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 8th International Scientific Conference ISSN print 2029-4441 / ISSN online 2029-929X
“Business and Management 2014” ISBN print 978-609-457-650-8 / ISBN online 978-609-457-649-2
May 15–16, 2014, Vilnius, LITHUANIA Article number: bm.2014.016
Section: Enterprise Management http://dx.doi.org/10.3846/bm.2014.016
http://www.bm.vgtu.lt © Vilnius Gediminas Technical University, 2014

AGENCY LAW IN BUSINESS RELATIONSHIPS: THE MAIN CHARACTERISTICS

FROM A COMPARATIVE PERSPECTIVE
Sigitas Mitkus1, Vaidas Jurkevičius2
1
Vilnius Gediminas Technical University, Faculty of Business Management,
Saulėtekio al. 11, LT-10223 Vilnius, Lithuania
Email: sigitas.mitkus@vgtu.lt
2
Mykolas Romeris University, Faculty of Law,
Ateities g. 20, LT-08303 Vilnius, Lithaunia
Email: vaidas.jurkevicius@mruni.eu

Abstract. This article tries to comparatively analyse theoretical and practical problems of agency law in
terms of business relationships. In order to reach this goal the major issues of agency law are analyzed in
this work, such as legal effect of agency, grant of authority, mandate contracts, unauthorized agency, lia-
bility imposed on the principal for wrongs committed by the agent and other important and problematic
aspects in this field. When analysing every one of them, most of the emphasis is put on the ways allowing
to ensure the balance of rights and legal interests of participants in business relations of agency.

Keywords: agency (representation), business law, grant of authority, mandate contracts, unauthorized
agency.

JEL classification: K10, K12, K13, M21.

1. Introduction ties. Therefore, a possibility to participate in busi-

ness relationships through the agent is a guarantee
Every modern system of economics is based on for implementing the right of a person to freedom
the principle of division of labour when creating and initiative of business activity.
and distributing the goods and services which is Although researchers of various countries pay
legally reflected through the institute of agency. A much attention to the problems of agency law in
possibility to participate in business relationships the business relationships, there is still a lack of
through the agent is a guarantee for implementing comparative analysis, especially in the Eastern
the right of a person to freedom and initiative of European legal context. That is why the compara-
economic activity. Therefore in essence, legal sys- tive legal method is the main empirical method
tem of any state is not complete with regulations used in this article. It enables to identify the differ-
regarding these types of relations. ences and similarities of legal regulation and prac-
The law of agency is emphatically described tical application in the selected jurisdictions in or-
as a legal miracle or a subject of never ending fas- der to reveal arising problems and provide
cination (Bonell 2011). Agency law is important constructive suggestions on how to solve them.
for several reasons. First of all, representation is As it is seen from the recent tendencies in the
the only real opportunity for the implementation of European countries and the United States of Amer-
capacity when it is limited or person lacks it alto- ica, there are problems faced by all legal systems
gether. Secondly, it gives the possibility to enter in the field of agency law. The search for efficient
into transactions when due to various social cir- ways of solving the identified common problems
cumstances a person is unwilling or unable to par- is going on and this could be seen by continuing
ticipate personally in civil relations. And finally, practice of drafting soft law. One of the latest qua-
the most significant outcome of representation is si-legal instruments which does not have a legally
that it allows individuals to participate in the civil binding force is the Draft Common Frame of Ref-
circulation on a much wider scale and more effi- erence (hereinafter - the DCFR). Besides other
ciently, thereby enabling the rapid development of model rules on private law, it includes chapters on
economic relations. In the absence of agency, it is representation and mandate contracts. The DCFR
impossible to imagine the normal turnover of is the result of more than 25 years of academic
trade, investment, services and many other activi- research on European private law and is described

