Agency Relationship involving a Foreign Principal, a Local Agent and a Third Party

It is challenging to clearly understand agency relationships where the principal is in a foreign jurisdiction but having a local agent who contracts on his behalf with third parties. This occasions some exceptional situation in the agency relationship.

Law of Agency is an area of commercial law dealing with a set of contractual, quasi-contractual and non-contractual relationships, that involves a person, called the agent, who is authorised to act on behalf of another (called the principal) to create a legal relationship with a third party. Accordingly, Mofesomo Tayo-Oyetibo in his article titled “Doing Business in Nigeria and the Law of Agency” observed that “an agency relationship exists between two persons when one of whom expressly or impliedly consents that the other should act on his behalf so as to affect his relations with third parties, and the other of whom similarly consents to so act.” It is my considered view that agency is an express or implied derivation of authority by one party, the agent, from the other party, the principal. Thus, it is a consensual relationship between both parties, for one (the agent) to act on behalf of, and acquire legal rights for, the other (the principal) vis-à-vis third parties.

From the above definitions of agency, it is noted that two parties are usually involved in an agency relationship: the principal and the agent. The principal is the party who employs the services of the agent and the agent is the party whose services have been employed by the principal to act on his behalf in his (principal’s) business transactions. It is noteworthy that a principal may be foreign (that is, resident or domiciled in a different jurisdiction from that of the agent). For example, a principal who resides in the United Kingdom may employ an agent in Nigeria to act on his behalf or a principal who resides in Nigeria may employ the services of an agent in a foreign country.

We are concerned here with a foreign principal who employs the services of an agent in Nigeria. In a situation involving a foreign principal, there is a presumption that the intention is to bind the agent and not the (foreign) principal, which brings about the general rule that a foreign principal cannot sue or be sued for a contract made by his agent in Nigeria. This goes against the usual notion, that if an agent acts within his derived authority given to him by the principal, in relation to his duties as agent, he will be free from any liability arising from the contract and the third party cannot enforce the contract on the agent. The case of a foreign principal and an agent should not be different, although the rationale behind the general rule is understandable based on the fact that the third party can only see the agent and not the (foreign) principal.

However, if it is expressly agreed between the agent and the third party that the contract would establish a privity of contract between the (foreign) principal and the third party or where such intention could be inferred, the agent has no liability in the contract. There is no doubt that the general rule is based on commercial convenience, but in a proper case, whether the agent will be personally liable or not will depend on the intention of the parties as may be inferred from the particular facts of the case. The mere fact that the principal is foreign is not a decisive factor, but may only be one of the factors that may be examined in order to determine whether the agent or (foreign) principal should bare the liability.

It is noteworthy that it is not being inferred or asserted that a foreign principal is an exception to the notion that an agent brings the (foreign) principal and third party together, but there is a presumption that he is incurring personal liability unless a contrary intention appears as dictated by the circumstances of the case. A person is liable for his engagements and also for his torts even though he is acting for another, unless he can show that by the law of agency, he is to be held to have expressly or impliedly negated his personal liability: Asafa Foods Factory Ltd v Alraine Nigeria Limited (2002) 12 NWLR (Pt. 781) 353.

The relationship between the foreign principal, agent and third party can be said to be a fiduciary relationship as it is based on trust laid on the agent by the foreign principal that the agent will not act fraudulently in his dealings with third party, in his (agent’s) designated country; while that of the foreign principal and a third party is indirect and their merger is the middleman (the agent) who creates the relationship between both parties.

Lastly, the agent’s relationship with a third party is also a direct fiduciary relationship, in view of the fact that the agent meets with the third party on a derived authority, conferred on him by the (foreign) principal to act on his behalf. A way forward for the foreign principal, agent and third party relationship to be business positive is if the agent is freed from liability even without any express agreement on privity of contract between the (foreign) principal and third party. All the agent needs do is to act within his derived authority and acquire legal rights for the principal in good faith.

An Intellectual, willing to learn.

