Steve is an alpaca breeder and carer. He owns a large farm in Mundaring, Western

Australia. As part of his services, Steve charges alpaca owners $100 per week to care for their alpacas. For this amount Steve ensures that the alpacas are kept in a secure enclosing and feeds them as well as provides fresh clean water each day. At night Steve locks all the alpacas in his large barn.

One morning Steve notices that one of the pregnant alpaca is off its food and

displaying respiratory problems and producing nasal secretions. Steve attempts to call

the alpaca's owner, Bianca, by calling the contact number left by Bianca when she

registered her details. The telephone is answered by Bianca's housemate who explains that Bianca has gone to Ecuador for 3 weeks and is uncontactable for that period.

Steve starts to explain to Bianca's housemate about the alpaca's condition but she

hangs up and Steve is unable to get through again.

Steve decides to keep an eye on the alpaca and the next morning the alpaca is a lot

worse and had contracted a fever and was dehydrated. Steve fears that the alpaca may be suffering from a disease known as Bovine Viral Diarrhoea (BVD) and he again tries to telephone Bianca but the phone goes unanswered. Steve rings the veterinarian who attends and confirms that the alpaca is suffering from BVD and had a prenatally infected five-month-old foetus, which had already died, and needed to be aborted via emergency surgery.

The veterinarian seeks Steve’s permission and Steve agrees, knowing that without this surgery the alpaca will die. The alpaca is transported to the veterinarian's surgery.

The surgery is a complete success and the alpaca is back with Steve 3 weeks later.

One day after this Bianca returns to collect her alpaca. Bianca is very pleased that the alpaca is alive but refuses to pay the extensive veterinarian's bill and transportation costs adding up to $3500 and claims that since Steve authorised the surgery, he should be liable for its payment.

Required:

Advise Steve if he is liable for this $3500 bill or is there something Steve can argue to avoid this liability? (20 Marks)

Restrict your analysis to legal principles and cases covered in Agency Law only

Issue

Whether Steve is liable for $3500 bill or is there something Steve can argue to avoid this liability?

Relevant Law

The law of Agency is applicable in order to resolve the raised issue.

The law of agency is a relationship that exists amid three persons, that is, principal, agent and third party. It is a kind of relationship wherein the agent has the power to establish contractual relationships with third party under the authority that is assumed by him with the consent of the Principal.  There is no requirement of any kind of documentation or any kind of contractual relationship in order to establish agency. In the leading case ofFreeman and Lockyer v Buckhurst Park Properties (Mangal) Ltdthe law of agency is rightly explained.

Once any agency is established, then, the agent is authorized to carry out functions, enter contract, and deals with third parties, in place of the principal and all such actions that are undertaken by an agent must be honored by the principal in each and every situation. 

Even though there are no contractual requirements to establish agency amid two persons, however, any agency relationship can be established in four manners:

1. Expressly (by agreement) – Any relationship which is established by express means is an agency created by agreement. This can be done in three following ways:
   • Orally – When the principal by words of mouth delegate authority to the agent then it is an express oral agency and is held in Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd
   • Written – When the principal delegates authority in textual form then it is an express written agency.
   • Deed- Many times an agency can only be established by executing an instrument under seal then such agencies are agencies by deed. For instance, as per section 143-144 of the Transfer of Land Act 1893 (WA), an agency can be created only by executing a deed.  
2. Holding out/Estoppel – When the principal by his acts or omissions makes any representation in front of the third party which demonstrates that the person is his agent and any act undertaken by such an agent within such representation is an agency in holding out and is held in Crabtree-Vickers PL v Australia Direct Mail Advertising &Co PL.
3. Ratification – When the agent exceeds his authority but the same was later assumed by the principal then it is an agency created by ratification and is held inWilson v Tumman and Union Bank of Australia Ltd v Rudder. 

Operation of the Law – An agency can be established by operation of law, that is, 'Agency of Necessity'. It is a situation when it becomes extremely important for a person to act as an agent, then, it is an agency of necessity and is rightly held in Nicholson u. Chapman.

(Some parts of the solution has been blurred due to privacy protection policy)