CONTRACT OF AGENCY

Agency deals with situations in which one person -- the principal-- uses another person -- the agent--
to act on his behalf. Sometimes the acts of the agent are attributed legally to the principal, sometimes
not. Delineating the conditions under which each is true are what make up the law of agency. The
importance of agency in the common law is shown by its being the subject in 1933 of the second
(after Contracts) of the American Law Institute's series of Restatements.1 Clearly, agency is central to
business dealings. No owner of a business can do everything himself; he must delegate some things to
agents, and this is true not only of large corporations but of sole proprietorships that have employees
who work for the owner. In partnerships, the partners act as each other’s agents. And in corporations,
the shareholders are completely unable to act on their own behalf; they delegate authority to a board
of directors, who in turn delegate authority to the officers of the corporation. Indeed, agency is one of
the main themes of corporate law, and a standard introductory section of its textbooks. Agency is
often taught in conjunction with Corporations and Partnership, but it runs through all the major areas
of law. In torts, it enters via vicarious liability; in contracts, via the validity of contracts made by
agents; in criminal law, via conspiracy. Agency law has nonetheless been neglected in legal research.
The problem is perhaps that it no longer is taught as a separate law school course, but rather is tucked
away in odd corners of tort, procedure, contract, and business organization, so being important to all,
it is the focus of none. Hence lawyers in general do not think of it as an independent subject of study
and law professors, who write most law review articles, do not come to it naturally through their
teaching responsibilities. Nowadays, no law school hires a professor to fill an “agency slot”, even if
everyone were to recognize the importance of the subject.

Agency law is nonetheless alive and increasing in importance. The first Restatement was followed by
a second, and now the third has reached draft stage.

Agency considerations are crucial to legal planning and to how judges decide certain ofhe most
disputed cases of our era. In class actions and derivative settlements, the problem of protecting the
principals—the plaintiffs—from their agents—the attorneys—is central. In the law of sexual
harassment, too, deciding how to allocate liability when a supervisor or other employee engages in
harassment is fundamentally a question of agency. Since the 1970's agency has at the center of some
of the most exciting research in economic. Economists—including this autho---have used the idea of
principal and agent to explain the intricacies of labor compensation, the organization of hierarchies,
the design of securities, and a host of other problems.5 In the paradigmatic model, a principal hires an
agent to exert some kind of effort. The agent is tempted to be slack in his effort and the principal tries
to overcome this moral hazard by designing a contract under which agent compensation is based on
output. The economist’s issues are, to be sure, different from traditional agency law’s. The
economist's concern is that the contract will not induce appropriate effort by the agent; the lawyer's
concern is what happens when the agent is active, but his effort is mischanneled. The lawyer’s agent
places an order with a supplier when he has been forbidden to do so; drives the principal's delivery
truck into a schoolbus; hires the wrong employee for the principal's business, or sexually harasses a
fellow worker. For the economist, the agency problem is how to give the agent incentives for the
right action; for the lawyer, it is how to mop up the damage when the agent has taken the wrong
action. The paradigmatic problem involves not just principal and agent, but a third party. The agent's
misbehavior may not have any direct adverse effect on the principal. The principal is not in the
schoolbus that is wrecked by the agent, and unless the law enforces the contract, he is unhurt by the
agent's foolish or unauthorized purchases. Third partiesare harmed, however, so government
intervention can aid efficiency. When the agent
takes a mistaken action, the damage must be allocated to someone---principal, agent, or third party.

This kind of problem seems intrinsically amenable to economic analysis. Indeed, Judge Posner uses
it in his dissenting opinion in the Seventh Circuit's en banc decision of

the two leading recent sexual harassment cases, Jansen v. Packaging Co. and Ellerth v. Burlington,
believing it to be more useful than application of the second Restatement of Agency, "that antiquated
screed". 7

