Agency - Ratification

Question 1

What is Ratification?

Answer 1

When ratification occurs, an agency relationship or authority retrospectively ( Attorney-General (NSW) v Wylde (1946) 47 SR (NSW) 99 at 109):

is granted … although it is sometimes said that the act done is ratified: cf Keighley, Maxsted & Co v Durant [1901] AC 240 at 246;

Taylor v Smith (1926) 38 CLR 48 at 54,

the true rule appears to be that the effect is to adopt the relationship of agency assumed by the professing agent: per Isaacs J, Davison v Vickery’s Motors Ltd (in liq) (1925) 37 CLR 1.

See also Union Bank of Australia Ltd v McClintock [1922] 1 AC 240 at 248.

Any unauthorised act by an agent, whether lawful or unlawful, is capable of being ratified: Bedford Insurance Co Ltd v Instituto de Resseguros do Brasil [1985] QB 966 at 985.

Question 2

Any unauthorised act by an agent, whether lawful or unlawful, is capable of being ratified: Bedford Insurance Co Ltd v Instituto de Resseguros do Brasil [1985] QB 966 at 985.

BUT can a prohibited transaction be ratified?

Answer 2

No - However, life cannot be given by ratification to prohibited transactions: Bedford Insurance at 986.

Question 3

If the relationship of Agency is ratified - is it only acts carried out from the time of ratification OR is it retrospective?

Answer 3

The retrospective aspect of the doctrine is an important feature.

If the relationship of agency is ratified, it follows that the particular act of the agent originally done without authority becomes valid and effectual from the time of the agent’s act, and not merely from the date of the ratification.

If legal proceedings are instituted without authority but subsequently ratified, the ratification dates back to the date of the institution of the action:
Danish Mercantile Co Ltd v Beaumont [1951] Ch 680;
Ox Operations Pty Ltd v Land Mark Property Developments (Vic) Pty Ltd (in liq) [2007] FCA 1221;
Victoria Teachers Credit Union Ltd v KPMG (a firm) (2000) 1 VR 654; [2000] VSCA 23;
Raja v Darul-Iman (WA) Inc (No 2) [2011] WASCA 251.

The position is the same as if the agent had been given authority in the inception:

Irvine v Union Bank of Australia (1877) 2 App Cas 366 at 374.

In Rinfort Pty Ltd v Arianna Holdings Pty Ltd (2016) 306 FLR 413 at [35] it was held that ‘an action brought without authority is not a nullity in the sense that it is void ab initio without the possibility of subsequent ratification, which, once effective related back to the institution of the action’.

Question 4

Is there any limitation or qualification as to the effect of ratification? Can P ratify A for a transaction that P was not lawfully able to do him/herself?

Answer 4

There is, however, a qualification as to the effect of ratification.

In Bird v Brown (1850) 4 Exch 786; 154 ER 1433 at 1439 it was said that the doctrine of ratification ‘must be taken with the qualification, that the act of ratification must be taken at a time, and under circumstances, when the ratifying party might himself have lawfully done the act which he ratifies’.

In Presentaciones Musicales SA v Secunda [1994] 2 All ER 737 this dictum was thought to be too widely stated and the preferred statement of principle was in the judgment of Cotton LJ in Bolton Partners Ltd v Lambert (1889) 41 Ch D 295, where Bird v Brown was treated as an instance of the ‘vested right’ exception to the application of ratification: Presentaciones Musicales at 750– 1.

Question 5

How is the doctrine of Ratification favourable to P? At what point does P become bound?

Answer 5

The doctrine of ratification is favourable to the principal because until ratification the principal is not bound, and has an option to adopt or not to adopt what has been done: Hagedorn v Oliverson (1814) 2 M & S 485, cited in Bolton Partners at 306.

Question 6

If a contract is SUBJECT TO ratification, at what point does the contract come into existence?

Answer 6

If a contract is made subject to ratification there will be no contract until ratification is communicated to the third party by the principal:

Watson v Davies [1931] 1 Ch 455. The difference is that the third party knows of the limitation of the agent’s authority:

Warehousing & Forwarding Co of East Africa Ltd v Jafferali & Sons Ltd [1964] AC 1 at 9 distinguishing Koenigsblatt v Sweet (1923) 2 Ch 314.

This was expressed as an exception to ratification in Managers of the Metropolitan Asylums Board v Kingham & Sons (1890) 6 TLR 217 at 218:

Supposing a person tendering says, ‘I will not be bound by an
acceptance of any unauthorised person, it must be accepted by the
principal’, such condition would be perfectly valid.

The process of ratification can be described as follows: A person (unauthorised ‘agent’) performs an act, for example, enters into a contract expressly on behalf of someone else. At the time the person did not have authority to do so.

The person on whose behalf the contract was entered (the alleged ‘principal’) is, however, pleased with the contract and ratifies. The contract is then regarded as valid and effectual as it would have been had it been done with prior authority.

Question 7

What are the 3 elements that must be present to constitute a valid ratification?

Answer 7

To constitute a valid ratification three conditions must be satisfied:

1. the agent whose act is sought the principal; to be ratified must have purported to act for the principal
2. at the time the act was done the agent must have had a competent principal;
3. at the time of the ratification the principal must be legally capable of doing the act himself - Firth at 75.

Question 8

Can an Agent ratify?

