Focus: When can a statutory corporation act through an agent?
12 October 2012
In brief: A recent Victorian Supreme Court decision emphasises the importance of, when working with statutory corporations, making sure the decision-maker has the necessary authority. Subsequent ratification of agents' acts and exercising authority without a formal delegation have, in particular, been clarified. Partner Paul Kenny (view CV) and Lawyer Tanya Thomas report.
- Application of the common law principles of agency to statutory corporations
- Show cause notice effective without delegation – the Carltona principle
How does it affect you?
- When working with statutory corporations, it is important to ensure the decision-maker has the requisite authority.
- In most cases, it is safe to assume a senior executive will have the required authority to administer contracts entered into by the corporation, including taking enforcement action.
- If there is any uncertainty concerning an agent's authority, this can usually be ratified by corporation's board in the same way that a private sector board can ratify the acts of its agent.
- Where significant statutory powers are being exercised, it is more likely that a formal delegation of powers will be required.
Rail Signalling Services Pty Ltd (RSS) and Victorian Rail Track (VicTrack) were parties to a contract under which RSS agreed to provide design and construction services for rail signalling systems to VicTrack in connection with nine specified level crossings. Victrack's General Manager of Capital Projects, Ian Davidson, was appointed superintendent under the contract and given certain functions and duties under it. As is typical of contracts of this kind, VicTrack was able to issue 'show cause' notices in the event of certain breaches by RSS.
Mr Davidson issued a show cause notice under the contract on behalf of VicTrack, alleging a number of breaches by RSS and requiring RSS to respond to the notice. RSS brought proceedings against VicTrack, claiming that Mr Davidson did not have authority to issue the show cause notice on behalf of VicTrack, as VicTrack itself was the only person empowered to issue show cause notices under the contract.
After RSS brought the initial proceedings, the Board of VicTrack then sought to ratify Mr Davidson's actions, by passing a resolution stating that at all material times he had authority to issue the show cause notice on VicTrack's behalf. RSS then brought further proceedings, claiming that VicTrack was not permitted under the Transport Integration Act 2010 (Vic) to ratify Mr Davidson's actions by retrospectively delegating the power to issue show cause notices to him.
The Victorian Supreme Court was asked to determine whether, if Mr Davidson lacked the authority to issue the show cause notice at the time it was issued, this could be validly ratified by a subsequent resolution of the VicTrack Board according to the common law principles of agency – specifically, the principles relating to the ratification of earlier but unauthorised conduct of an agent purportedly undertaken on behalf of a principal.
RSS contended that the common law principles concerning retrospective ratification of an agent's conduct did not extend to an 'arm of Government'.
In support of this proposition, RSS cited State of New South Wales v Bovis Lend Lease Pty Ltd (formerly Civil & Civic Pty Ltd).1 In that case, a statutory corporation, the Sydney Olympic Park Authority (SOPA), sought to bring an action for contractual breaches against Bovis Lend Lease Pty Ltd (BLL) under a contract between BLL and the Minister for Public Works for the construction of the Sydney Aquatic Centre. SOPA claimed that the Minister had entered into the contract as agent for SOPA, thus giving SOPA a right to bring the proceedings against BLL. Justice Einstein found that the Minister could not have contracted as agent for SOPA, as SOPA did not exist at the time the contract was made.
Justice Vickery rejected RSS's submission, confining the decision in Bovis Lend Lease to its specific facts – namely that SOPA did not exist at the time the Minister acted and so he could not have acted as its agent. His Honour concluded that the common law of agency, which applies to any legal person, applies with equal force to a statutory corporation created under the Transport Integration Act.
Acts of an agent can be ratified by a statutory corporation where the corporation existed at the time the acts were undertaken and where the corporation itself had the power to engage in the relevant conduct. The VicTrack Board's resolution declared that, at all material times, Mr Davidson had authority to issue the show cause notice on behalf of VicTrack and ratified the position that, at the time when he issued the notices, he did so in his capacity as agent for VicTrack. As VicTrack did exist at the time of the service of the show cause notice, and VicTrack itself clearly had the power to issue show cause notices under the contract, Victrack was therefore able to validly ratify Mr Davidson's actions in issuing the notice as its agent.
The court also considered whether Mr Davidson had authority to issue the show cause notice without either a formal delegation of power or the board's ratification of his actions.
Under section 170 of the Transport Integration Act, VicTrack is empowered to delegate to any person any of its powers, duties or functions under any Act or regulations, including the power of delegation. RSS submitted that the show cause notice Mr Davidson issued was invalid, as the Board of VicTrack had not specifically delegated the task of preparing and serving show cause notices to him under s170. RSS further submitted that, if the board's resolution ratifying Mr Davidson's action purported to be a formal delegation under s170, the delegation was ineffective, as s170 does not permit a retrospective delegation.
The court did not accept this proposition, instead deciding that a formal statutory delegation was not necessary for the purpose of serving show cause notices on the basis of the Carltona principle.
Justice Vickery expressed the Carltona principle as follows:
It is well accepted that in certain circumstances the powers, duties or functions to be carried out on behalf of the person or body vested with them under a constituting statue may be carried out by appropriately authorised agents of that person or body without the need for delegation. ... Where the principle operates, the act which is undertaken by the agent will in law be regarded as the act of the principal, being the relevant person or body vested with the power, duty or function, and not that of the individual agent acting in a personal capacity.2
The court explained that the Carltona principle will operate where the power, duty or function to be exercised is of an administrative or managerial character that would not have significant resultant repercussions beyond a limited framework. Conversely, where the statutory context points to the nature, scope and purpose of the power being of central or strategic importance, or where the exercise of the power will have significant consequences, the more likely it will be that its exercise was intended by the legislature to be undertaken by the body vested with the power and no other, unless it is validly delegated under a power of delegation under statute. In these cases, the power may only be validly exercised by the body expressly conferred with the power under the relevant Act.
The court accepted VicTrack's submission that the serving of show cause notices under the contract was an administrative step under the contract rather than the exercise of a power, duty or function under an Act or regulations, and, as such, was not a process that needed to be the subject of a valid delegation under s170 of the Transport Integration Act.
In this case, Justice Vickery concluded that, if VicTrack had the power to delegate the function of issuing the show cause notice as an incident of its function to enter into any agreement or contract, it was not necessary for VicTrack to utilise the statutory power of delegation under s170 of the Transport Integration Act. The relevant function would be taken to be done by VicTrack itself, acting through a person within its organisation who was authorised, expressly or impliedly, to act as agent for the corporation for this purpose. To this end, any of VicTrack's employees who undertook the task within the scope of their duties would be considered so authorised.
The court concluded that Mr Davidson was acting within the scope of his duties with VicTrack and he was found to have carried out these tasks on behalf of his employer. Thus, the court considered that VicTrack had validly issued the show cause notices under the contract.
- (2007) Aust Torts Reports 81-917.
- Paragraph 84.
- Paul KennyPartner, Sector Leader - Government,
Ph: +61 3 9613 8860
- Ren NiemannPartner,
Ph: +61 7 3334 3005
- Leighton O'BrienPartner,
Ph: +61 2 9230 4205
- Michael HollingdalePartner,
Ph: +61 8 9488 3708