As will be seen below, there has been dissatisfaction with the logical foundations

of agency law at least since Oliver Wendell Holmes scathingly attacked them in 1891. I have more
faith than Judge Posner in antiquated screeds, however, and hope to show that many of the principles
to be found in the common law of agency do have sound

foundations--- not in the legal formalisms which courts try to use, but in economic analysis. I will not
address sexual harassment in this article, but we must walk before we

can run, and we must thoroughly understand how agency law applies to ordinary business dealings
before we can apply it to the complexities of Title VII. The economic approach has already been
applied to one of the best-known problem of agency law: what happens

when an agent tortiously injures a third party? The law deals with these involuntary creditors
according to the doctrines of vicarious liability or respondeat superior, which

make the principal liable for torts committed by his agent in the course of the agent's duties

FORMATION OF AGENCY

1. Actual Express Authority. The principal has entered into an explicit agreement with the agent
authorizing him to take particular action. When the board of directors of a company votes to authorize
the president to purchase a new office building, this is actual express authority.

2. Actual Implied Authority. The principal has entered into an explicit agreement to employ the agent,
and although he has not specifically authorized the particular action at issue, the agent can reasonably
infer that authority for that action has been delegated to him. If the general manager of a department
store hires clerks, the store is bound by his contract even if he was not expressly granted that
authority.

3. Apparent Authority. The principal has no agreement with the agent authorizing the action, but a
third party could reasonably infer from the principal's conduct that the agent was authorized.15 If the
home office tells a customer that the sales manager has authority to sell flour without confirmation,
and then withdraws that actual authority without telling the customer, the sales manager still has
apparent authority. 16 This differs from actual implied authority in that apparent authority may exist
even if the principal has expressly forbidden the agent's action. Apparent authority depends on the
beliefs of the third party, not on the actual relation between principal and agent.

4. Estoppel. The principal is "estopped" from objecting to the agreement made by the agent if the
principal could have intervened to prevent the confusion over authority; e.g., if the principal
overheard the agreement being made and failed to assert that the agent was unauthorized.17 As one
opinion puts it,

“In order to prove agency by estoppel, the following elements must be established:
(1) intentional or negligent acts of commission or omission by the alleged principal
which created the appearance of authority in an agent; (2) reasonable and good faith
reliance on the appearance of authority in the putative agent by the third party; and (3) a
detrimental change in position by the third party due to its reliance on the agent's
apparent authority”.

5. Ratification. If no other authority exists, but the principal agrees to the contract once he learns
about it, this ratification binds the principal. If the flour salesman has no authority to sell wheat, but he
makes a contract anyway, that contract is binding if the flour company agrees to it upon learning of
the salesman's actions.

6. Inherent Agency Power. This concept is absent from the first Restatement of Agency. It was
formally introduced in 1958 in the Second Restatement, '8a of which says, "Inherent agency power is
a term used in the restatement of this subject to indicate the power of an agent which is derived not
from authority, apparent authority or estoppel, but solely from the agency relation and exists for the
protection of persons harmed by or dealing with a servant or other agent." The agency relationship
may somehow give the agent the power to harm third parties even if there is no manifestation by the
principal that the agent is acting on his behalf.19 "Inherent agency power" is the new term invented to
cover this source of liability, which was already well known, but without a clear doctrinal foundation.
The best-known illustration of inherent agency power in the law of agency and contracts is the classic
teaching case, Watteau v. Fenwick .
"From the evidence it appeared that one Humble had carried on business at a
beer-house called the Victoria Hotel, at Stockton-on-Tees, which business he had
transferred to the defendants, a firm of brewers, some years before the present action.
After the transfer of the business, Humble remained as defendants' manager; but the
license was always taken out in Humble's name, and his name was painted over the door.
Under the terms of the agreement made between Humble and the defendants, the former
had no authority to buy any goods for the business except bottled ales and mineral
waters; all other goods required were to be supplied by the defendants themselves. The
action was brought to recover the price of goods delivered at the Victoria Hotel over
some years, for which it was admitted that the plaintiff gave credit to Humble only: they
consisted of cigars, bovril, and other articles. The learned judge allowed the claim for the
cigars and bovril only, and gave judgement for the plaintiff for 22L. 12s. 6d

DUTIES OF AGENTS

1. To carry out the work undertaken according to the directions given by the

principal.