Answer 8

Ratification may also be effected by an agent provided that agent is authorised to ratify on the principal’s behalf: Re Portuguese Consolidated Copper Mines Ltd (1890) 45 Ch D 16.

Question 9

If A enters into a contract purporting to act for himself and not with authority of a P, with undisclosed intention to give benefit to 3rd party - can that be ratified by the 3rd party?

Answer 9

No.
‘A voluntary agent must expressly intend to benefit the person for whom he acts’: Byas v Miller (1897) 3 Com Cas 39. A contract made by a person purporting and professing to act on his or her own behalf alone, and not with the authority of or on behalf of the principal, but having an undisclosed intention to give the benefit to a third party, cannot be ratified or adopted by that third party so as to render the third party able to sue or be sued on the contract:

Keighley, Maxsted & Co v Durant [1901] AC 240;
McLean Bros & Rigg Ltd v Grice (1906) 4 CLR 835 at 857;
Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68 at 82;
Marguerita Strauss v Ian Bennett [2016] NSWSC 262 at [113].

As Lord Macnaghten said in Keighley at 247: It is, I think, a well-established principle in English law that civil obligations are not to be created by, or founded upon, undisclosed intentions. That is a very old principle.

Lord Blackburn, enforcing it in the case of Brogden v Metropolitan Ry Co (1877) 2 App Cas at 692 traces it back to the year-books of Edward IV (17 Edw.4, 2, pl 2) and to a quaint judgment of Brian CJ:
‘It is a common learning’, said that Chief Justice, who was a great authority in those days, ‘that the thought of a man is not triable, for the Devil has not knowledge of man’s thoughts’.

Lord James of Hereford put it this way at 251:

Doubtless a person can confirm and ratify a contract which was in fact made on his behalf. But an undisclosed principal must exist at the time of the contract. He cannot be brought into life as a principal after the contract has been made without any recognition of his existence.

Question 10

What is an undisclosed P as described in the case of Keighly, Maxsted & Co v Durant?

Answer 10

The reference to ‘undisclosed principal’ likely means that the existence of the principal is disclosed but not their identity.

This is the case as a contract cannot be made by or on behalf of an undisclosed principal unless at that time the agent had the principal’s authority to make the contract.

Question 11

Can the doctrine of ratification apply to undisclosed P?

Answer 11

Therefore, the doctrine of ratification cannot apply to the undisclosed principal:

Trident General Insurance Co v McNiece Bros (1987) 8 NSWLR 270; Dawnlite Pty Ltd v Riverwalk Realty Pty Ltd [2013] QSC 243 at [89].

If no notification was required of the principal ‘the whole world could ratify’ ( Keighley at 259) and another anomaly (like the undisclosed principal doctrine) would be created ( Keighley at 256): … the rule which permits an undisclosed principal to sue and be sued on a contract to which he is a party, though well settled, is itself an anomaly, and to extend it to the case of a person who accepts the benefit of an undisclosed intention of a party to the contract would, in my opinion, be adding another anomaly to the law, and not correcting an anomaly.

Question 12

If A was acting fraudulently in claiming to act for P, does that matter?

Answer 12

It is irrelevant whether the agent in assuming to act for the principal has a fraudulent Re Tiedemann and Ledermann Freres [1899] 2 QB 66 at 69.

Question 13

How much does the 3rd Party need to know re the identity of P?

Answer 13

There is an issue as to the extent of knowledge required by the third party of the identity of the principal.

It has been held that in cases of ratification the principal must be known or ascertainable at the time of contracting: Lyell v Kennedy (1889) 14 App Cas 437. ‘It is not necessary that [the principal] be named, but there must be such a description of him as shall amount to a reasonable designation of the person intended to be bound by the contract’: Keighley at 255 citing Watson v Swann (1862) 11 CB (NS) 756.

Question 14

What were the facts in Watson v Swann (1862) 11 CB (NS) 756?

Answer 14

In Watson v Swann a policy of insurance was effected on goods ‘to be valued and declared as interest might appear’.

No person was pointed out at the time the policy was effected as the person who was to be the owner of the goods insured. The person who took out the policy was professing to act for himself at the time of making the policy.

It was held that the stranger could not by ratification assume the benefit of the contract.

Similarly, it has been held that a potential beneficiary under a policy of insurance is not an ascertainable principal: Trident General Insurance at 278.

Question 15

Can forged documents be ratified? Does the forger purport to act as A for P?

Answer 15

The issue of whether an act was done on behalf of a principal and therefore capable of ratification has arisen in the context of forged documents.

The better view is that a forgery is not capable of ratification on the basis that the forger has not purported to act as agent but has simply produced the document and pretended that the signature was that of the principal: Brook v Hook (1871) LR 6 Exch 89; Rowe v B & R Nominees Pty Ltd [1964] VR 477 at 484.

It may be possible in such a case for a forged instrument to be adopted by the principal: Greenwood v Martin’s Bank [1932] 1 KB 371.

For the adoption to be effective there must be a new agreement between the adopter and the contracting party for valuable consideration: Rowe at 485

Question 16

Who has the authority to ratify?

Answer 16

Only the principal on whose behalf the act was done may ratify.

The principal may ratify through an agent. In such a case the agent need only have authority to ratify the relevant act, not authority to have performed the relevant act itself: Re Portuguese Consolidated Copper Mines Ltd (1890) 45 Ch D 16 at 26– 7.