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22 comments on “Agency Relationship involving a Foreign Principal, a Local Agent and a Third Party
  1. Praise EKPO says:

    Detailed article, especially pointing out who bears liability in case of breach and the fiduciary situation in which the foreign principal is the vulnerable party and his relationship with the agent is built on trust and utmost good faith.

  2. ada says:

    Does this mean that when a foreign principal appoints an agent the agent becomes the principal and bears his liability,that the principal acting through the agent doesn’t do the act himself contrary to qui facit alium facit per se”….I don’t particularly agree,maybe I need more explanation.Igwe philipa

    • Ebenezer ORUMWENSE says:

      it does not mean so, rather it posits that there is a presumption given that the third party is transacting with the agent who represents the foreign principal, as it may be hard to enforce a judgement in case of a breach on a foreign principal so it is more convenient to enforce it on the local agent.

  3. EDURE TONBRA says:

    This is a very good intellectual work.

    The question I would like to ask is: does this mean that the agent is a del credere agent since you are of the view that the agent incurs liabilities if by any means there is a breach. Also, if he is a del credere agent, will the agent indemnify the principal for any loss due to the fact that the third party failed to pay the commission? (A del credere agent is usually common in international trade).

    I would also like to point out your view as to the fact that an agency relationship usually involves two parties. I do not agree to this view because if you say its a two party relationship, does this mean that the third party is displaced by the agency arrangement? If so, its my personal view that it is not an agency transaction because every agency transactions involves three parties which are the agent, the principal and a third party.

    Thank you.

  4. Ebenezer ORUMWENSE says:

    first questions; the agent incurring liability is nothing more than a presumption for commercial or business convenience

    second question; my point of view is that of agency relationship between the principal and agent as a third party has no contractual interest in the relationship between the principal and agent. nevertheless you rightly posited that an agency transaction involves three parties; the principal, agent and third party, for an agency transaction will not be complete without these three parties involved in it but this doesn’t undermine the fact that only two parties are involved in an agency relationship.

    thank you.

  5. Ebenezer ORUMWENSE says:

    one last thing Miss Edure, please refer to the case Asafa Foods Factory Ltd v Alraine Nigeria Limited [supra] for your first question.

  6. Jerry says:

    @Ebenezer, I would personally say your article is unique particualrly for those willing to learn like you. However, as an intellectual, I think it would have been more expository and perhaps scholarly if it was written under some sub-headings.

    • Ebenezer ORUMWENSE says:

      Thanks Jerry
      However having sub-headings doesn’t make the article more expository or scholarly as not all great articles were written under sub-headings although i note there is no critic on the content of the article just the framework of it.

  7. Jerry says:

    The presumption you made mention of, is rebuttable, as in the case of Domit Khonam v. Elizabeth John (1939) 15 N.L.R. 14. Moreover, I doubt if the presumption is what brought about a rule (if any still active and if it’s a general one), that a foreign principal cannot sue or be sued for a contract made by his agent in Nigeria. I think it is more or less a conditional tenet, based rather on proximity for commercial convenience.

    As you rightly noted in case of a foreign principal, the same thing mostly applies even when the principal is based home, the third party only sees the agent and not the principal. And so why would the principal’s absence be the basic rationale behind the general rule as you stated? I prefer your later position, on the fact that a principal is foreign, is not a decisive factor but a consideration in examining whether a principal or agent should bear the liability…

    Lastly, I do not see how the agent’s relationship with a third party is also a direct fiduciary relationship, solely because the agent meets with the third party on a derived authority, conferred on him by the (foreign) principal to act on his behalf. Is it not the same derived authority conferred on an agent by a (local) principal that an agent normally meets with a third party, so what makes the foreign one fiduciary?

  8. Ebenezer ORUMWENSE says:

    Brilliant and critical analysis but i will reply with an illustration, you are a wire manufacturer in south africa and i am your distributor here in nigeria making me your agent and x comes to me to purchase your wires after purchase x discovers that the wires were bad, i ask you who bares the liability…this is what posits the general rule.

