question de l'autoautorisation dans le droit de la representation au Canada. L'article se penche ensuite sur deux arrets que la Cour d'appel federale a recemment juges avant de les appliquer a leurs faits pour finalement aboutir a une illustration hypothetique (sans pour autant etre utopique) de la maniere dont le probleme pourrait surgir dans un cadre contemporain impliquant des marches d'infrastructure publique. Dans l'optique de ce scenario, on analyse la jurisprudence relative au pouvoir implicite et apparent par rapport a la perspective de l'auto-autorisation de l'agent. Une jurisprudence recente provenant d'Angleterre pourrait, en particulier, avoir insuffle un certain elan en faveur du retour de la notion d'agent >. L'auteur poursuit en s'interrogeant sur le consentement ou la passivite du mandant vis-a-vis de la conduite de l'agent potentiel et sur la conclusion possible que la conduite du mandant equivaille a une ratification de la conduite anterieure de l'agent. L'article conclut en faisant observer que, dans la mesure ou une position commune emergerait d'une discussion sur ce qui, en general, est une situation rare dans la jurisprudence, on peut s'attendre a ce que les tribunaux s'efforcent de proteger la partie > dans de tels scenarios, mais en l'absence de partie innocente, il y aurait alors peu a proteger.

  1. INTRODUCTION II. REVISITING THE "SELF-AUTHORIZING" AGENT PROBLEM A. CanLab, Chief Justice Laskin and Self-Authorization B. The Centrality of the Agency Relationship: An Outline Emerges C. Case Study: Self-Authorization in a Public-Private Partnership III. AGENCY INTHE CASE LAW A. Apparent and Implied Authority B. Passivity and Acquiescence IV. RECENT JURISPRUDENCE:THE COURTS GRAPPLE WITH SELF-AUTHORIZATION A. The First Energy Case and Contemplating Departure from the Orthodoxy B. Skandinaviska and its Challenge to the Would-Be Heretic V. RATIFICATION VI. CONCLUSION I. INTRODUCTION

    Is the tried and tested common law of contract capable of adapting its venerable principles to new situations that emerge in the course of commercial dealings in a modern economic age? Is the common law capable of the subtle adjustment necessary to readdress itself to complex contractual arrangements entered into in a setting characterized not only by the globalization of organizational structures and supply chains, but also by a significant (and controversially growing) role for multiple levels of government? At first blush, questions of this sort seem unnecessary, even silly. Of course the common law can adapt; that is what makes it the common law. But the last several years have certainly introduced a new, pervasive uncertainty into public and private organization, producing concomitant ambiguity about the way forward and the creation of novel structures as actors, both public and private, try to proceed in their businesses. It is interesting to note, though, that whether the common law adapts and how it does so are very different matters.

    Assuming the former, then, this article focuses on the latter in one very particular area that is well explored in jurisprudence: agency. As this article will strive to suggest, ever greater functional specialization introduces ever larger numbers of parties into transactions, heightening the prospect that some of the parties will (or may appear to) act on behalf of others. The reality that in some such cases a party will choose to take a course of action for its own perceived benefit that potentially affects another party over whom it may carry the authority to bind in contract is far from new, but some of its manifestations may well be so. It is in this vein that the article considers the prospect of a "self-authorizing" agent.

    It is worth establishing at the outset the definition of agency that carries through Canadian law. Following Fridman, "[a]gency is the relationship that exists between two persons when one, called the agent, is considered in law to represent the other, called the principal, in such a way as to be able to affect the principal's legal position in respect of strangers to the relationship by the making of contracts or the disposition of property." (1) Most agency relationships will arise from an agreement of some form between the principal and the agent. (2) This means that the principal and agent will both "agree to the creation of the relationship" and that the agent will be able to "exercise certain authority on behalf of the principal in dealings, with third parties." Beyond Fridman's definition, though, it should be added that agents can also create liability for their principals beyond contracts with third parties, such as under tort and criminal law. (3)

    Yet to note that most agency relationships are created by virtue of an agreement between the principal and the agent is to avoid almost all of the interest in the common law of agency. (4) This is to say, before the common law can be relied on to resolve a dispute where agency concerns are relevant, it will first be necessary to establish that such a relationship existed between the parties. (5) Agents whose authority arises from agreement are said to be endowed with the actual authority of their principals. Although agency can also arise by virtue of statute and by the principal's later ratification of the unauthorized agent's earlier deeds, perhaps the most fascinating problems arise under what is sometimes called "agency by estoppel," referring to situations in which an "agent" acts with the apparent or ostensible authority of the principal. (6) A subspecies of this category covers those situations where the agent acts with the principal's implied authority. The relevant question to establish agency in such a case is to ask what the principal and/or agent must do in order to buttress the creation of the relationship. In particular, can the putative agent's own conduct suffice in some circumstances to lead to a finding of agency, or must the implication come by necessity from the would-be principal?

    It is important to remember what is at stake here. The fact that the alleged agency is founded on apparent authority is not itself the source of any difficulty; instead, the question before a court will be whether the facts bear out the appearance of the agency as pleaded. As Tan observes, "[a]s its name suggests, apparent authority involves the appearance of authority, not the existence of it. Thus apparent authority can arise not only when an agent exceeds authority or the authority has been terminated, but also where a person who has never been an agent is allowed to appear as agent." In such a situation, "[notwithstanding the absence of real authority, the agent may bind the principal where the third party has acted on the faith of such appearance of authority, usually by entering into a contract with the agent." (7) The tension within the common law is very clear in this area: Should the law seek to limit the principal's liability or instead provide maximum protection to the third party? If one is to attempt to seek a sensible compromise between these two extremes, how does one arrive at a reasonable allocation of risks? (8)

    As the later discussion in this paper will establish, it is quite clear that the traditional position has been to reject any "self-authorizing" conduct on the part of an "agent" to serve as a basis for contractually binding the "principal." Reconsideration of this stance, however, was provoked somewhat by a dissenting opinion rendered by then-Chief Justice Laskin at the Supreme Court of Canada in a 1979 case, Canadian Laboratory Supplies v Engelhard Industries of Canada, (9) Nevertheless, in the years following the case it appeared that the theoretical provocation had not led to any significant departures from orthodoxy, and scholarly commentary was essentially in conformance with the view that any movement to allow for agency on the basis of self-authorization would be an...

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