In that case, in considering whether there had been valid ratification of unauthorised allotments of shares, it was held:

It is the contract of the company, and I know of no rule at all which can allow us to say that the confirmation of the contract may not be made by anyone who has authority on behalf of the company to confirm that contract.

Here the directors have full power to do everything on behalf of the company, which is not specially reserved to the company acting in general meeting, and, therefore, in my opinion, it is not necessary to shew that those who confirmed or adopted this contract were the persons who were originally nominated as the persons who were to allot the shares.

Question 17

What is ‘the act of ratification’? How is it determined?

Answer 17

It is essentially a factual question as to whether there has been ratification of a particular transaction:

Borg v Northern Rivers Finance [2004] QSC 29 at [43].

The authorities emphasise the importance of considering the whole of the circumstances surrounding the acts said to constitute ratification:

Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd [1975] VR 607 at 617.

Question 18

Is P liable where A has trespassed & stolen goods? What proof or evidence is needed?

Answer 18

Where the act was trespass (stealing cattle) and the issue was whether the principal was liable, the court held in Maudouit v Ross (1884) 10 VLR (L) 264 at 266– 7 as follows:

Evidence of ratification consists of proof of acts or words showing an election of the ratifier to adopt as his own the act of another known to him, and done by that other for his benefit or in his name.

Mere knowledge of the act of the agent is not ratification, (although knowledge is a necessary element of ratification) except where there is an intention to adopt the act at all events and under whatever circumstances:

Freeman v Rosher [(1849) 13 QB 780];
Phosphate of Lime Company v Green [LR 7 CP 43 at p 56];

there must be evidence either of participation in the advantage resulting from the act, as for instance by receiving the proceeds of an irregular sale, as in Hunter v Parker [7 M & W 322], or of express approbation of the act, as in Buron v Denman [(1848) 2 Ex 167].

Question 19

Does P need to have benefitted where P is alleged to have ratified?

Answer 19

Some cases emphasise the taking of benefit by the person alleged to have ratified:

Australian Blue Metal Ltd v Hughes [1962] NSWR 904 at 925;

McLaughlin v City Bank of Sydney (1912) 14 CLR 684;

Leybourne v Permanent Custodians Ltd [2010] NSWCA 78 at [133];

Perpetual Trustees Victoria Ltd v Xiao [2015] VSC 21.

It has been held that a forged agreement is a nullity and incapable of ratification: Perpetual Trustees Victoria Ltd v Xiao [2015] VSC 21.

Question 20

Does there need to be an intention on the part of P to adopt?

Answer 20

In some cases, an intention to adopt by the principal is regarded as important:
Griew, Bowstead on Agency , 12th ed, Sweet & Maxwell, London, 1959, p 42;
Barrett v Irvine [1907] 3 IR 462.

This requirement has an objective aspect: Lamshed v Lamshed (1963) 109 CLR 440, where Kitto J in supporting the finding of ratification by the trial judge said at 448 that

‘he so conducted himself in dealing with the respondents that any reasonable person in their position would have inferred that he was accepting the situation that the altered document constituted a contract binding on him’.

Similarly, it was held in Learn & Play (Rhodes No 1) Pty Ltd (as trustee for Rhodes 1 Childcare Centre Unit Trust) v Lombe [2011] NSWSC 1506 at [23]–[24]:

It is not open to a principal who, by his conduct, appears to the outside world to have adopted a transaction, to be able to prove subjectively that he did not intend to approve it. A principal is not entitled to prove subjectively that he did not intend to adopt a transaction when he has done an unequivocal act to adopt it with full knowledge of its terms and features:
Suncorp Finance & Insurance Corp v Milano Assicurazioni SpA [1993] 2 Lloyd’s Rep 225 at 235.
On the other hand, the subjective knowledge and understanding of the principal is also relevant. It must be shown that the principal was aware of the material terms and features of the transaction which he is said to have adopted and ratified.

Without such full knowledge, there will not be ratification according to law. I doubt very much whether a principal, who was aware of the material terms, could successfully contend that he lacked the relevant knowledge because of his own obtuseness, neglect or failure for some other reason to appreciate the significance of those terms.

Question 21

In what other case has the principle in “Learn & Play” been applied?

Answer 21

Learn & Play was applied in Anderson v Anderson [2016] NSWSC 1204 at [323] where it was held that the principal lacked capacity to ratify the actions of a substitute attorney, there being no evidence of any conduct to show that he had full knowledge of, or that he understood or was capable of understanding, what had been done.

Question 22

Does the act of ratification need to be express?

Answer 22

The act of ratification can be express or implied.

A contract may be ratified by the commencement of an action against the other party:
Celthene Pty Ltd v WKJ Hauliers Pty Ltd [1981] 1 NSWLR 606 at 615.

More often than not, ratification will be implied from words or conduct.

Implied ratification exists where the conduct of the person in whose name the act was done is such as to show that he or she adopts or recognises such act, and may be implied from the mere inactivity or acquiescence of the principal:

Cox v Isles, Love & Co [1910] St R Qd 80.

Question 23

What needs to exist for implied ratification to exist? If there is an alternative explanation for the actions of P will ratification be the only possible outcome?

Answer 23

In order for implied ratification to exist, the words or conduct must be unequivocal:
Petersen v Moloney (1951) 84 CLR 91 at 101; Xiao .

In other words, there must be no other explanation for the principal’s act; for example, that the principal is merely resuming possession of his own property: Forman & Co Pty Ltd v Liddesdale [1900] AC 190.

