If you’re growing a business in Australia, you’ll eventually need other people to act on your behalf - whether that’s a store manager ordering stock, a sales rep negotiating terms, or an external broker introducing new clients.
That’s where the law of agency comes in. Put simply, agency law explains when another person (the agent) can legally bind you or your company (the principal), what duties each party owes, and how to minimise the risk of misunderstandings or unwanted liability.
In this guide, we break down the law of agency in Australia in plain English. We’ll cover how agency relationships are created, when you can be bound by an agent’s actions, the key duties and liabilities, the documents you should have in place, and what to do when authority changes or ends. We also touch on compliance and how agency differs from other common business relationships - so you can build your business with clarity and confidence.
What Is The Law Of Agency In Australia?
Agency is a legal relationship where one party (the agent) is authorised to act for another (the principal) in dealings with third parties. When an agent acts within their authority, their actions are treated as the principal’s actions - often binding the principal to a contract or commitment.
In practical terms, this can be as straightforward as your operations manager confirming a purchase order, or as significant as a senior employee negotiating and signing a supply agreement. In a company context, the Corporations Act recognises that agents can make, vary or discharge contracts for the company; this is often discussed in the context of section 126 of the Corporations Act (agents acting for a company) and formal document execution rules under section 127.
Why it matters: understanding agency helps you set clear boundaries about who can speak or sign for your business, avoid unintended contracts, and reduce disputes with customers and suppliers.
How Is Agency Created (And When Are You Bound)?
Agency can arise in several ways. Each path affects whether you’ll be bound by what the agent does.
Express Authority
You deliberately authorise someone to act for you. This can be written or verbal, but in business it’s best to put it in writing (for example, an Employment Contract that allows a manager to place orders up to a limit, or a letter of delegation from the CEO).
Implied Authority
Authority may be implied from a person’s role or what’s necessary to perform their job. A retail manager typically has implied authority to order stock, manage day-to-day supplier communications, and handle routine customer issues.
Apparent (Ostensible) Authority
Even if you didn’t grant authority expressly, you may be bound where your words or conduct lead a reasonable third party to believe the agent has authority. For example, if you consistently let a staff member negotiate terms with a supplier, and you don’t correct that impression, the supplier can usually rely on that appearance of authority.
Ratification
If someone acts without authority but you later approve their actions - by words or conduct - you can be bound as though authority existed at the time. Accepting the benefits of an unauthorised deal can amount to ratification.
Company-Specific Points
- Agents can make, vary or discharge contracts for a company under section 126. This sits alongside formal execution options under section 127, which allow certain documents to be executed by company officers. Both mechanisms can sit side-by-side: an everyday sales contract may be formed by an authorised employee, whereas a deed may be executed under the s127 process.
- Internal approvals don’t always protect you externally. If a third party reasonably believes your representative had authority (based on your conduct), the company can be bound even if internal policy wasn’t followed.
Duties, Authority And Liability: Who Is Responsible?
Once an agency relationship exists, both the agent and principal have important duties. Understanding these helps prevent disputes and manage risk.
Duties Of The Agent
- Act in the principal’s best interests and in good faith.
- Follow instructions and stay within the scope of authority.
- Avoid conflicts of interest and secret profits.
- Exercise reasonable care and skill, and keep the principal informed.
- Account for money or property received for the principal.
Duties Of The Principal
- Allow the agent to perform their role and provide necessary information.
- Pay agreed fees or reimburse expenses where applicable.
- Honour commitments the agent makes within their authority.
When Is The Principal Liable?
- Within authority: you are generally bound by contracts and representations the agent makes within their actual authority.
- Apparent authority: you can also be bound where your conduct causes a reasonable third party to assume the agent had authority.
- Wrongful acts: if an agent commits a wrongful act in the course of their agency (for example, a misrepresentation during a sale), liability may attach to the principal. The outcome depends on the facts - including the closeness of the connection to the agent’s role.
Setting And Communicating The Limits
Clarity is your best protection. Define financial thresholds, deal types requiring senior approval, and who can sign what. Then make sure those limits are communicated internally and, where relevant, to key third parties (for example, suppliers who deal with multiple staff).
For sensitive engagements, consider formal appointment tools (for instance, an Authority To Act) so everyone understands who is authorised and on what terms.
Essential Documents To Put Agency On Solid Ground
Good paperwork won’t just reduce risk - it will also speed up decision-making and build trust with partners and customers. Here are the core documents Australian businesses often rely on when managing agency and authority.
- Employment Contract: spells out the role, decision-making limits, spending thresholds and reporting lines for staff who will act for the business. A clear Employment Contract helps avoid accidental overreach.
- Delegations Of Authority: a practical schedule or policy setting out who can approve and sign which categories of contracts and up to what amounts. In a company, this can be paired with a Directors’ Resolution to formally approve the framework.
- Company Constitution: for companies, the rules that govern internal decision-making and officer powers, often working alongside board policies and delegations. A tailored Company Constitution can support a clear authority structure.