2. To carry out the work with reasonable care, skill and diligence.

3. To communicate with the principal in the case of difficulty.

4. To pay sums received for the principal.

5. To protect and preserve the interests of the principal in the case of his death or insolvency.

6. Not to make secret profit from agency.

7. Not to set up an adverse title.

8. Not to use information obtained in the course of the agency against the
 principal.

RIGHTS OF AGENTS

1. Right of retainer.

2. Right to receive remuneration.

3. Right of lien.

4. Right of indemnification.

5. Right of compensation.

PRINCIPAL’S RIGHTS AND REMEDIES:

1. Contract remedies for breach of fiduciary duty and performance.

2. Can sue in tort: libel, slander, trespass, deceit, fraud.

3. Constructive Trust – money/ property agent steals from Principal.

4. Avoidance of contract if agent does not do as told.

5. Indemnification

TERMINATION OF AGENCY CONTRACT

1. by the act of the principal or the agent;

2. by operation of law.

The agency may be dissolved by the act of one of the parties. 1st. As a general rule, it may be laid
down that the principal has a right to revoke the powers which he has given; but this is subject to
some exception, of which the following are examples. When the principal has expressly stipulated
that the authority shall be irrevocable, and the agent has an interest in its execution; it is to be
observed, however, that although there may be an express agreement not to revoke, yet if the agent
has no interest in its execution, and there is no consideration for the agreement, it will be considered a
nude pact, and the authority may be revoked. But when an authority or power is coupled with an
interest, or when it is given for a valuable consideration, or when it is a part of a security, then, unless
there is an express stipulation that it shall be revocable, it cannot be revoked, whether it be expressed
on the face of the instrument giving the authority, that it be so, or not. The agency may be determined
by the renunciation of the agent. If the renunciation be made after it has been partly executed, the
agent by renouncing it, becomes liable for the damages which may thereby be sustained by his
principal.

The agency is revoked by operation of law in the following cases: 1st. When the agency terminates by
the expiration of the period, during which it was to exist, and to have effect; as, if an agency be
created to endure a year, or till the happening of a contingency, it becomes extinct at the end or on the
happening of the contingency.

When a change of condition, or of state, produces an incapacity in either party; as, if the principal,
being a woman, marry, this would be a revocation, because the power of creating an agent is founded
on the right of the principal to do the business himself, and a married woman has no such power. For
the same reason, when the principal becomes insane, the agency is ipso facto revoked. The incapacity
of the agent also amounts to a revocation in law, as in case of insanity, and the like, which renders an
agent altogether incompetent, but the rule does not reciprocally apply in its full extent. For instance,
an infant or a married woman may in some cases be agents, although they cannot act for themselves.

The death of either principal or agent revokes the agency, unless in cases where the agent has an
interest in the thing actually vested in the agent.

The agency is revoked in law, by the extinction of the subject-matter of the agency, or of the
principal's power over it, or by the complete execution of the trust.

An attorney who transacts the business of another attorney. The agent owes to his principal the
unremitted exertions of his skill and ability, and that all his transactions in that character, shall be
distinguished by punctuality, honor and integrity.

International Law. One who is employed by a prince to manage his private affairs, or those of his
subjects in his name, near a foreign government.
CONTRACT OF EMPLOYMENT

When a person agrees to undertake a job for an employer then an employment agreement will exist
between employee and employer. At first there may not be any written contract, but a contract of
employment will still exist. Employment contracts are set in place to fully outline the employee and
employer’s terms, conditions and rights with regards to the employment.

Employment Contracts and the Law

The law has strict rules regarding employment contracts and the rights of the employee; these are
known as statutory rights. An employee has a number of these statutory rights and employment
contracts must include them. An employee and employer can list any number of duties and
expectations in the contract but the contract must include the employee’s statutory rights. Be aware
that some rights will be different if the employee is a self-employed or under a specific contract.

Statutory Rights of the Employee

Statutory rights are set in place to protect the employee. For example if an employer tries to dismiss
an employee unfairly this will go against the statutory rights of the employee and the matter can be
taken further. The employee has numerous statutory rights all designed to protect the worker from
illegal employment practices. Some of the many employment statutory rights include:

 Rights to maternity leave.