In Forman it was held that as a shipowner had no choice but to receive back his ship on which had been performed unauthorised repairs, the receipt of the ship did not amount to ratification.

Receipt of money even with knowledge of its source is not conclusive evidence of ratification: Australian Blue Metal at 925.

In some circumstances, acquiescence by the principal in the implementation of the unauthorised transaction may amount to unequivocal conduct adopting the transaction: Xiao ; Pollard v Wilson [2010] NSWCA 68.

All surrounding circumstances must be taken into account.

Question 24

If P benefits from actions of A, can he/she still stil claim NOT to have ratified the actions of A?

Answer 24

This principle of unequivocal adoption must be viewed against the backdrop of the principle that a purported principal cannot both approbate and reprobate the actions of the purported agent.

Therefore, ‘if the principal accepts benefits which flow from the allegedly unauthorised act of the agent and knows that the benefit so flows he must, except in very special circumstances, be taken to have ratified the agent’s act’: Australian Blue Metal at 925.

Question 25

Does P need to communicate the ratification to the 3rd party?

Answer 25

It is not necessary for the principal to communicate their ratification to the third party:
Rowe v B & R Nominees Pty Ltd [1964] VR 477.

This is due to the nature of the doctrine, which was explained this way in Harrison’s & Crossfield Ltd v London & North-Western Railway Co [1917] 2 KB 755 at 758:

Now ratification does not rest upon estoppel. It need not be communicated to the party alleging it. Ratification is a unilateral act of the will, namely, the approval after the event of the assumption of an authority which did not exist at the time.

It may be expressed in words or implied from or involved in acts. It is implied from or involved in acts when you cannot logically analyse the act without imputing such approval to the party whether his mind in fact approved or disapproved or wholly disregarded the question.

Question 26

What if P does NOT wish to ratify - what are the communication requirements? Is there a timeframe?

Answer 26

If the principal does not wish to ratify, they should notify their dissent within a reasonable time:

International Paper Co v Spicer (1906) 4 CLR 739;
Scots Church Adelaide Inc v Fead [1951] SASR 41 at 52;
Lamshed v Lamshed (1963) 109 CLR 440.

In City Bank of Sydney v McLaughlin (1909) 9 CLR 615 at 625 Griffith CJ and Barton J said: In general a man is not bound actively to repudiate or disaffirm an act done in his name but without his authority.

The principal should notify their dissent to the third party:

Prince at B & C 189; ER 71;
Phillips v Homfray (1871) LR 6 Ch App 770 at 778;
Scots Church Adelaide at 52.

Question 27

In City Bank of Sydney v McLaughlin (1909) 9 CLR 615 at 625 Griffith CJ and Barton J said: In general a man is not bound actively to repudiate or disaffirm an act done in his name but without his authority.

Is this always the case?

Answer 27

But this is not the universal rule. The circumstances may be such that a man is bound by all rules of honesty not to be quiescent, but actively to dissent, when he knows that others have for his benefit put themselves in a position of disadvantage, from which if he speaks or acts at once, they can extricate themselves, but from which, after a lapse of time, they can no longer escape.

As Bailey J said in Prince v Clark (1823) 1 B & C 186 at 189; 107 ER 70 at 71:

The principal … has no right to pause and to wait the fluctuation of the market, in order to ascertain whether the purchase is likely to be beneficial or prejudicial; he is bound, if he dissents, to notify his determination within a reasonable time, provided he has an opportunity of doing so.

Question 28

If P doesn’t know who the 3rd party is - does that relieve them of the need to communicate ? What happens if they do not communicate their dissent?

Answer 28

If the principal does not know to whom they should notify their dissent, it is their duty to make inquiries:

Scots Church Adelaide .

Should the principal not communicate their dissent, they may by their actions be held to have assented. In Scots Church Adelaide, the principal’s conduct in not communicating her dissent to the purchaser for over five months was held to amount to acquiescence in the contract entered into by the agent, and to a ratification of his action in signing as her agent: at 53.

In Prince , it was held that a failure to make inquiries over a period of little more than two months was fatal.

In Klement v Pencoal Ltd [2000] QCA 152, it was held that in circumstances where the principal became aware of the agent’s forgery, and did nothing about it for more than three years, the principal’s deliberate silence amounted to ratification (compare McLaughlin v City Bank of Sydney (1912) 14 CLR 684 at 691).

Also significantly, it was held, the principal intended that the transaction stand as fully performed because the principal hoped to share in its benefit. The principal’s silence ‘amounted to an “implied communication” to [the other contracting party] of his acquiescence in the forgery …’: at [40].

Question 29

Ratification by acquiescence vs Estoppel
When can Estoppel be used against P?

Answer 29

In the case of ratification by inactivity or acquiescence where it cannot be shown that the principal had the necessary intention to ratify, it may be that an estoppel can be raised against the principal in the alternative: Spiro v Lintern [1973] 3 All ER 319.

In that case it was held at 326: Where a man is under a duty — that is, a legal duty — to disclose some fact to another and he does not do so, the other is entitled to assume the non-existence of the fact. In such circumstances the conduct of the first man amounts to a representation by conduct to the second that the fact does not exist.

In Bell v Marsh [[1903] 1 Ch 528 at 541], Henn Collins MR put the point in this way: He [the plaintiff] is entitled to say that the representation was made, not merely by language used, but by conduct, and conduct may include negligence. A man may act so negligently that he must be deemed to have made a representation, which in fact he did not make, but because he has acted negligently he is deemed to have made it.

