557 / 822
DECEMBER 1988
The r ights of an agent to
re imbursement and i ndemn i ty
Agen ts have bo t h r i gh ts and dut i es. In b r oad t e rms, agen ts
have rights of remunera t i on, lien, set-off, re imbur sement and
indemnity. This article is a detailed study of the agent's rights
of r e imbu r sement and i ndemn i t y.
I n t r odu c t i on
In general an agent has a right to
be reimbursed
1
and indemnified
2
by the principal for all expenses or
liabilities incurred while acting
within the authority conferred by
the principal.
3
In essence, this
right consists of three separate but
connected rights: first, a right to be
reimbursed for all reasonable
expenses: secondly, a right to be
indemnified against all liabilities
incurred in the reasonable per-
f o rmance of the agency;
4
and
thirdly, a right to set off the amount
of any expenses, losses or other
liabilities where the principal sues
the agent (unless the money due to
the principal is held on trust
5
).
6
This article concentrates on the
r i gh ts of r e i mb u r s eme nt and
indemnity. These rights are of
importance to all agents be they
partners, stockholders,
7
solicitors,
company directors, estate agents,
stockbrokers or whatever. As the
rules on both rights are similar the
t wo rights will be considered
simultaneously.
Preliminary considerations
In commercial life, the existence of
the rights of reimbursement and
i ndemn i ty are of t he u t mo st
importance. Few people would be
willing to act as agents unless they
had an en f o r c eab le r i ght to
reimbursement and indemnity. As
Best C. J. said: "auctioneers,
brokers, factors, and agents . .
wou ld indeed be surprised, if
having sold goods for a man and
paid him the proceeds, and having
suffered afterwards in an action at
the suit of the true owners, they
were to find themselves wrong-
doers, and cou ld not recover
compensation from him who had
induced t hem to do the wr ong . "
8
The
contents
of the underlying
agency agreement is of vital
significance. Its terms can dictate
the existence and extent of the
agent's rights to reimbursement
and indemnity.
9
The
nature
of the underlying
agency agreement may also prove
to be of considerable significance.
If it is a contractual agreement then
the rights
10
can be implied into the
agreement. If it is not a contractual
ag r eement t h en t he law of
r es t i t u t i on (or, as it is more
by
V i ncent J.G. Power
B.C.L. (N.U.I.), LL.M. (Cantab.),
B.L. (King's Inns).
Lecturer in Law, University
College Cork.
traditionally known,
quasi-contract
must be taken into consideration.
In some circumstances, the right
to reimbursement may be dove-
t a i l ed
i n to
t he
r i ght
to
remuneration. Thus, for example,
an agent might decide against
seeking to enforce a separate right
to reimbursement where (s)he has
been remunerated by the principal.
Estate agents are a good example.
Very often, an estate agent who
manages to secure a buyer or seller
will not seek reimbursement of
expenses separately from the right
to remuneration. Again, if the
estate agent fails to secure a buyer
or seller then the estate agent will
very often not seek reimbursement
of expenses, rather just treat the
expenses
(of
ad v e r t i s i ng,
introducing potential clients, etc.)
as write-offs.
11
Sources of the rights
The existence and extent of the
r i gh ts to r e i mb u r s eme nt and
indemnity depend on the agency
ag r eement c o n c l u d ed by t he
principal and the agent.
12
A great
deal turns on whether the agency
is contractual or not, for example,
if the agency is contractual then
the agent is en t i t l ed to full
indemnity but this is not so in a
non-contractual agency. If the
r i gh ts to r e i mbu r s ement and
indemnity exist then they exist
irrespective of whether the agent is
a c t i ng
g r a t u i t o u s ly
or
for
remuneration. The rights may be
either expressly or impliedly
13
stated in the agency agreement.
In a contractual agency (the
most common type of agency in
the commercial world), the right to
indemnity arises from an express or
implied
14
term in the contractual
ag r eemen t. The pa r t i es may
expressly exclude the possibility
t h a t
t he
agent
is to
be
indemnified.
15
If the parties have
not excluded such a possibility then
the courts are normally willing to
imply a right to indemnity into a
commercial agency agreement so
as to give the contract business
efficacy.
In a non-contractual agency,
16
there may still be rights to re-
imbursement and indemnity. They
may arise f r om t wo principal
sources. First, there may be a
separate contract to reimburse and
indemnify the agent.
17
Secondly,
there may be a restitutionary or
quasi-contractual claim on the part
of the agent.
18
As Markesinis and
Munday observe: " un l e ss the
agent is acting as a trustee
19
(in
which case equity will afford him
remedies against the principal), his
right to an indemnity will be
founded on quasi-contract and he
can claim for all the expenses and
losses wh i ch he has been com-
pelled to incur by acting for the
benefit of the principal, provided
that the principal himself would
otherwise have incurred those
selfsame liabilities."
20
The agent
has a right only to the " paymen ts
made . . . under compulsion, in
respect of wh i ch the ultimate
liability is on the principal, and the
benefit of wh i ch the principal
obtains."
21
317