 Rights to a detailed pay statement.
 The right to written employment contracts.
 Rights regarding unfair dismissal.
 Harassment and discrimination rights.
 Rights regarding sickness and holiday pay.
 Minimum wage rights.
 Rights regarding unfair dismissal.

The Written Employment Contract

Under the law, employees do have the right to a written employment contract within two months of
starting any form of employment. It is well known that numerous employers will hold off on giving
out employment contracts for their own reasons. Some employers are under the impression that they
can dismiss employees without notice simply because they do not have a written contract. This is
against the law and does go against the employee’s statutory rights.

Requesting a Written Employment Contract

All employees have the right to a written employment contract regardless of the number of hours the
employee works or whether they are full or part-time workers. If an employee has still not received a
written employment contract after two months of beginning work then they should request one either
verbally or in writing. An employee is entitled to this contract under the law, and if an employer
makes it difficult for the employee or tries to unfairly dismiss them for asking for a written contract
then this matter can be taken to a higher level.
Terms of the Written Employment Contract

There are two sets of terms in an employment contract; these are implied and express contractual
terms. Implied contractual terms are conditions that are not specifically set out within the contract. For
instance the contract could state that an employee must undertake any reasonable request of work by
the employer, although in real terms the word “reasonable” is hard to define. However, if an employer
gives you work to do that you think is unreasonable then the best way to query this may be to ask
other employees who have been there longer and may be more rights aware.

Express contractual terms are specific terms and conditions of employment that are set out in a
detailed and clear manner. These terms should include wages, hours of employment, sick and holiday
pay, notice period, redundancy rights and overtime. It may be the case that not all of the employment
contract terms and conditions will be in your own personal contract. There may be other manuals and
workplace books that have the full contract terms, and these should be fully available for you to read.

Broken Employment Contracts

The consequences of broken employment contracts can be very serious. If the contract is broken,
known as breach of contract, then the employee can sue the employer. This can happen if any of the
rights under the terms of the contract are broken. But an employer also has certain rights if the
employee breaches his or her contract and broken contracts cannot be taken lightly on either side.

If an employer does breach contract then the first step for the worker should be to try and resolve the
matter with the employer. If the issue is not resolved then there may be no alternative than to take the
matter to the next level and issue a written grievance statement to the employer who will then have 28
days to respond. If the matter still cannot be resolved then it may take an employment tribunal to
resolve the issue.

Employment contracts play an important part in the workplace. They should not be overlooked when
starting a new job; the rights set out in the contract are there for the employee and employer’s
protection under the law. Always be sure to ask for an employment contract within two months of
starting any new employment.

DUTIES OF EMPLOYER

The three principal duties of the employer are to provide work, to remunerate the employee, to ensure
that working conditions are safe and healthy and to discharge its general statutory and contractual
duties.

Under common law, the employer is required to provide the employee with work.

However, the employer may choose to let the employee sit and do nothing, as long as the employee
receives his or her due remuneration.

This point was stressed by the court in Commercial Careers College (1980) (Pvt) Ltd vs Jarvis (1989).
Employers have taken this to mean that if they force an employee into idleness, by giving less work or
no work to do at all, it would be cheaper than dismissal.

In Kandembiri vs DDF and Another (1998), the employer decided not to give work to a driver who
had been involved in an accident with a company vehicle, ostensibly as a way of frustrating him.

However, the employer continued to pay his wages. When the driver stopped coming to work, he was
dismissed.

The High Court upheld the dismissal as lawful. However, there are exceptions to this.

In instances where remuneration is based on the volume of work done or where the failure to allow
the employee to work degrades his status, or where the employer has contracted to train the employee
in a particular profession or trade as in the case, for example, of articled clerks and apprentices, the
employer has a duty to provide actual work.

In Standard Chartered Bank vs Matsika (1997), the Supreme Court held an employer who had
rendered a reinstated employee idle to be in breach because the employee’s remuneration depended
on actual work.

The same principle had been reached earlier in a 1981 case of Muzondo vs University of Zimbabwe.