118
 S. Mitkus, V. Jurkevičius

as the most interesting development in contract Sungailienė 2009). Moreover, Russia still remains
law since the French Code Civil and the German as one of the main trade partners of Lithuania, thus
BGB (Emmert 2012). The declared purpose of the it is very important for both countries to have a
DCFR is to provide a possible source of inspira- clear legal framework favouring business devel-
tion within the European Union, at both national opment. It is obvious that each modern economic
and Community law levels, and beyond the EU system is based on the principle of division of la-
(Draft Common Frame of Reference (DCFR), bor and they cannot be imagined without the dele-
2009). Lithuania is one of several countries in gation of certain authorities to agents. Hence the
Eastern Europe that are currently implementing rules on agency should also strengthen the effec-
modern civil law codification, so the DCFR could tive turnover of trade, investment, services and
be used as an effective tool for formulating suita- many other activities.
ble solutions for tackling the problems of private Since agency law is very wide institution of
law, including representation (The Case of the Su- private law, this article deals only with the major
preme Court of Lithuania (date: March 7, 2012, issues in representation, such as legal effect of
case No. 3K-3-90/2012)). It could be also very agency, types of representation, grant of authority,
important for the Russian Federation, where ef- mandate contracts, unauthorized agency, liability
forts are currently undertaken to modernize private imposed on the principal for wrongs committed by
law. It is expected that the DCFR could direct to- the agent and other important and problematic as-
wards Europe the Russian private law, which is at pects in this field.
the crossroads in the reform process.
This article not only analyses the rules of the 2. General features of agency law
DCFR on representation in relation to Lithuanian
and Russian private law, but also compares these 2.1. Definition and the legal effect of agency
two jurisdictions with each other. The link be-
tween Lithuanian and Russian legal systems can Broadly speaking the law of agency deals with
be explained by references to historical reasons situations where one person enters into legal rela-
and the recent trends in the legal and economic tionships with another person by acting not per-
development in each of these countries. After the sonally but through an intermediary. Such concept
declaration of independence of Lithuania in 1918 of agency is known for almost every modern legal
the Russian civil legislation of 1840 was applied in system, however, rather than providing the exact
the largest part of the territory. When Lithuania definition of representation, most of them explain
was occupied in 1940, the former legal system was this legal phenomenon though its consequences.
replaced by the Soviet legal tradition. From 1940 For example, paragraph 1 of Article 2.133 of
until 1964 the USSR Civil Code of 1922 was ap- the LR CC states that a contract concluded by one
plied in Lithuania and in 1964 the Civil Code of person (the agent) in other person’s (the princi-
Lithuanian Soviet Socialist Republic was adopted pal’s) name by disclosing the fact of agency, and
on the basis of the USSR Fundamental Principles without exceeding the rights conferred, assigns,
of Civil Legislation of 1961. Although in 1990 alters and destructs directly the civil rights and
Lithuania regained independence, the Civil Code obligations of the principal. Such effect of agency
of 1964 with some amendments remained in force has been established in the RF CC as well. In par-
until July 1, 2001 when a new Civil Code of the agraph 1 of Article 182 the above mentioned pro-
Republic of Lithuania (hereinafter – the LR CC) vision of the LR CC is almost repeated: a transac-
entered into force (Lietuvos Respublikos civilinis tion concluded by one person (the agent) in the
kodeksas (the Civil Code of the Republic of name of another person (the principal) on the basis
Lithuania) Valstybės žinios (Official Gazette), of authority, based on the power of attorney, effect
2000, No. 74-2262). of law, or act of an authorised state body or local
Drafters of the LR CC state (Mikelėnas 2000; self-government body, authorized for this purpose,
Mikelėnas 2008) that it was composed using the directly creates, amends and terminates the civil
civil codes of the Netherlands, Quebec, Italy, rights and duties of the principal.
France and Germany. Although the influence of The DCFR also covers a normal basic effect
the Civil Code of the Russian Federation of 1994 of a judicial act by a representative. What is im-
(hereinafter – the RF CC) is officially not con- portant, Article II. – 6:105 establishes two exact
firmed (The Civil Code of the Russian Federa- conditions the acts of the agent should comply
tion), while analysing separate problems Lithuani- with in order for them to affect the principal’s le-
an legal scholars of private law stress out that the gal status. Firstly, the agent should act in the name
Russian legal doctrine has had a huge impact on of the principal or otherwise in such a way as to
Lithuanian law (Pakalniškis 2002; Jakutytė- indicate to the third party an intention to affect the

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 AGENCY LAW IN BUSINESS RELATIONSHIPS: THE MAIN CHARACTERISTICS FROM A COMPARATIVE PERSPECTIVE