- Supplier And Channel Agreements: when appointing external representatives, distributors or resellers, use a fit-for-purpose Distribution Agreement or similar contract to set territory, authority to negotiate or bind, pricing parameters, and brand rules.
- Customer-Facing Terms: your sales contracts or website terms should match the authority you’ve given staff (for example, who can vary pricing, offer discounts or promise delivery timeframes). If you sell online, ensure your Website Terms & Conditions are consistent with internal approval rules.
- Privacy And Communications: if your agents collect customer data, you’ll need a compliant Privacy Policy and guidance on what staff can say in marketing and sales communications.
- Confidentiality: use an NDA when external agents or contractors will access your pricing, strategy or IP. Limit what representatives can disclose and for what purpose.
Tip: keep your templates aligned. If your delegations cap discounts at 10%, your sales terms and staff playbooks should mirror that rule to avoid mixed signals that could create apparent authority beyond what you intended.
Ending Or Changing Authority: Practical Steps
Authority doesn’t need to last forever. It can change as roles shift, or end when projects finish. Handling transitions cleanly helps you avoid unwanted commitments.
How Authority Ends
- By agreement: both parties agree to end the appointment.
- By expiry or completion: a fixed term ends, or a specific task is completed.
- By revocation: the principal revokes the agent’s authority. Do this in writing and notify relevant third parties to prevent reliance on old authority.
- By operation of law: for individuals, bankruptcy can affect capacity to act; for companies, external administration, insolvency, or deregistration will have consequences for authority and execution. The specific effects depend on the circumstances and may require professional advice.
What To Do In Practice
- Update your delegations and internal directories promptly (email aliases, CRM permissions, banking signatories, procurement portals).
- Notify key third parties who have dealt with the agent - suppliers, customers and landlords are common touchpoints.
- Collect or disable physical and digital credentials (passes, tokens, e-signing profiles) and recover company property.
- Where the appointment was formal, use clear termination or handover documents (for example, a deed recording that an agency appointment has ended and what obligations survive).
For companies, remember that some documents need formal execution to vary or terminate. Decide whether authority changes happen within your s126 framework (authorised representatives) or require officer execution under s127.
Compliance And How Agency Differs From Other Relationships
Agency doesn’t exist in a vacuum. Your approach should sit comfortably with broader compliance - and you should be clear on what is and isn’t an agency relationship.
Key Compliance Touchpoints
- Consumer law: if your agents deal with customers, their promises and marketing must comply with the Australian Consumer Law. Consider training and scripts, and ensure you have access to advice from a consumer law specialist if disputes arise.
- Corporations law (companies): align your delegations and signing practices with the Corporations Act, including agents acting under s126 and formal execution under s127.
- Industry licensing: some sectors regulate who can act as an agent (for example, real estate agency work and credit or financial services). These are state or federal regimes with different names and rules - always check the specific framework for your industry and location.
- Employment law: if your agent is an employee, ensure they have the right contract, are paid correctly and work within Fair Work requirements, policies and training.
- Privacy: agents who collect or use personal information must follow your privacy practices and scripts, supported by a robust Privacy Policy and data handling rules.
Agency vs Other Relationships
- Employee: an employee can be an agent for tasks within their role. But not every employee action binds the business - authority depends on job scope and what third parties reasonably believe.
- Independent contractor: a contractor usually acts in their own right and is not your agent unless you give them authority to represent or bind you. If you appoint a contractor to negotiate or sign on your behalf, document the limits clearly.
- Distributor or reseller: a distributor typically buys and resells in their own name (not as your agent), unless your agreement says otherwise. If you want them to represent your brand in negotiations, spell that out in your distribution contract with tight parameters around pricing and representations.
- Partnership: partners are agents of one another for partnership business, but partnership law - not company law - governs those relationships. If you’re co-founding a company instead, consider a Shareholders Agreement to set decision-making rules and authority.
- Execution vs representation: company officers may execute documents under s127; that’s different to non-officer representatives acting under s126. Decide which mechanism you’ll use for each category of document and train staff accordingly.
The bottom line: label relationships correctly, document authority in a way that matches how you operate day-to-day, and make sure your teams and partners are on the same page.
Key Takeaways
- The law of agency in Australia lets an authorised person or entity act for a principal - and may bind the principal to deals done within actual or apparent authority.
- Agency can arise expressly, by implication, through apparent authority created by your conduct, or by ratification after the fact, so clarity and communication are critical.
- Agents owe duties of good faith, care and loyalty; principals must support agents and honour authorised commitments. Liability depends on scope of authority and what third parties reasonably believe.
- Put your framework in writing: use tailored employment terms, delegations, board approvals, customer and supplier contracts, a consistent Privacy Policy, and NDAs where needed.
- Handle changes fast: document revocations, notify third parties, and align your s126 representation settings with s127 execution where appropriate.
- Know the difference between agency and other relationships (employees, contractors, distributors, partners) and align your contracts and training with consumer, corporations, privacy and industry rules.
If you’d like a consultation on setting up or reviewing agency arrangements for your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