If A having some right or title adverse to B, sees B in ignorance of that right or title acting in a manner inconsistent with it, which would be to B’s disadvantage if the right or title were asserted against him thereafter, A is under a duty to B to disclose the existence of his right or title.

If he stands by and allows B to continue in his course of action, A will not, if the other conditions of estoppel are satisfied, be allowed to assert his right or title against B: see Halsbury’s Laws of England [3rd ed, vol 14, pp 638– 40, paras 1178– 1180]. Jacobs J

Question 30

How is Ratification distinguished from Estoppel?

Answer 30

In Australian Blue Metal Ltd v Hughes [1962] NSWR 904 held at 925:

Ratification must be distinguished from estoppel. In the latter case it must be shown that the other party has acted to his detriment.

This is not necessary in the case of ratification. Although a receipt of money without prejudice may prevent an estoppel, it does not necessarily prevent a ratification.

So also if moneys are received under a disputed agreement in the course of the dispute concerning the authority of an agent to conclude the agreement, there may, in my view, be a ratification, although there could hardly be an estoppel.

Question 31

Is detriment necessary in Estoppel?

Answer 31

Detriment is an essential part of estoppel; that is, there must be evidence that the third party took or abstained from taking any action as a result of the relevant conduct by the principal:

Australian Blue Metal at 925.

Question 32

Is detriment essential for ratification?

Answer 32

Detriment is not necessary, but can be relevant in proving ratification: Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd [1975] VR 607 at 617.

Although a receipt of money without prejudice may prevent an estoppel, it does not necessarily prevent a ratification:

Australian Blue Metal at 925.

Nevertheless, although ratification, unlike estoppel, does not require proof of reliance or detriment, it was observed in O3 Capital Pty Ltd v WY Properties Pty Ltd [2016] WASCA 82 that the same facts within an assumed agency context may give rise to an equitable estoppel or ratification: at [98].

Question 33

What is P’s obligations to notify where they know the 3rd party is acting on basis of a mistake, and where P also remains silent in hope of also benefitting? What have the courts determined?

Answer 33

In Klement v Pencoal Ltd [2000] QCA 152 at [22], the court held that the principal was obliged to notify another whom they knew was proceeding on the basis that the agent’s authority was intact, at peril of otherwise being estopped from denying the authority should the other entity act to their detriment.

The court referred to West v Commercial Bank of Australia Ltd (1935) 55 CLR 315 at 322, where the High Court said:

Departure from an assumption upon which another person has acted to his detriment is not permitted to a party who, knowing or believing the other labours under a mistake in adopting it, has refrained from correcting him when it was his duty to do so … In the present case, the conduct of the appellant goes much further. He stood by deliberately.

In Klement, the principal stood by deliberately and refrained from notifying the contracting party of their agent’s forgery because they hoped to benefit from the transaction.

Question 34

How had P’s deliberate inaction been dealt with in the courts in cases of ratification by acquiescence, inaction or estoppel?

Answer 34

The fact that the principal’s inaction was deliberate rendered the conduct more significant. The same fundamental principle has been said to underlie the concepts of ratification by inaction, acquiescence or estoppel: West v Dillicar [1920] NZLR 139 at 146 (and on appeal [1921] NZLR 617).

In that case it was held:

Whether the result is stated in the form that the defendant is estopped, or stood by, or acquiesced, or that he ratified or confirmed the agreement, the fundamental principle is the same.

‘If a man, either by words or conduct, has intimated that he consents to an act which has been done, and that he will offer no opposition to it, although it could not have been lawfully done without his consent, and he thereby induces others to do that from which they might otherwise have abstained he cannot question the legality of the act he had so sanctioned to the prejudice of those who have so given faith to his words or to the fair inference to be drawn from his conduct’:

Cairncross v Lorimer (1860) 3 Macq 827 at 829. See also De Bussche v Alt (1878) 8 Ch D 286.

Question 35

Why is full knowledge of material circumstances by P important in ratification?

Answer 35

A principal can only ratify if they are aware of all the material facts at the time of ratification or displayed an intention to ratify no matter what the circumstances:

Taylor v Smith (1926) 38 CLR 48 at 54– 5 per Knox CJ, 59 per Higgins J, 60 per Rich J and 62 per Starke J;

Marsh v Joseph [1897] 1 Ch 213 at 246– 7;

Victorian Professional Group Management Pty Ltd v Proprietors ‘Surfers Aquarius’ Building Units Plan No 3881 [1991] 1 Qd R 487 at 496– 7 per Connolly J and 499– 500 per Thomas J;

Fried v National Australia Bank (2001) 111 FCR 322 at 361;

Learn & Play (Rhodes No 1) Pty Ltd (as trustee for Rhodes 1 Childcare Centre Unit Trust) v Lombe [2011] NSWSC 1506 at [22].

Question 36

What if P is silent, but not in possession of all of the material facts? What must be made out to hold P liable?

Answer 36

In Lederberger and Scheiner v Mediterranean Olives Financial Pty Ltd [2012] VSCA 262 the court said at [74]:

Ratification can be inferred from silence or acquiescence. But for a principal to ratify the unauthorised transactions of an agent, the evidence must establish that the principal had full knowledge of all the material circumstances in which the unauthorised transactions were made and thereby consciously sanctioned the agent’s unauthorised act.