legal position of the principal. Secondly, the agent the contract of independent work, the debt should
should act within the scope of the gained authority. be paid not only by the principal (i.e. the owner),
These two prerequisites of representation are simi- but also by his agent (i.e. construction manager).
lar to those expressed in Lithuanian and Russian Such practice demonstrates the vacuum of Lithua-
jurisdictions. The only difference is that the DCFR nian jurisprudence and this means that it is hard to
focuses not only on the situations where one per- foresee the judgements of courts in cases regarding
son represents another person in legal transactions, representation.
but also in performing other judicial acts. The LR Article 182 of the RF CC states that the agent
CC and the RF CC mention only conclusion of shall not conclude contracts on behalf of the prin-
contracts as the consequence of representation, cipal in his own interest. Neither shall he conclude
however, legal doctrine of both countries recog- such contracts in the interest of another person,
nizes the possibility of applying legal norms of whose representative he is at the same time, with
agency for other judicial acts other than contracts the exception of the cases of the commercial repre-
(Aviža et al. 2009; International Agency and Dis- sentation. Similar restrictions can be found in the
tribution Law 2009). LR CC. Article 2.134 says that the agent may not
Although the basic effect of representation conclude contracts in the principal’s name either
does not give rise to any legal relationship be- with himself or with a person, whom he represents
tween the principal and a third party, this rule does at the given time, as well as his spouse, parents,
not always seem very clear for Lithuanian courts. children or other close relatives. Such contracts,
That could be illustrated by the Lithuanian civil upon the principal’s request, may be deemed null
case of the Supreme Court No. 3K-3-15/2009 (The and void. The agent also may not conclude a con-
Case of the Supreme Court of Lithuania (date: tract which the principal himself is not authorised
2009-03-03, case No.: 3K-3-15/2009) where the to conclude. Article 2.135 states that a person may
third party was allowed to sue the agent, notwith- not act as the agent of both parties to the contract.
standing the fact that the agent was sufficiently This provision, however, is not applied in the cas-
authorized by the principal and acted without ex- es where contractual obligations are performed
ceeding the rights conferred to him. In this civil and also in the cases where both parties to the con-
case, the dispute arose between an independent tract explicitly express their will that the agent has
work contractor and a client (owner) who em- to act in the interests of both parties.
ployed a legal person to manage a construction
work, i.e. a construction manager. The client did 2.2. Different types of agency
not pay to the independent work contractor who
then brought a case against both the client and the Civil law tradition countries make a distinction
construction manager in order to demand the pay- between direct and indirect representation while in
ment for the work fulfilled. According to the Law the common law system the terms of disclosed and
of Construction of the Republic of Lithuania (Lie- undisclosed agency are used. Despite the differ-
tuvos Repsublikos statybos įstatymas (the Law on ences in legal terminology, the concepts of direct
Constuction oft he Republic of Lithuania) Valsty- (disclosed) and indirect (undisclosed) agency are
bės žinios (Official Gazette), 1996, No. 32-788), practically the same. Direct (disclosed) representa-
construction management means a type of organi- tion means that the agent acts in the principal’s
sation of construction works when construction name (the agent informs a third party that he is a
and other technical works related to the construc- representative of another person or this is obvious
tion are organised by a construction manager on from the circumstances under which the agent
the basis of a contract of agency between the prin- acts) and the rules of indirect (undisclosed) are
cipal – client (owner) and the agent – construction applied when the agent acts in his own name or
manager. On the basis of such legal regulation the fails to disclose that he is the representative on
Supreme Court of Lithuania clarified that the rela- another person.
tionship between the owner and the construction Systematic analysis of the Articles 2.132 –
manager is based on the contract of mandate in 2.152 shows that they are exclusively applied for
which the owner is considered as a mandator and a disclosed (direct) agency, i.e. such relationship
construction manager as a mandatary. The court when the agent entering into transactions acts in
recognised that in the relationship with the inde- the principal’s name. Meanwhile, the general rules
pendent work contractor the construction manager on representation are not applicable for the
acted not personally, but as the agent of the owner. relationship when one person acts in his own
This fact was also clear for the independent work name. According to the Article 2.133, if during the
contractor. However, the court rendered a decision conclusion of a contract the agent fails to inform
that failing to fulfill the obligations contained in that he acts in the principal’s name and in his in-

