Travel Agent Law

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Law of Agency

1. Principles of Agency

"No word is more commonly and consistently abused in the English language than agency" . Although agency is an every day word whose meaning covers activities ranging from distribution outlets to service centres, it proves its real importance in the business and law context. In this context agency is defined as a fiduciary relationship between two parties which "results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent to by the so to act" .

Agency law cannot function with out three parties being involved. These three parties include the principal, an agent and a third party. The function of an agent is to act on behalf of the principal when making contacts, receiving statements and making representations and to pay and receive money for the principal.

Travel Agents are obviously acting as an agent when selling or booking accommodation, travel etc for clients. The typical relationship between a customer and the Travel Agent consists of the customer being the principal and the supplier of the services, weather it be accommodation or a means of travel, as the third party. However Travel Agents can act on behalf of the provider, making the customer the third party. In either arrangement the Agent is still responsible to their principal under the common laws which govern agency.

. Duties of Agents

Weather the Agent's principal is their customer or the supplier, the Agent must maintain the same duties to either person. Agency relationships are considered as fiduciary relationships. As a fiduciary the agent is also governed by the terms expressly set out in the agency agreement. A failure to follow the duties set out in the agreement and those established by common law may result in the agency being terminated or the agent being sued for breach of contract. The six key duties of an agent require the agent to

a. Follow the principal's instructions.

An agent's failure to correctly follow their principal's instructions is demonstrated in Bertram, Armstrong & Co. v Godfray . The agent, a broker, failed to sell their principal's stock at the instructed price. The agent was forced to sell the stock at a reduced price when the market had dropped. The Principal subsequently sued the agent to recover the difference.

b. To use all reasonable diligence, care and skill.

The duty of diligence and care is set by the standard that any reasonable person would expect an agent to exercise in the circumstances. It may also be affected by law of negligence and fitness for purpose when the agent is supplying goods and services as implied by the Trade Practices Act 174 (Cth) . The agent however will not be liable if they are sure of the correctness of their information.

c. To act in person and not delegate work.

This duty follows on from the requirement to act with diligence and care. It is designed to uphold the personal qualities of the agent which may well have been a factor in the principal's decision to choose the particular agent. The agent is not able to delegate any part of the work instructed by the principal to a sub agent as in John Mc Cann & Co v Pow . However there are exemptions to this duty. If there is an expressed or implied authority to delegate any part of the work or if clerical duties are delegated to a secretary or junior partner the agent may not be held liable for delegating the work, however the agent is still responsible for that work that has been done and may still be held liable for any faults in that work.

d. To act in the principal's best interests.

Whilst acting as instructed by their principal, agents must also act in the best interests of the principal. If the agent is to undermine their principal's trust the principal may take action at either the common law level or under the Trade Practices Act 174 (Cth) for misleading or deceptive conduct. This duty also prevents agents from having a conflict of duty or making a secret profit. Particularly for Travel Agents acting as an agent for the supplier, they need to take care not to also act as an agent for their customer; doing so will cause the Agent to be liable to both the supplyer and customer for breaching the conditions of their agency. If it is found that the agent has been making a secret commissions or profits then the principle is able to sue the agent to recover the commission/ profit.

e. Retain confidential information.

A clear example of the effect of a breach in confidentiality is demonstrated in Consul Development Pty Ltd v DPC Estates Pty Ltd , where employees used inside information to obtain personal benefits when investing in properties. This also showed that a third party is accountable for any benefit it may take when it knows that there has been a breach of confidentiality, also shown in Dickson Hotel case .

f. To keep the principal's moneys separate.

The final duty required of agents is that to keep their principal's money separate from their own. The agent must also be able to demonstrate that the funds are kept separate from their personal funds by keeping accurate records. In the case of solicitors, accountants and travel agents this requirement is backed up by legislation to protect their clients' funds.

. Liabilities of Agents

As the agent only acts on behalf of its principal when securing a contract with the third party, the agent avoids liability in the course of that contract. After the contract is formed, the agent has fulfilled its role and the agency is terminated, the only parties with legal rights after this point are the principal and third party. However if the contract is not a true contract then the agent is liable for several circumstances.

Firstly the agent must not contract personally. If the agent has failed to clearly identify them selves as an agent they may be held liable for the contract. In Cooper v Fisken a tenant was authorised by the land lord to have works conducted on the property, subsequently making the tenant an agent for the land lord. Although it was found that the tenant was liable for the cost of the work as it was not clear in the situation that they were acting as an agent. However the agent may claim that they are acting for an undisclosed principal. This does position the agent in a precarious situation. If it appears to the third party that the agent is not acting for a principal then the agent may be held liable for the contract. The principal may come forward and establish that the agent was acting on their behalf and ratify the contract. There are also situations where the agents may chose to act personally, this may be required or permitted by some trades, such as stock brokers . Even though there are provisions to allow for agents to act personally they do not provide an exemption from liability.

If the agent is to breach any of its duties to either principal or third party or act in any way as above, either party may take action against the agent. Most breaches of the duties result in a termination of the agency or the agent being sued to recover lost funds or secret commission. The most beneficial to the principal is to sue the agent to recover any moneys lost by the agent acting outside of their duties and to recover any secret commissions that they may have been making.

Statute Law

4. Relevant Legislation

In addition to the principals of agency law there are also statutory provisions which cover professional agents. The core idea behind this regulatory legislation is to control the industries and provide some form of consumer protection. In the case of Travel Agents, they are governed by the Travel Agents Act 186 (Vic) [the act], or similar legislation for other states. This legislation establishes licence requirements for Travel Agents and provides protection for consumers and provisions for disciplinary action. Travel Agents also fall under the jurisdiction of the Trade Practices Act 174 (Cth), which provides further consumer protection. However it is not as specific as the Travel Agents Act.