Silence or acquiescence will not constitute ratification absent proof of a knowing acceptance sufficient to be treated in equity as an assent to what would otherwise be an infringement of rights ( Orr v Ford (1989) 167 CLR 316 at 337).

The evidence must establish knowledge by the principal which enables his or her subsequent inaction to be seen as an adoptive act ( Tobin v Melrose [1951] SASR 139) or consciously sanctioned ( Permanent Trustee Co Ltd v Bernera Holdings Pty Ltd [2004] NSWSC 56).

Question 37

To what extent must P have knowledge?

Answer 37

The extent of knowledge required will vary depending on the facts; however, it must be sufficient to decide whether or not to adopt the unauthorised act:

Leybourne v Permanent Custodians Ltd [2010] NSWCA 78 at [134].

Although the principal’s subjective knowledge of the material facts is relevant, a principal cannot give subjective evidence that they did not intend to adopt an unauthorised transaction when, by their conduct, they appear to have adopted it with full knowledge of the material facts:

Perpetual Trustees Victoria Ltd v Xiao [2015] VSC 21 at [138].

Question 38

What were the facts in Taylor v Smith? Was it held that P had full knowledge?

Answer 38

In Taylor v Smith, the principal’s solicitor overpaid an amount by way of commission to third-party selling agents out of purchase money belonging to the principal.

The principal did not authorise this and the issue was whether by his silence he could be said to have ratified the payment.

The High Court held he could not as he did not have full knowledge of all the material circumstances in which the payment was made. He was entitled to assume that the solicitor, whose duty it was to protect his interests, had satisfied himself that the selling agents were legally entitled to the money.

The principal made the payment under a mistake of fact, a material circumstance which was not shown to have been within the knowledge of the principal: at 55.

An exception to this is where the principal can be shown to have adopted the agent’s acts whatever they were: Bayley v Fitzmaurice (1856) 6 El & Bl 868.

Question 39

What were the facts in Bayley v Fitzmaurice (1856) 6 El & Bl 868? How was this an exception to the requirement of P to have full knowledge?

Answer 39

In Bayley, the agent entered into an agreement for a lease with a third party but included some stables in the leased premises without the principal’s authority.

The principal was unaware of this addition, but it was held that the principal had ratified due to the wording of his letter to the third party, in which he said:

‘What he has done for me I know not but I must support him in all he has done for me.’

Question 40

What were the facts in Lederberger? Was P (the mother) held to have ratified?

Answer 40

In Lederberger a mother (as trustee of her late husband’s estate) and her son were partners in a camping goods business. The son had, without authority, entered into a number of primary production tax-avoidance schemes.

The issue was whether his mother’s conduct in signing tax returns and obtaining the tax deduction benefits flowing from the investments, and her failure to file amended tax returns if she did in fact object to the schemes, amounted to ratification.

The court found that she had no knowledge of the schemes when she signed the returns and that when she did find out about them, she did not believe there was anything she could do about it. On this basis, the court held that the evidence did not support an inference of ratification: at [80]–[82].

Question 41

What was the ratification issue in Porteous v Donnelly [2002] FCA 862? (Lang Hancock) ? Was the inclusion of a transaction in the accounts = to ratification?

Answer 41

In Porteous v Donnelly [2002] FCA 862, a case which concerned the estate of the mining magnate Lang Hancock, it was argued that inclusion of a transaction in the accounts of a company over a period of years amounted to evidence of ratification of the transaction.

The transaction consisted of the sale by Hancock at a grossly inflated price of Hancock’s Life Governor’s share in a company to an associated company of which he was a de facto director.

It was held that there was no evidence that several of the members of the purchasing company would have consented to the sale, and furthermore that the members were unaware that there had been a breach of fiduciary duty and of other consequences inherent in the transaction:

For the consent of either of those groups to be capable of authorising or ratifying a transaction in breach of Mr Hancock’s duty it would need to be informed consent. By this I mean that there must be knowledge that the conduct that is being authorised or ratified involves a breach of fiduciary duty:

Winthrop Investments Pty Ltd v Winns Ltd [1975] 2 NSWLR 666 per Samuels JA at 685.

Question 42

Can P choose which parts of a contract to ratify, and which ones to not? (i.e. cherry pick the most favourable?)

Answer 42

A principal cannot ratify only the favourable parts of a contract and disaffirm the rest.
If they could, this would enable them to effect a transaction into which the third party did not intend to enter.

The principal is therefore obliged to either adopt or reject the transaction in total.

This is different to the situation where an agent has entered into several separate transactions. In this case the principal could choose which contracts to ratify.

Question 43

What are the criticisms o the doctrine of ratification? Are both P and 3rd party on equal footing?

Answer 43

The doctrine of ratification has been criticised due to its lack of reciprocity.

In particular, the party who contracts with the agent is bound but the principal is not, and indeed may never be, unless the principal elects to ratify.

On the other hand, the doctrine is seen to fill a practical need by validating certain acts of agents who act outside their authority in circumstances where it would be to the benefit of the parties to do so.

The doctrine has been said to operate normally to cure minor defects in an agent’s authority, minimising technical defences and preventing unnecessary lawsuits.

Question 44

Are there exceptions to ratification and why have they been developed?

Answer 44

Due to the retrospective fiction that is ratification, some special rules have been developed in an attempt to avoid oppressive results: Presentaciones Musicales SA v Secunda [1994] 2 All ER 737.

