In a recent issue (October 2021) I wrote of riders (professional and serious amateurs) who act as agents for horse owners or buyers in the sale and purchase of horses. The article highlighted duties imposed on them by

law.

When representing the horse owner or a potential buyer as client, the agent owes duties to follow instructions, to act in the client’s interests and, allied to that duty, not to prefer the agent’s interests over the client’s, for example to profit or receive a benefit from a third party without the knowledge and consent of the client. Regrettably, it is not uncommon for agents to step over the line, tempted by fast money, by obtaining a secret benefit, and I cited a lived example: an agent acting for a buyer suggested to the owner (who was a close friend of the agent) to double the asking price because the agent knew how much the buyer (who was the agent’s pupil) was prepared to pay. The agent’s buyer’s commission doubled in an instant, without the knowledge of the buyer.

 

Since that article was published, an interesting example has crossed my desk revealing the ingenuity of professional horse dealers to evade the duty of an agent to avoid conflicts of interest.  In this case the dealer claimed that it had an overseas buyer for the horse at a figure of $400,000 so the owner was interested. The identity of the buyer was not disclosed which might have been for a good reason, for example, a high-profile wealthy person whom the owner might perceive as willing to pay a premium. The owner sought $500,000 but the dealer claimed its buyer would not go over the original figure.  A very simple documented sale contract was prepared by the dealer which gave the agent’s name as buyer but added “as agent”, stipulated that the sale was conditional on a satisfactory vet check by a certain date, and gave the owner a right of first refusal should the buyer ever wish to dispose of the horse.

 

The owner then learned from reliable sources that the dealer, soon after the contract was signed and before a vet check was even arranged, had attempted to sell the same horse for $600,000 to anyone within its network of contacts!  The owner was ropable as one can imagine.  But had the dealer done anything legally wrong?  Could the owner terminate the sale?

 

The addition of the words “as agent” after the dealer’s name made the owner aware that the dealer was acting on behalf of someone whose identity was secret.  There is nothing unlawful about that even if the owner might be very curious to know the buyer’s name.   At law, the ‘agent’ is liable under a contract for the purchase price unless the terms of the contract reveal an intention that the agent should not be liable.  In hindsight, the dealer had cleverly worded the agreement to make its personal liability for the purchase price ambiguous; in addition, the condition of a ‘satisfactory’ vet check also provided the dealer an exit strategy.

The owner was confident of 4 things: firstly, the dealer was hopeful of turning over the horse for a quick $200,000 on the strength of the sale contract, second, the owner had facilitated a potential windfall for the dealer by signing the contract; third, it only agreed to sign the sale contract on the basis of a confirmed actual buyer of the horse at $400,000 and, fourth, the so-called buyer whom the dealer claimed to represent was a phantom.

 

As the dealer had clearly misrepresented that it had a buyer of the horse at $400,00, the owner was legally entitled terminate the sale contract but needed to act quickly to ensure the dealer did go on to sell the horse before the contact was terminated. Were this to occur and the dealer bank $200,000 (or worse, disappear with $600,000!) there would be an interesting legal dispute between 2 innocent people, namely the original owner and the buyer.

 

The law is also concerned with substance over form.  In this instance, the dealer’s ruse intentionally masked what was in truth a relationship of principal (the owner) and agent (the dealer) which required the agent to adhere to those legal duties mentioned at the beginning of this article. In short, the dealer sought to dress up as a buyer’s agent when, in substance, it was acting for the owner to sell the horse for $400,000 (in the owner’s mind) and for hopefully a lot more if the dealer had gotten away with it.

 

In this case, it was only by reason of the owner being well connected and by chance too that it came to learn just what the dealer was doing behind the scenes.

 

For owners generally:

  • deal with reputable dealers and agents who would be sensitive to reputational damage and therefore not risk it by engaging in sharp or illegal conduct
  • ask for documentary evidence that the dealer/agent in truth has a buyer for the horse even if the identity is to remain hidden
  • ensure that if the dealer/agent is nominated in the contract “as agent” that it’s clear that it is personally liable for the purchase price and don’t agree to part with possession of the horse before full payment; or
  • better still, put the arrangement on to the more satisfactory footing where the dealer/agent is in point of fact and law your sales agent, not someone acting for a non-disclosed or partially disclosed buyer

 

12 November 2021

© Michael Mackinnon, Solicitor & Independent Counsel

Horseforce.com.au