It is also important to note that employers who may wish to deny their employees access to the
workplace or otherwise prevent them from working for disciplinary or other reasons will be
considered as having “locked-out” the employee, which is a form of collective job action as defined in
the Labour Act.

The second duty of the employer is to remunerate the employee. This duty is so fundamental to the
employment contract such that in Brown vs Hicks (1902), it was held that a contract without
remuneration could not be considered a contract of employment.

As earlier highlighted, the duty to pay and the right to remuneration arise not from the actual
performance of work, but from the tendering of service, meaning that employees who are available to
do work are entitled to be paid even if the employer does not have work for them to do.

Employers should not unjustly enrich themselves at the expense of employees by refusing to pay for
the services rendered to them from which they have benefited, as was stated in the 1995 case of City
of Harare vs Zimucha.

Where the employee is unavailable to tender service, the employer is not obliged to pay, for example
when the employee is absent or has embarked on collective job action.

Section 12A of the Labour Act requires employees to be paid their remuneration in cash.

However, remuneration may be partly in kind where this has been part of custom and practice in the
organisation. The frequency of payment of remuneration depends on the parties’ agreement or on
custom and this is usually daily, weekly, fortnightly or monthly.
An employer may not unilaterally deduct any amount from the remuneration to which the employee is
entitled unless the employee has agreed to it in respect of a specific debt, or unless deductions are
required or permitted in terms of the law, collective agreement, court order or arbitral award.

In the same vein, it was held in Blismas vs Dardagan (1950) that the employee has no right to hold
back his or her employer’s property as security for unpaid wages.

Thirdly, employers are obliged to provide their employees with reasonably safe and healthy working
conditions.

This includes providing proper machinery and equipment, and adequately trained and competent
supervisory staff.

There are a number of laws governing health and safety in the workplace which include National
Social Security Authority’s Statutory Instrument 68 of 1990, Factories and Works Act, Public Health
Act, Pneumoconiosis Act, among others. In terms of the Labour Act, if employers fail to meet their
health and safety obligations, the affected employees are not in breach of their contract if they
withdraw their labour until the dangerous situation is corrected.

Where an employee is injured in an accident caused by proven negligence of the employer, he or she
will clearly sue the employer for breaching its duty of care.

However, let me hasten to point out that employees cannot wilfully or negligently endanger the health
and safety of themselves or others.

Employees who find themselves in this situation risk forfeiting compensation and will be liable to
disciplinary action by the employer.

Fourthly and lastly, the employer is expected to fulfil general contractual and statutory duties arising
from individual contracts of employment, collective bargaining agreements and labour legislation.

These include granting leave — which can be vacational/annual leave, sick leave, unpaid leave,
maternity leave or special leave.

It should be noted that proceeding on each type of leave is not an automatic right.

The granting and timing of vacation leave is granted at the discretion of the employer. An employee
who proceeds on leave which has been declined by the employer may be dismissed, as was stated in
the Supreme Court case of Zisco vs Keche (1998).

For sick leave and maternity leave, the employer will only approve the employee’s application on
submission of relevant documentation from registered medical practitioners.

There is no obligation in law for the employer to provide study leave; that well depends on the
policies of that particular employer.

Employers should also observe prescribed hours of work and overtime regulations.
It is important to note that in respect of the employment contract, the employee’s rights place
obligations on the employer and vice versa.

Parties must be careful not to interpret their rights and obligations too literally as courts have made
varying decisions in similar situations.

Each situation must be looked at critically and on it’s own merits.

DUTIES OF EMPLOYEE

In terms of the contract of employment, the employee has specific and implied duties:

 “Specific contractual understandings” must be in writing and could be about issues such as
time-keeping, productivity, safety, health and security requirements.

 “Implied duties” can also be referred to as “unwritten understandings”. These do not need to
be stated explicitly in the contract.

An employee has 4 implied duties

1. Service and the duty to perform

The employee’s principal obligation is to make his services available to you, the employer, from an
agreed date and for the duration of the contract. You must agree, with the employees, on the actual
nature of his job. Your employee has the duty to do the job he is appointed for and has the duty to
obey you. These two duties are inextricably connected.