    And i wonder how when the whole point of the article is on a foreign principal relationship and the rationale behind the general rule can not be that the principal is foreign, you should carry on further study especially on the case you cited as i find it inadequate

    Lastly the whole point of an agency transaction is fiduciary, which is simply trust and as we know in this foreign principal, local agent and third party relationship all revolves around trust and utmost good faith, as they trust each party not to defraud or derail the contract. It should be noted that it does not undermine the fiduciary relationship between a local principal and a local agent.

  9. thelma ubaike says:

    Nice article! Buh I don’t really under it Ÿ̲̣̣̣̥ø̲̣̣̥u̶̲̥̅̊ said… ” This goes against the usual notion, that if an agent acts within his derived authority given to him by the principal, in relation to his duties as agent, he will be free from any liability arising from the contract and the third party cannot enforce the contract on the agent.”

  10. raliat says:

    Thnk you Ebenezer this article is well explained and understood, the only thing i dont understand is weather the agent bears any loss and is liable for the loss or the proncipal? I understand that agency is based on three parties the principal, agent and the third party or since the principal is out of the country then is the contract between the 2 parties alone?

    • Ebenezer ORUMWENSE says:

      The liability will be borne on the basis of the circumstance of the transaction.

      The parties remain three parties notwithstanding the fact that the principal is foreign.

  11. ikpeawujo blessing onyekachi says:

    Nice and unique article @Ebenezer.

  12. Jerry says:

    @Ebenezer, The case I cited may not be exhaustive but as noted in your write-up, the mere fact that a principal is foreign is not a decisive factor… In other words, the rule is not absolute. The agent and the third party can expressly agree otherwise or such intention could be inferred. Little wonder some scholars are of the view that the above general rule is based on commercial convenience (proximity). Nice one from you this.
    Concerning your position that the agent’s relationship with a third party is also a direct fiduciary relationship, I refer you to Barr. Nwazi’s lecture note on ‘Agency’. You may also consult Black’s Law Dictionary (7th Ed. Pg.640), with particular reference to the four situations under which fiduciary relationship usually arise. Finally, I like you to see Prisca Ohajianya’s recent article on “Commercial Transactions and Fiduciary Relationships”. These, and from many other scholarly works, in my opinion, seem not to portray your view on this matter.

  13. olivia arusuraire says:

    Nicely done Ebenezer! Good justice done to this article. I totally agree with the fact that for commercial conveniences the agent might in certain circumstances be liable where there is a foreign principal, but I still stand on the notion that the principal, whether foreign or not, should always be liable for acts done by the agent within the scope of his agency so long as the agent isn’t acting for himself, which is a basic rule in the law of agency.

  14. Prince says:

    Well, I want to salute Ebenezer for this scholarly and erudite write up. But I also want to state unequivocally that these realities regarding the “Concept and/or Principle of Agency” further depict the inadequacies of our commercial law system. This is so because the “developed world” has taken the bull by the horn in this aspect by formulating acceptable and standardized methods of enforcing such agency relationship, most especially in a situation where the principal is in a foreign jurisdiction on one hand and the agent is dealing with third parties on the principal’s behalf, on the other. It makes one ask some critical questions like: to what extent can “trust” be stretched and understood? How can the principal effectively monitor and scrutinize the dealings of his agent with third parties? (see, the doctrine of ultra vires), because he (the principal) cannot plead ignorance where the agent defaults in the mandate given to him by his principal. With the critical context of this type of agency relationship, can the agent sub-delegate?

    • Ebenezer ORUMWENSE says:

      It will be wrong for the agent to delegate an authority already delegated to him by the principal although there are situations that an agent can, but generally an agent cannot sub-delegate.

  15. yasmin says:

    An explicit article I must say, highly commendable and expository. This article has really broadened my view on an agent, a principal (especially a foriegn one) and a third party. I quite agree with the fact that OLIVIA ARUSURAIRE made “… The principal, whether foreign or not, should always be liable for acts done by the agent within the scope of agency, so long as the agent is not acting for himself…”.

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