These have been described as examples of exceptions to ratification rather than an exhaustive list of exceptions: Presentaciones Musicales .

Before examining those rules, it is instructive to consider the following scenario. Do the following circumstances constitute an effective ratification by the principal?

1. A makes an offer to B, the managing director of a company.
2. There is an unauthorised acceptance by B on behalf of the company.
3. A withdraws his offer.
4. B’s company then ratifies B’s unauthorised acceptance.

Is there a valid contract or not?

If we apply the doctrine of ratification, there is, because it dates back to the unauthorised acceptance by B. A’s purported withdrawal therefore comes too late.

Question 45

What are the facts in Bolton Partners Ltd v Lambert (1889) 41 Ch D 295? Why has the strict application been criticised?

Answer 45

1. A makes an offer to B, the managing director of a company.
2. There is an unauthorised acceptance by B on behalf of the company.
3. A withdraws his offer.
4. B’s company then ratifies B’s unauthorised acceptance.

Is there a valid contract or not?

If we apply the doctrine of ratification, there is, because it dates back to the unauthorised acceptance by B. A’s purported withdrawal therefore comes too late.

The ratification dated back to the time of the acceptance, rendering the withdrawal of the offer inoperative.

The other contracting party was ordered to specifically perform the contract.

The court distinguished the situation where there was an agreement between the assumed agent and the third party to cancel what had been done before any ratification by the principal:

see Walter v James (1871) Law Rep 6 Ex 124.

The strict, unflinching application of the doctrine of ratification in Bolton Partners has been widely criticised, primarily on the basis that it leaves the third party in a difficult position.

The principal is not bound until they ratify, and the third party, while they do not have a binding contract, is effectively prevented from entering a different contract.

It is perhaps due to the harshness of this outcome that several limits to the operation of the doctrine have developed.

Question 46

Limit #1 - Ratification must occur within a reasonable time of the unauthorised act

Answer 46

It is desirable that ratification occur within a reasonable time:
Managers of the Metropolitan Asylums Board v Kingham & Sons (1890) 6 TLR 217; Re Portuguese Consolidated Copper Mines Ltd (1890) 45 Ch D 16.

A reasonable time can never extend after the time at which the contract is to commence: Managers of the Metropolitan Asylums Board at 218.
A rigid rule as to what is reasonable cannot be laid down: Life Savers (Australasia) Ltd v Frigmobile Pty Ltd [1983] 1 NSWLR 431 at 438.

‘There is no hard and fast rule and the measure of reasonableness of time in relation to ratification depends entirely upon the circumstances of the case. Mere time is nothing except with reference to the circumstances’: Celthene Pty Ltd v WKJ Hauliers Pty Ltd [1981] 1 NSWLR 606 at 615 citing Re Portuguese Consolidated Copper at 35.

A purported ratification of an insurance policy seven years later was not ratification within a reasonable period: Trident General Insurance v McNiece Bros (1987) 8 NSWLR 270 at 282. 2.

Ratification is not too late if it occurs within a reasonable time of the principal becoming aware of the unauthorised transaction: Bedford Insurance Co Ltd v Instituto de Resseguros do Brasil [1985] QB 966 at 987.

Question 47

Limit #2 Ratification must take place at a time, and under circumstances, when the ratifying party might themselves have lawfully done the act which they ratified

Answer 47

The leading authority for this principle is Bird v Brown . A principal cannot ratify an act if, at the time of ratification, the principal lacks the legal capacity to authorise the act in question.

A principal may also not be entitled to ratify certain acts that were lawful at the time they were entered into but were no longer so at the time of ratification.

Question 48

Limit #3 Ratification is not allowed where to permit it would unfairly prejudice a third party

Answer 48

This is a more general and potentially wider exception to the operation of the doctrine of ratification.
Zeeman J in Adams v Elphinstone (1993) 2 Tas R (NC) N14 at [26] expresses difficulty with the proposition on the basis that it introduces concepts of prejudice and unfairness, which give rise to subjective and quasi-discretionary judgments:

The question of whether or not ratification has occurred is not to be determined in any such way. Rather than suggesting that unfair prejudice to a third party is in any way the relevant test, it is perhaps more appropriate to state the test, or at least one of the tests, in the way which I have formulated it. It may well be appropriate to describe the relevant tests as falling into an overall category of unfair prejudice to a third party but only in a descriptive sense rather than as a test by reference to which the validity of a purported ratification is to be determined.

Zeeman J’s preferred formulation is that ratification cannot operate in destruction of rights that have accrued by reason of the acts sought to be ratified, having been done without authority and therefore being ineffective and not having been ratified at any time when the acts could have been done effectively.

Zeeman J distinguishes this from the situation where ratification merely has an effect or possible effect on the rights of another party:
Adams at [25].

In Adams, solicitors had, without authority, issued proceedings on behalf of the plaintiff outside the relevant limitation period. Under legislation, an application for extension of that period could be made, but the total period could not extend beyond six years.

The plaintiff purported to ratify the solicitors’ act of issuing proceedings, but outside six years. The plaintiff claimed that ratification related authority back to the time the solicitors issued proceedings.

The defendant claimed that ratification could not take place after the expiration of the limitation period because that would prejudice the defendant’s right to raise the defence that the claim was statute-barred.

Zeeman J (at [24]) doubted that Bolton Partners would now be regarded as good law. (It has not been overruled and in fact has been applied many times: Bedford Insurance at 981 and Presentaciones Musicales .)

