In this blog post, we provide a summary of the different types of agency relationships in the United Kingdom and United States.
Agency relationships are legal arrangements where one party—the “agent”—acts on behalf of another party—the “principal”—to carry out specific responsibilities or transactions. The agent is entrusted with making decisions and conducting activities as if they were the principal themselves. The agent’s decisions are then enforceable against the principal, as long as they fall within the parameters of the authority conferred.
Agency arrangements can be formal (actual agency), typically established through a contract or agreement, outlining the agent’s responsibilities, authority, and limitations; or informal (apparent agency), established and enforced through the agent’s actions. In agency relationships, the agent has a fiduciary duty to act in the best interests of the principal over the agent’s, to avoid conflicts of interest and to use reasonable care and skill.
In the tech and sourcing world, agency relationships may arise in a number of scenarios—for example, where one party requires another to procure software on its behalf or enter into other arrangements on its behalf or to sell goods or services on its behalf. This may be as part of a wider services agreement or could be a standalone agency arrangement.
While the concepts of agency are similar in the United Kingdom and the United States, there are variations in the legal principles and specific rules that apply in each jurisdiction. In both jurisdictions, however, agency relationships come with various types of liability, each corresponding to the extent of authority granted to the agent and the responsibilities they assume.
Types of Agents
- Unlimited Agent: An unlimited agent, also referred to as a “general agent” in the United Kingdom, has broad authority to act on behalf of the principal in a wide range of activities. The principal may be held liable for the actions of the unlimited agent, provided the agent acted within the scope of their authority and for the principal's benefit.
- Limited Agent: A limited agent is also referred to as a “specific agent” in the United Kingdom and a “special agent” in the United States. A limited agent’s authority is restricted to performing specific tasks or transactions on behalf of the principal. The principal is generally liable for the agent's actions within the scope of their specific instructions.
- Sub-Agent: A sub-agent is appointed by the agent acting on behalf of the principal. Although liability for a sub-agent’s actions is usually complex, the principal is usually not directly liable to the sub-agent. The agent who appointed the sub-agent is generally responsible for all sub-agents’ actions carried out within the scope of their authority.
Types of Principals
- Disclosed Principal: A disclosed principal agency relationship occurs where the agent acts on behalf of the principal, and the third party is aware of both the existence of the principal and the principal's identity. The principal is directly liable to the third party, and the agent should have no liability to that third party, unless otherwise agreed. The principal will generally look to have a number of contractual protections in place to cover the agent’s obligations.
- Undisclosed Principal: An undisclosed principal agency relationship occurs when the agent acts on behalf of the principal, but the third party is not aware that the agent is acting on that principal’s behalf. The agent will be liable to the third party. If the principal's identity is disclosed, the principal also becomes liable to the third party and the third party may make claims against the agent or the principal. In such arrangements, agents will often seek wide indemnities from the principal to cover the agent’s liability.
- Unidentified Principal: An unidentified principal relationship occurs when the third party knows there is a principal but is unaware of the principal's identity. A somewhat gray area of agency law, the agent has potential liability to the third party, as the third party does not know who the principal is to take action against. If the principal's identity is disclosed, the principal becomes liable to the third party; however, there may be contractual restrictions on the agent identifying the principal; this can leave the agent in the position of potential liability with limited option to mitigate.
Although outside of the scope of this blog post, it is worth noting that certain agency relationships in the United States are governed by the Commercial Agents (Council Directive) Regulations 1993, which provides a number of statutory rights for agents that fall within the definition of “commercial agent.”
Trainee solicitor Lucrezia Noiret contributed to this post.