120
 S. Mitkus, V. Jurkevičius

terests, the principal shall acquire the rights and basis of authority, based on the power of attorney,
assume the duties arising from the contract only effect of law, or an act of an authorised state body
where the other party to the contract was in a posi- or local self-government body, authorized for this
tion to understand from the circumstances of con- purpose […] (Article 182). It is interesting that the
clusion thereof that the said contract was conclud- DCFR, contrary to other soft law instruments (i.e.
ed with the agent, or where the identity of the the Principles of European Contract Law or the
person with whom the contract was concluded was UNIDROIT Principles of International Commer-
of no importance to the said party. In the RF CC cial Contracts), recognizes both consensual and
the denial of indirect representation is stated in legal agency. Such conclusion is made taking into
Article 182: the persons, who operate in the inter- consideration Article II. – 6:102 stating that the
est of the other persons, but on their own behalf authority of a representative may be granted by the
(the trade agents, the trustees of a bankrupt's es- principal or by the law.
tate, the executors of the will, etc.), and also the One more type of representation is commer-
persons, authorized to enter into negotiations on cial agency. The LR CC has a separate chapter on
the deals, which may be possibly effected in the commercial agency (it is influenced by the EU
future, shall not act as representatives. And the law: Directive of the Council of the European
same position is expressed in the DCFR. Article Communities directive on the coordination of the
II. – 6:106 points out that when the representative, laws of the Member State relating to self-employed
despite having authority, does an act in the repre- commercial agents (86/653/EEC), adopted on 18
sentative’s own name or otherwise in such a way December 1986) and in the RF CC there is Article
as not to indicate to the third party an intention to 183 that deals with commercial agency. In both
affect the legal position of the principal, the act laws the definition of commercial agent is almost
affects the legal position of the representative in the same: in the Article 2.152 of the LR CC a
relation to the third party as if done by the repre- commercial agent is described as an independent
sentative in a personal capacity. It does not as such person whose basic business activity is to contin-
affect the legal position of the principal in relation ually act for payment as intermediary for the prin-
to the third party unless this is specifically provid- cipal in conclusion of contracts or conclusion of
ed for by any rule of law. contracts in the principal’s name and at the princi-
So neither according to the LR CC and the RF pal’s expense and the Article 184 of the RF CC
CC, nor according to the DCFR if the contract is presents the following concept of commercial
made by the agent in his name, the principal can- agent: the commercial agent is a person, who con-
not sue a third party and the third party does not stantly and independently represents and acts on
have a right for the claim against the undisclosed behalf of businessmen in their concluding agree-
principal. ments in the sphere of business activities. The
Another possible classification of agency is DCFR distinguishes this kind of agency in the Part
based on the ground of the agent’s authority. If E “Commercial Agency, Franchise and Distribu-
the agent’s authority is attached by the operation tion” of Book IV, however, the general rules are
of law, by an administrative act or by a court also applied in terms of actions of commercial
judgment, such representation is called legal. And agents.
if the agent’s authority is granted by a contract What is interesting to point out is that the LR
(e.g. contract of mandate) or other juridical act, CC distinguishes one more type of representation,
e.g. warrant (power of attorney) as a unilateral act, i.e. agency in conclusion and performance of con-
the rules of consensual representation are applied. tracts of international sale of goods. This is dealt
According to the general provision of Article in the Section two of Chapter XII “Commercial
2.132 of the LR CC, persons shall enjoy the right Agency” (Articles 2.169 – 2.175). This chpater is
to conclude contracts through agents with the ex- based on the Convention on Agency in the Interna-
ception of those contracts which, due to their char- tional Sale of Goods, which was signed in 17 Feb-
acter, may be concluded only personally as well as ruary, 1983 in Geneva (The Convention on Agency
other contracts prescribed by the law. According in the International Sale of Goods, signed on 17
to the same article, the agency rules are applied February 1983). Although the Convention has not
not only to the agent’s authority conferred upon a yet entered into force (it has not been ratified by
contract but also based on a statute, court judge- the required number of states), it helps to reveal
ment or an administrative act. So both consensual the concept of agency in the international context
and legal representation are recognized by the LR and provide rules that can be included in the
CC. It is the case in the RF CC as well: a transac- contracts of international sale of goods (Bonell
tion can be concluded by one person (the agent) in 1992). Provisions of this section are applied only
the name of another person (the principal) on the in the cases where the following requirements are

