Authority

Question 1

What is Authority?

Answer 1

Authority creates a power in the agent to bind the principal in relation to contracts and other transactions.

Question 2

Bowstead & Reynolds: Types of Authority

Answer 2

(1) EXPRESS ACTUAL AUTHORITY
= The authority which the agent has explicitly been given by the principal.

(2) IMPLIED ACTUAL AUTHORITY
“An agent has implied authority to do whatever is necessary for, or ordinarily incidental to, the effective execution of his express authority in the usual way”
(e.g. if express is to make contract in Australia, impliedly authoirsed to incur expenses to get there).

(3) USUAL AUTHORITY
The authority of a professional agent who is treated as having the authority which it is usual for someone in their professional position to have.

(4) OSTENISBLE / APPARENT AUTHORITY
Authority which the agent appears to have by virtue of some representation which has been made about him by the principal - where the principal has done something to make it look as though the agent has authority to enter into the transaction.

Very difficult to advise clients on this as law very inconsistent (mention in PQ!) – difficult to guess way the court is going to jump.

Question 3

Where express authority must be given in writing:

Answer 3

Powers of Attorney Act 1971, s.1 - Powers of Attorney must be in writing (by seal)

Mental Capacity Act 2005, s. 9 - Lasting Power of Attorney must be in writing AND in a set form.

Generally, the authority of the agent need not actually be in writing just because the contract that they are entering into with the third party does need to be (Heard v Pilley).

Question 4

Freeman & Lockyer v. Buckhurst Park Properties (Mangal) Ltd.

(On actual authority)

Answer 4

Case is on ostensibel authority, but DIPLOCK LJ provided useful description of how ACTUAL AUTHORITY is to be approached:

“An ‘actual’ authority is a legal relationship between principal and agent created by a consensual agreement to which they alone are parties. Its scope is to be ascertained by applying ORDINARY PRINCIPLES OF CONSTRUCTION OF CONTRACTS…to this agreement, the third party is a stranger; he may be totally ignorant of the existence of any authority on the part of an agent”

• So authority given orally, its terms may involve contested evidence and, incidentally, difficulty of proof.
• If the agency has been set out in writing, the relevant documents will need to be construed in the ordinary manner.
• If agent vested with authority by deed, the stricter rules on interpretations of deeds shall apply – within the ‘four corners of the instrument’.

Question 5

Ireland v. Livingston (1872)

Answer 5

Key case on EXPRESS AUTHORITY: what happens when the agent’s express authority is expressed ambigously? What if the instructions given by the principal are capable of more than one reasonable interpretation? (Big for PQs!)

Here, agent authorised to buy certain quanity of sugar (phrased ambiguously though) - impossible to buy that amount in the market at particuar time, so be brought the nearest amount he could.
Q: was principal bound by this contract?

H OF L HELD; YES - although agent had exceeded the literal terms of his authority by buying less than he’d been told to buy, he had acted within a REASONABLE INTERPRETATION OF HIS EXPRESS ACTUAL AUTHORITY.
Justified in construing his authority as being ‘buy X tonnes of sugar, or as near to X tonnes as you can get’.
But note: effect here was to reduce the principal’s financial expsoure (by buying less) - result may have been different if agent could only buy slightly more, which would’ve increased principal’s exposure.

LORD CHELMSFORD:
“if order susceptible to two different meanings, and the agent bona fide adopts one of them and acts upon it…principal cannot repudiate the act as unauthorised because he meant the order to be read in the other sense of which it is equally capable” - “principal’s own fault…he should have given his order in clear and unambiguous terms”.

Question 6

Midland Bank v Seymour [1955]

Answer 6

Ireland v Livingston applied in more modern context of instructions given to a banker who paid a letter of credit.

DEVLIN J:
“The true view of the matter…is that when an agent acts upon ambiguous instructions he is not in default if he can show that he adopted what is a reasonable meaning”.

Question 7

European Asian Bank AG v Punjab & Sind Bank (No. 2) [1983]

Answer 7

ROBERT GOFF LJ emphasised that some limit must be put on the principle in Ireland v Livingston.

Thus, the agent who seeks to rely on his own interpretation of an instruction by the principal must have acted reasonably in all the circumstances in so doing.
This may impose on the agent a duty to seek clarification of ambiguous instructions, where possible, where the agent ought obviously to have realised that the instructions were ambiguous.

Question 8

Sorrell v. Finch [1977]

Answer 8

Case on USUAL AUTHORITY.

Estate agent required prospective purchaser of property to pay a pre-contract deposit, which was basically the amount of his commission he would be entitled to from his principal (the vendor)
He disappeared with the money.
Q: was his principal liable? Depended on whether agent had authority to accept this kind of deposit??
H of L held; estate agents did NOT have usual authority to accept a pre-contract deposit.
Therefore, the principal was not liable to reimburse the buyer for the money he had paid to the agent.

Question 9

Hely-Hutchinson v Brayhead Ltd [1968]

Answer 9

Example of usual authority being found.