2. Competence and implied warranty of suitability

Employees must generally exercise ‘due diligence and skill’ in the fulfillment of their duties to you or
others. By applying for a position, a person is deemed to guarantee implicitly he is suitable for that
position.

3. Good faith

The employee undertakes to serve you honestly and faithfully. If he breaches this duty of good faith,
you can dismiss him.

This means the employee must put your interests before his own during and after working hours. This
means that the employee may not:

- Compete with you;

- Steal or be dishonest; or
- Be disloyal.

There are many other acts that go against the duty of good faith, and whenever an employee acts for
his own advantage or benefit against you, he breaches his duty of good faith.
4. Subordination

The hallmark of any employment relationship is that your employee must obey your instructions and
authority. This subordination of your employee to your will is encapsulated in:

 The employee’s implied duty;

 Risk of summary dismissal; and
 His duty to obey your lawful commands to achieve your objectives.

Because of this, instances of insolence, disrespect and defiance towards employers are extremely
serious and could lead to summary dismissal.

Health and Safety at Work Law

Section 18 of the Health and Safety in Employment

(HSE) Act 1992 – Duties of principals
(1) Every principal shall take all practicable steps to ensure that –
(a) no employee of a contractor or subcontractor; and
(b) if an individual, no contractor or subcontractor, – is harmed while doing any work
(other than residential work) that the contractor was engaged to do.
(2) Subsection (1) of this section shall be read subject to section 2(2) of this Act.
The application of the law to contracts in workplaces
Most work activities are covered by the Health and Safety in Employment (HSE) Act 1992. If
people doing work for you are described as self-employed for tax or other purposes, you will
almost certainly have duties as a principal under the Act.
In this guide, “contractor” refers to a person who works as a sole trader, corporate entity, or
on some basis other than as an employee. The emphasis is on contracts awarded by tender,
but much of the process recommended is equally applicable to other contracting situations.
It is important to remember too, that in some situations, alternatives to competitive
tendering can better assist health and safety outcomes. These include:
• time and material (charge up) contracts
• collaborative working arrangements, and
• negotiated price contracts.
Where you have engaged a person or another business as a contractor, you will still have the
duties of a “principal” to a contract in a workplace. If that is not the case, you may still have
the duties of a person in control of a place of work. If a person is still legally considered
an employee in terms of the Act, notwithstanding a different contractual label, then wider
obligations will ensue.
The legal nature of the relationship between you and any person working for you or on your
behalf should be clarified and included in the terms of the contract. Remember, though,
that you cannot pass on a legal duty that falls on you as an employer, a person in control
of a place of work, or a principal in terms of the Act. If you are considering any attempt to
limit your responsibility for the health and safety of others, you should first read this guide
carefully and, if necessary, seek legal advice.
It’s important to remember that putting work out to contract does not absolve a company
or individual from their health and safety obligations and is not necessarily the “easy option”.
Refer also to the Guide to the Health and Safety in Employment Act 1992, available from the
Ministry of Business, Innovation and Employment’s website, for further information on the
duties mentioned above in relation to employers and persons in control of places of work.
What the duty requires
The object of the Health and Safety in Employment Act 1992 is the prevention of harm
to people at work, or affected by work. To do this, the Act places a range of duties and
responsibilities on different parties for health and safety management.
Section 18 of the Act creates a duty requiring principals to a contract to take “all
practicable steps” to ensure contractors, subcontractors and their employees are not
harmed while undertaking work under the contract.
Broadly, a “principal” is any person (either an individual, or a corporate entity) who engages
another (other than as an employee) to do any work for gain or reward. The exception
is engaging someone to do work on your own home. The legal definition of a principal is
discussed on page 10.
A principal’s duty under the Act depends on what practicable steps they should take to
ensure safety, such as planning, or site visits. There are situations where such duties might
be shared by the principal and contractors. For example, a principal may have a limited duty
in respect of intrinsic risks arising from everyday electrical work being done on a building
project by an electrician as a subcontractor. However, the principal’s duty would be much
more extensive with respect to scaffolding provided by them for the electrician to gain
access to the work.
Again, it is important to note the principal cannot contract out of obligations owed
under section 18 by purporting to pass the duties on to contractors or subcontractors.
Contractual clauses that attempt to do this will not be accepted by the courts.
7
The courts have recognised that where the principal is a corporate entity, it can only
discharge its obligations through employees or agents, and a failure by an employee or agent
may then be attributed to the principal. Being “let down” by an employee or agent will be no
defence.