121
 AGENCY LAW IN BUSINESS RELATIONSHIPS: THE MAIN CHARACTERISTICS FROM A COMPARATIVE PERSPECTIVE

fulfilled: 1) an international contract of purchase tion formed by the agent outside the authority con-
and sale of goods has been concluded and is per- ferred on him. Hence the legal rules of agency law
formed; 2) the principal and a third party reside in cannot be used while solving the disputes arising
different states. Furthermore, it is stated in Lithua- out of relations between corporation and its or-
nian legal doctrine that as a separate kind of agen- gans. The opposite opinion is based on the consid-
cy can be distinguished procuracy, which was in- eration the second paragraph of Article 1.22. It
cluded in the LR CC on the basis of the German states that a legal person or any other organization
HGB, where conception of this institution was es- may not claim for annulment or invalidity of a
tablished first (Mizaras 2007). According to the transaction formed by its body or any other repre-
Article 2.176 of the LR CC, procuracy can be ex- sentatives in excess of their competence (powers)
plained as a power of attorney, which a legal per- if the law of the state where the domicile or the
son (entrepreneur) grants to his employee or other head office of the other party to the transaction is
person to perform, in principal’s name and in his located does not provide for any restrictions on
interests, all legal acts related to legal person’s their representative powers, unless the other party
(entrepreneur’s) undertaking. Besides, procuracy knew or, taking into account its position and the
grants the right to perform, in principal’s name and relationship with the other party, should have
in his interests, legal acts in the court or other non- known of such restrictions. In Russian legal doc-
judicial institutions. Procuracy is a unilateral act trine several different opinions can be found as to
which is issued only by a will of principal and the whether the organs of legal entity are its agents. In
consent of a party to whom a procuracy is given the comments of the DCFR it is expressly stated
(procurator) is not required. For all these reasons it that the provisions of the chapter on representation
is not clear why procuracy is identified as an should apply to the authority of directors of a cor-
separate kind of agency. It seems more reasonable poration in recalling that company law often mere-
to consider procuracy as a special type of power of ly deals with the granting of authority to the legal
attorney under which a specific agency representatives of the company leaving the conse-
relationship is created. quences of the exercise of the authority to the gen-
eral rules on representation. It seems reasonable
2.3. Who can be considered as the agent? that the general rules on representation should be
applied for the organs of legal entity except in so
The LR CC provides that agents can be either nat- far as the respective law contains specific re-
ural persons who have legal capability, that is they strictions or other qualifications. That legal posi-
are over 18 years old and mentally sound, or any tion could be followed in Lithuania and Russia as
legal persons (Article 2.132). The same rule is ap- well.
plied in Russian law, although it is not directly
expressed in the RF CC. As it was mentioned, both 3. Internal and external agency relationships
civil codes state that persons, who operate in the
interest of the other persons, but on their own be- Similarly to the legal systems of other countries,
half (the trade agents, the trustees of a bankrupt's the LR CC and the RF CC, as well as the DCFR,
estate, the executors of the will, etc.), and also the make a distinction between the internal relation-
persons, authorized to enter into negotiations on ship between the principal and the agent, on the
the contracts, which may be possibly effected in one hand, and the external relationship between
the future, shall not act as agents (Article 2.132 of the principal (or in some cases the agent) and a
the LR CC and Article 182 of the RF CC). third party, on the other.
According to the Article 6:102 of the DCFR a The terms agency and representation were
“representative” is a person who has authority to unknown in Russian private law until 1994 when
affect directly the legal position of another person, the State Duma adopted the first part of the RF CC
the principal, in relation to a third party by acting (it entered into force in 1995). In this part the ex-
on behalf of the principal. ternal agency relationship is regulated by Chapter
It is not clear if the concept of agency could 10 “Representation. Power of Attorney” of Sub-
be applied to the relations between a legal entity section 4 “Transactions and Representation” of
and its organs (Baranauskas 2008). Some Lithua- Section I “General Provisions”. The second part of
nian scholars are of the opinion that in accordance the RF CC dealing with law of obligations was
with different bases on voidability of transactions. adopted in 1995 and entered into force in 1996. In
Article 1.82 deals with voidability of a transaction this part there are two types of contracts fully or
contradicting the legal passive capacity of a legal partially related to the internal relationship of
person by whom the transaction was formed and agency, i.e. Chapter 49 deals with agency (man-
Article 1.92 is related to voidability of a transac-

122
 S. Mitkus, V. Jurkevičius

date) contracts and Chapter 52 with agency service the LR CC and the RF CC provide with quite ex-
contracts. act rules on power of attorney, including term,
In the LR CC the external relationship in gen- delegation, termination, consequences of termina-
eral is governed by the chapter XI “General Provi- tion and other aspects of power of attorney.
sions” of part II “Agency” of Book Second “Per-
sons” (Articles 2.131-2.152) and the internal 3.2. Mandate contracts
relationship is regulated by chapter XXXVI “Man-
date” of part IV “Nominate Contract” of Book Six The authority of the agent may arise not only from
“Law on Obligation” (Articles 6.756-6.765). a unilateral transaction and be defined in a written
The peculiarity of the DCFR is that it deals power of attorney, but also in a contract between
with both internal and external relations of agency: the agent and the principal. Usually this kind of
the Chapter 6 “Representation” of Book II “Con- agreement is called a mandate contract, under
tracts and Other Judicial Acts” is for external effect which one party (the agent) undertakes in the
of agency and the Part D “Mandate contracts” of name and at the expense of another party (the
Book IV “Specific Contracts and the Rights and principal) to perform certain legal actions with
Obligations Arising from Them” governs the inter- third parties. However, the representation may
nal relationship between the principal and the agent. arise from other agreements: service, employment,
That is contrary to other soft law instruments that partnership and others, where one person clearly
set rules exceptionally on the external relationship expresses his willingness to authorize another
between the principal and a third party. person to act on his behalf and interests. It should
be noted that in case of contractual relationship
3.1. Grant of authority between the agent and principal the power of
attorney is not required, because the agent’s
In a case of consensual agency, i.e. when the au- authority might be described in that particular
thority is derived from the principal, there are sev- contract. So mandate contract could also define the
eral types the principal’s authorization (granting of content of external agency relationship, however,
the authority). It can be expressed when the pow- its primary task is to describe the rights and
ers of the agent are defined in power of attorney obligations of the principal and the agent in the
(warrant) – a written document granted by a per- internal agency relationship.
son (the principal) to other person (the authorised In the LR CC under a contract of mandate, one
agent) to represent the principal in establishing and party (mandatary) takes an obligation to perform in
maintaining relations with third parties. Also au- the name of and at the expense of another party
thorisation may be implied. It means that rights of (mandator) determined legal actions in respect of
the agent may arise from the circumstances under third parties. Under a contract of mandate, the
which the agent acts. It is considered that the mandator may empower the mandatary to perform
representative has the powers that are necessary to legal actions related with the defence of the
properly fulfill the principal's tasks, which are mandator, execute administration of the mandator’s
usual in a particular business field or position property in total or a part thereof, perform proce-
occupied by the agent, also arising from business dural actions on behalf of the mandator in the court
customs (Watts et al. 2010). Implied powers may and other institutions, as well as to effectuate any
also be defined by the law. other legal actions. A contract of mandate can be
Express authority and implied authority are either by gratuitous title or by onerous title.
set in both the LR CC and the RF CC. Article In the RF CC the internal relationship be-
2.133 of the LR CC defines that rights of the agent tween the agent and principal can be regulated by
may also arise from the circumstances under two different contracts. One of them is called
which the agent acts (salesperson in retail trade, agency (Chapter 49 of the RF CC) and the other –
cashier, etc.) and according to Article 182 of the agency service (Chapter 52 of the RF CC) (The
RF CC the power may stem from the setting, in Russian Civil Code 2009). Under the contract of
which the representative operates (salesman in agency (or in other words, contract of mandate)
retail trade, cashier, etc.). The DCFR deals with one party (the agent) undertakes to perform certain
express and implied authority in Article II. – legal actions on behalf and at the expense of the
6:103. other party (the principal). The rights and obliga-
What is important, the DCFR in the case of tions under the transaction completed by the agent
express authority does not require a written grant. shall accrue directly for the principal. The contract
In the LR CC and the RF CC a power of attorney of agency service contains elements not only of
is considered as a written document (Article 2.137 agency, but also of commission (Butler 2009).
of the LR CC and Article 185 of the RF CC). Both Under a contract of commission one party (the

