3. Agency and Negligence

Question 1

Define the agency relationship

Answer 1

The principal is the person who has legally empowered the agent to enter into contractual relations with a third party. The contract itself though is between the principal and the third party

Question 2

The agent effectively drops out of the picture and has no _____ or ______ in respect of the underlying transaction between the principal and the third party

Answer 2

Rights, liabilities

Question 3

In what four ways can a relationship between principal and agent be created?

Answer 3

1. By consent
2. By estoppel (impression agent has authority)
3. By necessity (requiring pre-existing contractual relationship, no practical way of contacting the principal, a pressing need for action, good faith in the interests of the principal and reasonable actions in the circumstances)
4. By ratification (in retrospective effect)

Question 4

What seven duties are implied by law onto an agent?

Answer 4

1. To be accountable for all transactions
2. To avoid conflicts of interest
3. To perform his contractually agreed obligations
4. To follow his principal’s lawful and reasonable instructions
5. To maintain the standard of skill and care reasonably expected
6. To act in person and not delegate
7. To keep in confidence what he knows of his principal’s affairs

Question 5

What are the three rights of any agent?

Answer 5

1. To claim remuneration for services performed
2. To be indemnified by the principal for expenses incurred
3. To exercise lien over property owned by the principal

Question 6

Where an agent’s authority has been agreed with the principal, their authority is said to be what?

Answer 6

Actual express authority

Question 7

In the absence of express authority, the agent’s power to bind may be by what?

Answer 7

Actual implied authority

Question 8

Define apparent/ostensible authority

Answer 8

Where a principal has previously made representations to a third party that the agent has the power to bind

Question 9

In what three particular circumstances may the agent incur personal liability?

Answer 9

1. Under rules of trade usage
2. Where he adds his name as a party to a negotiable instrument
3. Where he makes a contract under seal

Question 10

When can both agent and principal sue or be sued?

Answer 10

Where the agent has authority, but is not known to be an agent, where a principal becomes known at a later date

Question 11

When can the principal not be sued or sue?

Answer 11

Where the agent has no authority

Question 12

Define the tort of deceit

Answer 12

If an agent, knowing that he has no authority, makes a representation to the contrary and causes loss to the third party

Question 13

Define breach of warranty of authority

Answer 13

If an agent genuinely believes that he has authority, but is in fact mistaken

Question 14

Define tort

Answer 14

An act or omission by the defendant, which act or omission is responsible for causing injury or damage to the claimant

Question 15

In order to prove negligence, the claimant must prove what three things?

Answer 15

1. A duty of care is owed to the claimant
2. There has been a breach of that duty of care by the defendant
3. The breach of duty caused the harm to the claimant

Question 16

Define the neighbourhood principle

Answer 16

Every person owes a duty of care to his ‘neighbour’, to ‘persons so closely and directly affected by my act that I ought to reasonably have them in contemplation as being so affected’

Question 17

What four tests are there for establishing whether there is a duty of care?

Answer 17

1. Reasonable foreseeability
2. Proximity
3. Fair, just and reasonable
4. Public policy

Question 18

What is the standard of care owed by an individual in any given set of circumstances?

What seven factors can adjust the above?

Answer 18

Standard of care: the level at which a reasonable man, guided upon those considerations which ordinarily regulate the conduct of human affairs’

1. Particular skill (e.g. being a doctor)
2. Pack of skill (e.g. learner driver)
3. No hindsight
4. Body of opinion (professional opinion justifying the course of action taken)
5. Emergency
6. Vulnerability (higher standard expected)
7. Advantage vs risk

Question 19

A person will only be compensated for tort of negligence if he is able to demonstrate what?

Answer 19

That he suffered injury or loss and that this was a result of the breach

Question 20

If something happened after the defendant’s breach, then the defendant’s liability will what?

Answer 20

Cease at that point

Question 21

The claimant of tort of negligence must prove losses sustained were ______

Answer 21

Foreseeable

Question 22

Where the claimant for tort of negligence shows the loss was suffered a result of breach of duty, that loss must not be too _____

Answer 22

Remote/far down the chain of causation

Question 23

In what four circumstances can auditors be held accountable for a claim of negligence?

What kind of relationship is this known as between auditor and client?

Answer 23

1. Where a client requests a professional opinion
2. The auditor gives an opinion acting in a professional capacity
3. The client relies upon the opinion
4. The client suffers an economic loss as a result of reliance upon the opinion

A ‘special relationship’

Question 24

If an auditor prepares accounts but is not aware an individual relies upon these to invest in said company, does the auditor have a duty of care towards this individual?

Answer 24

No

Question 25

Statements prepared for general circulation will or will not give rise to a duty of care?

Answer 25

Will not

Question 26

A special relationship and duty of care arises if what three factors are present?

Answer 26

1. The bidder had been identified to the defendant
2. It was intended that the bidder should rely on the accounts
3. Express representations had in fact been made to the bidder by the defendant

Question 27

If an auditor puts misleading or false matter to a material extent in a auditor’s report, under what act is this an offence?

Answer 27

Companies Act 2006

Question 28

What is a liability limitation agreement?

Answer 28

An agreement between auditor and company, limiting the auditor’s liability for negligence in the course of auditing accounts to a fair and reasonable amount

Question 29

What four defences may avoid, reduce or limit liability against accusations of negligence?

Answer 29

1. Contributory negligence
2. ‘Volenti non fit injuria’ (where the claimant voluntarily agrees to undertake the legal risk of loss or damage at his own expense)
3. Exclusion clauses
4. Limitation Act (six years from breach of contract or damage caused from tortious act

Question 30

Define vicarious liability

Answer 30

The legal doctrine under which one person can be held legally responsible and liable for the tortious acts of another person

Question 31

A principal is _____ _____ for a tort committed by an agent acting within their authority and carrying out the acts for which they were appointed

Answer 31

Vicariously liable

Question 32

A partnership is liable for any wrongful act or omission of any ____ acting in the ordinary course of the business of the firm (which causes loss or injury)

Answer 32

Partner