The extent of the duty

A principal has a duty to a contractor, a sub-contractor or their employees. The duty is to
take “all practicable steps” to ensure none of these people are harmed while doing work they
were engaged to do. As the legal requirement is that all practicable steps be taken, a failure
to take only one practicable step is a breach of the Act, and may result in a conviction.
“All practicable steps”
This duty to take all practicable steps to prevent harm is defined in terms of taking all steps
that are reasonably practicable. It involves consideration of:
• the nature and severity of any injury or harm that may occur
• the current state of knowledge about the likelihood of such injury or harm occurring
• the current state of knowledge about harm of that nature
• how much is known about the risk of potential harm and the ways of eliminating, isolating
or minimising that risk, and
• the availability and cost of safeguards.
When dealing with any case, the question asked by the courts is: What would a reasonable
principal do in the relevant circumstances?
The concept of “reasonableness” is based on the legal concept of a hypothetical “reasonable
principal”, and the way they might behave in a particular situation.
There is a balancing exercise. For example, the degree of risk and the severity of potential
injury or harm must be balanced against the cost and feasibility of the safeguard.
8
The cost of providing safeguards has to be measured against the consequences of failing to
do so. It is not simply a measure of whether the person can afford to provide the necessary
safeguards. Where there is a high risk of serious, or frequent injury or harm, greater
expenditure on safeguards may be seen to be reasonable than where the risk is lower and
the foreseeable injury less serious.
Any judgement of whether a safeguard is “reasonably practicable” should take into account
the current state of knowledge within the industry. The “current state of knowledge” should
not be confused with industry common practice. When asking what a reasonable principal
would do, the courts look at best, not actual, practice.
Example
Tantalus Services Ltd operated a water treatment plant, and engaged Arthur as an
electrical contractor to complete electrical maintenance work. The work was ongoing
until one day when he was badly burned by an electrical flashover in an 11kv cable
termination cubicle. Arthur had worked in the cubicle many times previously and had
a key to access it. One day he entered to carry out his work without knowing that it had
been energised that day.
Tantalus Services Ltd was convicted for a breach of section 18(1)(b).
The court found that, although Arthur breached a fundamental electrical industry rule by
not ascertaining that the work area was safe before he entered it, Tantalus Services Ltd also
failed to ensure his safety by not exercising sufficient control over access to the cubicle.
Nor should current knowledge be confused with a particular individual’s knowledge. A
claim by an individual person that they did not know what to do about a hazard would not
be successful if the hazard was foreseeable to others in the industry, or if they chose not
to use the current body of knowledge about the hazard. The courts have referred to the
current, “up-to-date” body of knowledge available to people. Failure to be familiar with this
knowledge, or to apply it, is failing to take all practicable steps.
The overall test is: What would a reasonable and prudent person do in the circumstances?
There is no single prescription, but one obvious source of knowledge is the various codes of
practice approved under the HSE Act. Others include guidance produced by the Ministry of
Business, Innovation and Employment, Standards and industry-developed guidance.
The question of what is reasonably practicable is always a matter of fact and degree in each
situation. What this means in terms of any given contract depends on factors such as the:
• scale and nature of the contract
• type of work the contractor was engaged to do
• contractor’s and principal’s respective expertise in the work being undertaken
• current state of knowledge and “best practice” in the industry, and
• nature of hazards in the place of work.
9
Obviously, the steps expected of a principal to a photocopier service contract would be
different to those expected of the principal to a contract for a major building alteration.
The photocopier owner may only require a brief verbal exchange of relevant health and
safety information. However, the “practicable steps” expected of the principal to a major
building contract would be extensive.