123
 AGENCY LAW IN BUSINESS RELATIONSHIPS: THE MAIN CHARACTERISTICS FROM A COMPARATIVE PERSPECTIVE

commission agent) is usually obliged to conclude not authorised by the principal to conclude particu-
upon mandate of another party (the committent) lar contracts. In the absence of evidence of appar-
for remuneration one or several transactions in his ent authority the agent shall redress the damage
own name but at the expense of the committent. incurred on the third party in cases where the third
Since Russian law recognises only direct represen- party was not aware, and was under no obligation
tation, a contract of commission cannot be consid- to be aware, of circumstances that the person acted
ered as a contract confirming internal relationship in other person’s name without their express au-
of agency. That is why agency service contract thorisation or in excess of their authority.
deals with agency partially: only when one party The principal should be liable for actions of
(the agent) undertakes for remuneration to perform the apparent agent if the following three require-
legal and other actions on behalf and at the ex- ments are proven: words or conduct of the princi-
pense of the principal. When the agent performs pal caused the impression of authority; the third
legal and other actions on the instruction of the party could reasonably presume the existence of
other party (the principal) on his own behalf, but at sufficient authority; the third party acted in good
the expense of the principal, such contract is not faith. The third party’s legitimate expectations
related to agency stricto sensu. Article 1011 sets must be aligned with the principal’s will in order
out that rules provided for by Chapter 49 are ap- to apply the doctrine of apparent authority effi-
plied accordingly to the relations following from ciently (Pakalniškis et al. 2011).
the agency service contract depending on the fact Lithuania is one of the few countries where
whether the agent acts under the terms and condi- the idea of apparent authority is expressed in the
tions of this contract on behalf of the principal or positive law. In the RF CC there are no rules on
in his own name, unless these rules contradict the apparent authority and this kind of authority is not
provisions of Chapter 51 or the substance of the clearly recognized by court practice. The DCFR as
agency service contract. However, the RF CC does the other soft law instruments deals with apparent
not make a clear distinction between a contract of authority in the Article II. – 6:103. It sets out a rule
agency and a contract of agency services. that if a person causes a third party reasonably and
As it was mentioned, the Part D of Book IV in good faith to believe that the person has author-
“Specific Contracts and the Rights and Obliga- ised a representative to perform certain acts the
tions” deals with mandate contracts in the DCFR. person is treated as the principal who has so
It needs to be mentioned that rules on the mandate authorised the apparent representative.
contracts in the DCFR are very comprehensive: It is important to distinguish apparent authori-
they include the main obligations of the principal ty from other types of authority, in particular, im-
and the agent, performance by the agent, directions plied authority. As it was explained, implied au-
and changes, conflicts of interest, termination by thority arises from circumstances in which the
notice other than notice for non-performance, and agent operates and is considered as part of real
many other issues. So Lithuanian and Russian authority. Contrary to apparent authority, legal
courts could follow these norms while solving dis- actions carried out by the agent on the basis of im-
putes arising out of agency relationship. plied authority are considered within the scope of
the mandate. As stated in the Lithuanian legal doc-
4. Unauthorized agency trine (Bakanas et al. 2002; Aviža et al. 2009;
Baranauskas 2008) and court practice, the second
Unauthorized agency deals with a situation when paragraph of Article 2.133 of the LR CC establish-
the agent acts without authority or beyond the es implied agency and paragraph 9 of the same
scope of the authority granted. In such cases three Article explains apparent authority. The second
different issues can be distinguished: the problem paragraph of Article 2.133 states that "the rights of
of apparent authority, the concept of ratification the agent may also arise from the circumstances
and the liability of the falsus procurator. under which the agent acts (salesperson in retail
trade, cashier, etc.); in the event that behaviour of
4.1. Apparent authority a person gives reasonable grounds for third par-
ties to think that he has appointed the other person
According to the general rule explaining apparent to be his agent, contracts concluded by the said
authority, if the behaviour of the principal gives person in the principal’s name shall be binding for
reasonable grounds for a third party to think that the principal". And the ninth paragraph of the
the principal has appointed another person to be same article says that "where the agent acted in
his agent, contracts concluded by the third party in excess of his powers but in the manner which gave
the principal’s name shall be binding on the prin- to a third party serious grounds to think that he
cipal, notwithstanding the fact that the agent was was concluding a contract with the duly author-