LORD DENNING MR – when the board of directors appoint someone to be their managing director, “they thereby authorise him to do all such things as fall within the usual scope of that office”.

Thus, the MD’s undertaking to indemnify the claimant committed the company (the principal), even though he wasn’t authorised to make such an undertaking because it was within the conventional sphere of activity of a company’s managing director to enter into such transactions.

Question 10

E Hannibal & Co Ltd v Frost (1988)

Answer 10

A manging director was held not usually to have authority to bribe the representative of another company in order to obtain work for his principal (his company).
Not surprisingly, this is not within the usual scope of an MD’s office, so easily distinguishable from a case like Hely-Hutchinson v Brayhead.

Question 11

Freeman & Lockyer v. Buckhurst Park Properties (Mangal) Ltd. [1964]

Answer 11

Seminal case on OSTENSIBLE AUTHORITY:
Director of company, acting as its agent, entered into contract with architects for development of a housing estate.
He acted as a de-facto MD but had no express actual authority to enter into this contract as had not been formally appointed as an MD under the articles.
Q: was the company bound on the contract?
C of A held; YES
Although director had never been formally appointed as a MD and therefore lacked the express actual authority from the company to make the contract, he appeared to have such authority by reason of the position that he was in respect of the company’s management - had ostensible (apparent) authority,

DIPLOCK LJ explained the company’s liability by reference to estoppel.

Question 12

Summers v. Saloman (1857) 26

Answer 12

One way the PRINCIPAL may REPRESENT that his agent has authority, is by failing to revoke his pre-existing express authority to the knowledge of the third party.
If the agent makes a contract within his former authority, the third party will not realise that he no longer has that authority, and the principal may be liable because the third party has reasonably believed that his authority is still intact.

Exactly what happened here - agent entered intop contract with the third party which was of a kind which he had often previously made when he was authorised.
Nothing to alert third party that agent’s authority had, in fact, been revoked.

Question 13

Spiro v. Lintern [1973]

Answer 13

Another way PRINCIPAL may REPRESENT that agent has authority is through his inertia - lack of action - ommitting to correct a false impression by denying his purported agent’s appearance of authority.

Here, man separating from wife - left wife to arrange with estate agents to sell their house but she had no authority to authorise sale of it - agreed sale to third party - He neither accepted nor denied his wife’s authority to sell, but permitted the prospective purchaser’s gardener and builder to work on the house; gave her PoA to complete sale when he went away.
She then decided to sell it to someone else.

C of A held; the third party was under a mistake belief that the husband was under an oblgiation to sell the house to him, BUT he was under a duty to disclose that his wife had acted without his authority - otherwise, it was a representation by conduct.

BUCKLEY LJ:
“If A sees B acting in the mistaken belief that A is under some binding obligation to him and in a manner consistent only with the existence of such an obligation, which would be to B’s disadvantage if A were thereafter to deny the obligation, A is under a duty to B to disclose the non-existence of the supposed obligation”.

Question 14

The Raffaella’ [1985]

Answer 14

Representation must stem from the principal

Here, sale of large quantity of cement - buyer was financing using Refsons (a London-based merchant bank); seller = crooks perpatuating a fraud - buyer got concerned - spoke to a manager at Refsons who, to reassure buyer all was well, signed a guarantee of seller’s liability.
Fraud exposed - buyer sued Refson on the guarantee.
Q: did the manager who signed guarantee have ostensible authority to signt it?

Refsons had internal rule requiring express approval of gaurantees by senior management - so manager lacked actual authority.
Trial judge on the evidence HELD;
Manager DID have ostensible authority - evidence suggested that in the City of London, people in his position regularly signed guarantees.
More of an example of USUAL authority!

Question 15

British Bank of the Middle East v. Sun Life Assurance Co. of Canada (UK) Ltd.

(H of L)

Answer 15

Bank was going to lend large sum to property developer ahead of big London project. Insurance company insured the life of the property developer.
A salesman operating out of Insurer’s London office signed a guarantee of the developer’s liabilities - just a salesman with no actual authority to do this.
Bank was suspicious so wrote letter to General Manager of Insurer, but sent it to its Sales Office (where saleman worked)
Reply: ‘yes, he is authorised’.
But - internal rule of Insurer - guarantees had to be signed by Board.
When sued on guarantee.

H OF L held; the manager who said the salsman was authorised had no authority to say that (he was too low down) - Insurer had not done anything to make it look as if this salesman was authorised to sign this guarantee and hadn’t done anything to lead bankto believe that the manager of the Sales Office to say that he was.

Question 16

First Energy (U.K.) Ltd. v. Hungarian International Bank Ltd. [1993]

C of A

Answer 16

Plaintiffs had been in negotiation with a branch manager of bank for a business loan - manager had made it clear that he did not have authority to grant the loan – would have to be approved by people higher up in the management hierarchy.
Later on, he (wrongly) informed plaintiffs that authority had been given.
Q: was bank liable?