Zeeman J did not consider this to be a case where ratification of the issue of the writ would destroy the defendant’s right to set up a defence based on the limitation period.
As His Honour held at [27]:

No rights which became vested upon the expiration of the period of 6 years were affected by the plaintiff’s purported ratification of the issue of the writ. Both before and after the expiration of that period the defendant remained in the position of being able to plead a limitation defence although its ability to do so effectively was and is liable to be removed by an order under the Act, s 5(3).

Question 49

Limitation #4 Ratification cannot occur where the purported exercise of agency authority has created some duty with which another party must comply and the time for compliance has expired .

Answer 49

Ex parte Moriarty (1924) 24 SR (NSW) 298 at 301.

Question 50

Limitation #5 If an express time limit is prescribed for the performance of some act, whether by statute or by agreement, ratification will not be allowed to apply if its effect would be to extend that time limit

Answer 50

In Dibbins v Dibbins [1896] 2 Ch 348 an option to purchase, exercisable within three months and exercised without authority during that time, could not be ratified after expiry of the period.

The principle was also applied in Bird v Brown . There, a right of stoppage was only exercisable during the continuance of the transitus; that is, on the facts, until formal demand for the goods had been made by the assignees of the consignees.

Before such demand, notice of stoppage in transitu had been given without authority on behalf of the shipper of the goods in New York. That was ratified by the shipper, but only after the transitus had been ended by the formal demand by the assignees.

It was held that the purported ratification was too late and ineffective. Bird v Brown has since been reconciled with Bolton Partners on the basis that in Bolton Partners there was no final date for acceptance and there was, before the withdrawal of the offer, an acceptance by the agent which was valid subject to ratification, and so after the acceptance it was not open to the defendant to withdraw the offer: Presentaciones Musicales at 745.

Question 51

Limitation # 6 In some cases it has been held that where there has been a breach or loss under the contract before ratification, ratification cannot occur.

Answer 51

In Grover & Grover Ltd v Matthews [1910] 2 KB 401, for example, a principal insured was held unable to ratify an unauthorised contract of insurance after loss had occurred under the policy. However, there are authorities to the contrary: Trident General Insurance at 279– 81.

Question 52

Limitation #7 Where the giving of a notice within a specified period or before the occurrence of a particular event has the result of affecting proprietary interests such as by way of terminating a demise, vesting an interest in a partnership or resuming possession of goods with the right to retain them until payment or tender of the price, then an unauthorised giving of such a notice by a purported agent is incapable of being ratified at any time after the time for the giving of the notice

Answer 52

Adams

Question 53

Limitation #8 Once an estate has vested it cannot be divested by the application of the doctrine of ratification . 24

Answer 53

Hughes v NM Superannuation Pty Ltd (1993) 29 NSWLR 653 at 665; Bolton Partners at 307.

Question 54

Limitation #9 A contract cannot be ratified after the date fixed for performance of a contract has passed to the detriment of a party who has not begun to perform the contractWha

Answer 54

This was the principle in Managers of the Metropolitan Asylums Board .

There, the intended supplier was sued for breach of contract to supply when the contract was ratified after supply should have begun.

This case was distinguished in Life Savers , where the contract documents on their face purported to create immunities for a class of persons, one of whom had done his part.

In those circumstances there was held to be ‘neither justice nor reason in denying him capacity to ratify the contract negotiated for his benefit’: at 438.

Question 55

What is Imputed knowledge?

Answer 55

Imputed knowledge is knowledge that a principal is taken or deemed to possess because their agent possesses it.

Generally speaking, a principal is taken to know a fact known to their agent which is material to the agency and which the agent had a duty to communicate to the principal:

Bowstead and Reynolds on Agency , p 442; Halsbury’s Laws of England, 4th ed reissue, Butterworths, London, 2003, vol 2(1), [164].

Where the agent is authorised to commit the principal to a transaction, and the agent’s state of mind is relevant to that transaction, the principal will be bound by the agent’s knowledge:

Spina v Permanent Custodians Ltd (2008) 13 BPR 25,463; [2008] NSWSC 561 at [106].

Where there is more than one agent it is not possible to aggregate the knowledge of the agents, unless one of them was under a duty to communicate to the other:
Re Chisum Services Pty Ltd (1982) 7 ACLR 641 at 648– 50 at 651; National Bank of Australasia v Morris [1892] AC 287 at 290– 1 per Lord Hobhouse;
Qantas Airways Ltd v Stephens Travel Service International Pty Ltd (NSWSC, Clarke J, 4 April 1986, unreported);
Western Australia v Watson [1990] WAR 248.

There may be circumstances where information obtained by an agent otherwise than in their capacity as agent may nevertheless be imputed to the principal.

This may be the case, for example, where the principal had a duty to make further investigation:

Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; Spina at [106].

Question 56

What is the no-fraud exception to imputation of knowledge?

Answer 56

There is a so-called ‘fraud exception’ to imputation which says that a principal will not be deemed to have an agent’s knowledge where the agent is, in their part in the transaction, defrauding the principal.

The source of the exception can be traced back to Kennedy v Green (1834) 3 My & K 699. There exists support for the view that the fraud exception should be rejected on the basis it is contrary to principle and is intolerably inconsistent with the position that would apply to a principal on the basis of vicarious liability and under the Competition and Consumer Act 2010 (Cth). 25