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 S. Mitkus, V. Jurkevičius

ised agent, the contract shall be obligatory to the strict, i.e. should the agent be liable in the absence
principal, except in cases where the other party to of fraud or negligence and if so to what extent).
the contract was aware or had to be aware that The DCFR suggests that the compensation must
the agent was exceeding his powers". Such under- put the third party into the same position as if the
standing that the second paragraph is for implied person had acted with authority. If the person
authority and the ninth – for apparent authority is proves that the principal could not have performed
subject to doubts, especially taking into considera- the contract, nor have paid compensation (for in-
tion the legal doctrine in foreign countries. stance, because the principal is insolvent) the per-
son need not even pay damages.
4.2. Ratification
4.4. Liability imposed on principal for wrong
Lithuania is one of the few countries where the commited by the agent
idea of apparent authority is expressed in the posi-
tive law. In the RF CC there are no rules on appar- This issue raises many questions in terms of the
ent authority and this kind of authority is not clear- protection of the interests of an aggrieved party
ly recognized by court practice. The DCFR as the and the scope of liability of the principal (or/and
other soft law instruments deals with apparent au- the agent) in such cases. The DCFR deals with
thority in the Article II. – 6:103. It sets out a rule representation only from the perspective of con-
that if a person causes a third party reasonably and tract law, so there are no rules in this soft law in-
in good faith to believe that the person has author- strument on liability imposed on the principal for
ised a representative to perform certain acts the wrongs committed by his agent. However, this
person is treated as the principal who has so au- kind of liability is directly regulated in the LR CC
thorised the apparent representative. and indirectly in the RF CC.
In Lithuania the principal’s liability for torts
4.3. Liability of the falsus procurator committed by the agents is regulated by the second
paragraph of Article 6.265 “Liability to compensa-
As it was mentioned, if a contract concluded by a tion for damage caused by others”. It indicates that
person in other person’s name without express au- a represented person himself and the representa-
thorisation or in excess of his authority is not ap- tive executing his mandate shall be solidarily lia-
proved by the principal the agent has to redress the ble to make compensation for the damages caused
damage incurred on a third party in the cases by the latter. It is interesting to note that this legal
where the third party was not aware and was under norm has not yet been applied in the practice of
no obligation to be aware of the said circumstanc- Lithuanian courts and has not been analysed by
es. In such cases the third party can ask the unau- legal doctrine. Article 6.264 together with the pre-
thorised agent (the falsus procurator) to pay dam- viously mentioned article from section 3 “Non-
ages that he has suffered as a consequence of the contractual (delictual) liability” of the LR CC is
agent’s lack of authority. Such rules are provided also relevant to this context. It regulates the liabil-
for in Article 2.136 of the LR CC and II. 6:107 of ity of an employer for damage caused by the fault
the DCFR. The RF CC contains a slightly different of his employees. The first paragraph stipulates
concept in case of unauthorized agency: if the con- that an employer shall be liable to compensation
tract has been concluded on behalf of the other for damage caused by the fault of his employees in
person in the absence of relevant powers, or in the performance of their service (official) duties.
case such powers have been exceeded, the contract On this basis it is not clear if Lithuanian private
is regarded as made on behalf and in the interest of law considers the employee as the agent. It is rec-
the person who has made it, unless the other per- ommended to apply Article 6.265 only when a
son (the principal) subsequently directly approves person concludes contracts or performs other legal
of such a deal. actions on behalf of another person, while Article
It is necessary to identify the legal basis on 6.265 should deal with a situation when a person
which liability of the falsus procurator may arise. performs either legal or factual actions on the
As far as there are no contractual relationship be- grounds of an employment or civil contract. Fur-
tween the falcus procurator and the third party, the thermore, it is important to determine the level of
claim should be made on the basis of tort. It is also control in such relationships: if it is relatively high,
important to clarify what types of damages (reli- then the rules of Article 6.264 are applied. And
ance or expectation) the unauthorised agent would Article 6.265 covers situations when a person acts
be bound to pay and what are general and specific without the supervision or orders of the corre-
conditions of his liability that must be proven sponding person.
(whether the liability of the unauthorised agent is