5. Licensing Requirements

Under the Travel Agents Act there are several requirements set out, that potential agents must fulfil before obtaining a licence to operate as a Travel Agent. These requirements are set out in Division II of the act along with other requirements and conditions relating to Travel Agent licences. These requirements are designed to provide regulation to the industry and protect the travelling public. When logging an application for a license the applicant must follow the procedures and guidelines set out in Division II. The licensee must be of a fit and propers person, have adequate assets and capital, manger is required to have appropriate experience, a suitable premises must be available and the licensee must be a member or the Travel Compensation Fund.

6. Travel Compensation Fund (TCF)

The major requirement of potential agents is that they be members of the TCF. The fund was established to provide compensation to persons who have suffered a loss due to the actions or miss-actions of their agents. The fund is made up of fees and levies paid by applicants, members and from government grants. If an applicant is not a member of the TCF then a license will not be granted, however if the applicant does not hold a license then they are not eligible to be member of the TCF. The fund also has several conditions that must be met before applicants are granted member ship.

An application fee must be payed for each office of the agency which is intended to be opened. The applicant must also provided financial statements of their indented first 1 months of business and a statement of their personal finances and assets. These statements must be certified by an auditor and must comply with financial reporting legislation.

The Applicant must also provide supporting documents with their application. These documents must include audited financial statements, certificate of personal assets, balance sheets, projected costs and figures, income tax returns and auditor's reports to confirm balance sheets and financial statements. A letter from an existing agency maybe included stating the applicant's financial status. Similar documents must be provided annually for renewal of membership.

Once membership is granted to the applicant six conditions must be met to maintain membership, along with successfully renewing the membership. The Agent must maintain a separate trust account for their customer's funds, increase the business' capital, reduce debt, obtain a financial grantee on the company, maintain accurate accounting records, obtain auditors reports and grant a floating charge. Failure to meet these conditions of the membership may result in the TCF reviewing the agency and terminating their membership.

7. Statutory Liabilities

The Travel Agents Act 186 (Vic) provides several means of consumer protection against Agents and also establishes the Agent's duties. Divisions and 6 of part 1 and part 4 of the act set out the provisions for action to be taken against agents. Provisions are also set out by the TCF for seeking action against Agents to receive compensation.

Sections 0 and 1 of the act establish the main means and procedures for disciplinary action. Under subsection 1 the legal action is able to be taken against an agent who

• Has improperly obtained their license.

• The licensee has been found guilty of an offence involving fraud.

• The licensee has failed to comply with the act.

• The licensee does not have or is not likely to have sufficient funds to be able to carry out their business as an Agent.

If an Agent has been suspected of any of the above then an application may be lodged with the tribunal to have investigations conducted and possibly to have the license suspended. If found guilty by the tribunal an Agent may face several disciplinary measures including a reprimand of the license, a penalty up to $5000, cancellation of a license, limitation of a license or disqualification of the license.

Advised Action

Considering both agency and statute law, there are several courses of action that may be taken against an Agent who has failed to meet the requirements of their license or provide a satisfactory service to their customer or principal. However either course of action may not be suitable or possible.

As Travel Agents are agents they are liable to their principals for any breaches of their duties as agents. Typically breaches of agency law result in parties seeking financial remedies for any loss that they may have suffered due to the agent's actions or miss-actions. This action may suit clients who have been forced to buy extra tickets or accommodation due to an Agent's failure to make correct bookings. Although it is risky taking this form or action as the Agent may not have sufficient financial resources to pay any damages awarded by a court. A threat of civil action may also act as a slack deterrent to Agents. The agency responsible may have enough funds to adequately pay and damages how ever the action may not have a strong enough impact to deter the agency from making the same "mistakes".

A more effective way of seeking action against an Agent would be to do so under statute law and the Travel Agents Act 186 (Vic). An action taken under this legislation would be more effective as the penalties for offending Agents carry more weight than simply being ordered to compensate an aggrieved customer. The threat of possibly losing a license would be more effective in disciplining an agent. It would also be more beneficial to the customer to take action this way they are able to make a claim under the TCF. Although because of the high volume of claims being made to the TCF, they cannot entirely compensate applicants, it is still a preferable option to seeking legal action in a court of law.

8. Books

• American Law Institute, Restatement of the Law, Agency (d), 1-001, cited in, eg, Fisher, S, Agency Law, Sydney, Butterworths, 000

• Stephan Graw, An Introduction to the Law of Contract (4th ed, Sydney, LBC 00)

• Paul Latimer, Australian Business Law (nd ed, CCH, 00)

• Trevor C Atherton & Trudi A Atherton, Travel, Tourism and Hospitality Law, (18, LBC)

. Legislation

• Travel Agents Act 186 (Vic)

• Trade Practices Act 174 (Cth)

10. Cases

• John Mc Cann & Co v Pow {175} 1 All ER

• Kennedy v De Trafford {187} AC 180 at p 188, cited in Scott v Davis (000) Aust Torts Reports 81 57; [000] HCA 5, (000) 74 ALJR 1410 at {7}

• Bertram, Armstrong & Co. v Godfray (180) 1 Knapp 81; 1 ER 64

• Consul Development Pty Ltd v DPC Estates Pty Ltd (175) 1 CLR 7

• Ravinder Robini Pty Ltd v Krizaic (11) 105 ALR 5

• Cooper v Fisken (11) 18 ALR 155; ALT 1

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