The Gazette 1988

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

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

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

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

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