125
 AGENCY LAW IN BUSINESS RELATIONSHIPS: THE MAIN CHARACTERISTICS FROM A COMPARATIVE PERSPECTIVE

Also it is not clear why the legislator has de- After examining Lithuanian positive law, the
cided that the rule of solidarity is applied in the conclusion can be drawn that the rules on represen-
cases when the agent commits a tort and why dif- tation in the LR CC are consistent with classical
ficult rules exist for tortious liability of the agent agency doctrine and recent trends in this field of
and the employee: the agent is solidarily liable law. What distinguishes agency law in Lithuania
with the principal while only the employer’s liabil- form other jurisdictions (especially of the civil law
ity to the third party is applied. It seems reasonable tradition) is that legal regulation is very broad and
to follow the position of Western European coun- comprehensive: there are specialized rules on ap-
tries in such matters. In many of them the liability parent authority, commercial agency, agency in
of an employer does not eliminate the liability of conclusion and performance of contracts of interna-
an employee for his illegal acts (Unification of tional sale of goods, procuracy, liability Imposed on
Tort Law: Liability for Damage Caused by Others, principal for wrongs committed by the agent, etc.
2003). The plaintiff usually has the right to claim However, the lack of a well developed legal doc-
both the employee (personally or jointly with the trine on the subject-matter results in the wrong in-
employer) and the employer. terpretation and the application of legal norms in
The solidary liability of the agent could also legal disputes concerning agency relations, for ex-
mean that the concept of an agent is closer to the ample, when allowing the third party to sue the
meaning of an independent contractor. But if the agent, notwithstanding the fact that the agent was
agent is considered as the independent contractor, sufficiently authorized by the principal and acted
the principal should not be responsible for the without exceeding the rights conferred to him.
agent’s acts since in the cases of wrongful acts Assessing the legal regulation of representa-
committed by the independent contractor only he tion in Russia, it can be pointed out that agency
is found liable in tort. The main difference be- has not been developed to the extent it has been in
tween the agent and the independent contractor is other jurisdictions, including Lithuania. This is
that the latter is bound only by purposes that are obvious from Chapter 10 “Representation. Power
specified by his contractor, but exercise discretion of Attorney” which has only seven articles. How-
in deciding how to achieve it. ever, it is not necessary to make any immediate
Finally, the LR CC does not specify whether amendments in the RF CC concerning agency – in
the liability for damage caused by others is strict cases of incomplete legal regulation, the existing
liability or should the fault of agent be proved. gaps can be filled out by courts using comparative
However, with respect to the legal rule imple- legal method.
mented in Article 6.264, liability of the principal
in breach of his duties should be based on fault. References
In the RF CC there are no special rules on this
tort, so it is dealt by general provisions. It means Aviža, S.; Bosaitė, A.; Brazdeikis, S.; Butov, S.;
that the principal can be liable to make compensa- Juzikienė, R.; Mikelėnas, V.; Mizaras, V.; Smaliu-
tion for the damages caused by his agent if damag- kas, A.; Staskonis, V.; Vileita, A. 2009. Civilinė
es occurred because of the execution of mandate. teisė. Bendroji dalis. Vilnius: Justitia.
Bakanas, A.; Bartkus, G.; Dominas, G.; Kabišaitis, A.;
It is not clear if Russian law would recognize the
Keserauskas, Š.; Mikelėnas, V.; Mizaras, V.;
agent as a joint and several debtor with the princi- Petrauskaitė, D.; Petravičius, R.; Smimovienė, Z.;
pal in this kind of tort. Staskonis, V.; Šukys, R.; Taminskas, A.; Tiažkijus,
V.; Vainauskas, A.; Vileita, A. 2002. Lietuvos
5. Conclusions Respublikos civilinio kodekso komentaras. Antroji
knyga. Asmenys. Vilnius: Justitia.
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fying common weaknesses and providing efficient Kiršienė, J.; Pakalniškis, V.; Papirtis, L. V.;
solutions in the field of agency law. First of all, the Petrauskienė, D.; Ruškytė, R.; Vitkevičius, P.
DCFR could be taken into account as this soft law 2008. Civilinė teisė. Bendroji dalis. Vilnius:
Mykolo Romerio universiteto Leidybos centras.
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Bonell, M. J. 2011. Agency, in Hartkamp, A. S.;
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