C of A held; YES
Notwithstanding the fact that the bank knew that the manager didn’t have authority to grant the loan, the manager still has ostensible authority to say that the loan had been granted.
Can be thought of (as suggested by some) as case in which ‘the bank manager was held out as having authority to communicate to the customer decisions of the head office’

Difficult to reconcile with British Bank of the Middle East v. Sun Life Assurance Co. of Canada (UK) Ltd.
Academics tend to prefer this case.

Question 17

Armagas v. Mundogas S.A., ‘The Ocean Frost’ [1986]

H of L

Answer 17

Charterparty - agents for ship owner and agents for charterer concocted a fraud; told shipowner that ship had been chartered for two years; told the charterer that the ship had been chartered for one year - hoping to capitalise on rise in charter rates - but they actually fell.
Q: were the charterers were bound by the two year charterparty?
Accepted that charterer’s agent had ostensible authority to enter a two year charterparty.

H of L held; the charterers were NOT bound by the two year charterparty because the owner’s agent, being in cahoots with the charterer’s agent, knew that charterer’s agent lacked actual authority to enter into a two year charterparty and that it would be impossible for him to obtain such authority.
Actual knowledge of agent’s authority will override ostensible authority they will otherwise have.
Thus, apparent authority cannot arise if the third party is aware that agent’s authority is limited so as to exclude his entering into transactions of the type in question

Question 18

Kelly v. Fraser [2012]

JCPC

Answer 18

Employee - member of its pension scheme - changed jobs - the HR Executive in charge of pensions at new employer permitted him to transfer the benefits accrued with old emplyer into new employer’s pension fund.
When fund wound up, its trustees argued that Executive who permitted all this had no authority to do so (this was conceded)

But JCPC HELD; executive did have ostensible authority to do so, and trustees were bound.
Reasoning: the company organised its affaris in such a way that made it look that the Executive who was in charge of employee benefits and communicating decisions in relation to it had the necessary authority to do so.
Found authority Armagas v Mundogas (The Ocean Frost) and First Energy.

Also considered RELIANCE
JCPC said, as a general rule, there must be some degree of reliance, but the reliance might take the form of the third party losing an opportunity to take some alternative course of action. (E.G. here, employee might otherwise have invested his pension benefits from former employer elsewhere).

Question 19

Kooragang Investments Pty. Ltd. v. Richardson & Wrench Ltd. [1982]

Answer 19

Not technically an agency case – really about Hedley Byrne liability – but applies.
A valuer employed by a firm of chartered surveyors wrote on the firm’s official stationery a fraudulent valuation of a piece of land - plaintiff relied on it and lost money.
Valuer had no authority from frim to to make this valuation - only connection to firm was its offical stationary.
Q: was the fact it had been written on the firm’s official stationary enough to make it liable as principal?

JCPC Held; NO
Merely allowing this employee access to the official stationery did not amount to a representation that anyone using it was authorised to do so.

Question 20

Waugh v. H.B. Clifford & Sons Ltd. [1982]

Answer 20

Ongoing litigation - settlement agreement had been reached - last minute, one of the parties changed his mind, but his solicitor had already signed off on it, as news of the change of heart did not reach him - he sent letter using firm’s commercial starionery agreeing to the settlement on behalf of the client.
Held; client WAS by this.
Because solicitor was an employee of the firm who had been involved in the issue, and was using the firm’s note paper, all the conditions for ostensible authority had been met (distinguishable from Kooragang Investments Pty. Ltd. v. Richardson & Wrench Ltd. )

Question 21

Pharmed Medicare Private Ltd. v. Univar Ltd. [2003]

Answer 21

Employee who was authorised to buy chemicals on behalf of his employer placed order for large quantity of a chemical which the defendants used in their business, in belieft that price going to rise, so best lock in low price now.
Principal didn’t pay - sued.
Held; whilst he had exceeded his actual quantity (by buying more than expressly authorised to), he was acting within his ostensible authority, because:

(1) He had often placed orders for this chemical from the same suppliers on previous occasions and principal had always performed their side of the contract - although this was abigger order than usual, it wasn’t so big as to raise any reasonable questions in the minds of the claimants as to whether he was authorised

(2)He had used the OFFICIAL STATIONERY of his employers to place this order as he had done on many previous occasions.
Thus nothing to alert the claimants that this was not an ordinary transaction.

Question 22

Thanakhorn Kasihorn Thai Chamcat v. Akai Holdings Ltd. (in Liquidation) (2010)

Answer 22

Lord Neuberger, in Hong Kong Final Court of Appeal considered the issue or RELIANCE by the third party, in the context of finding ostensible authority.

The third party MUST have relied on the representation that the agent has authority (Kelly v Fraser), although relatively weak evidence of reliance seems to acceptable.
But said that there might be some exception to this: if the third party’s reliance is ‘dishonest or irrational (which includes turning a blind eye and being reckless)’.
I.E. That their belief in the principal’s representation that the agent had authority was irrational.

Question 23

Newcastle International Airport v Eversheds LLP [2012] EWHC 2648 (Ch)

Answer 23

Introduced Lord Neuberger’s test in Thanakhorn Kasihorn Thai Chamcat v. Akai Holdings Ltd. (in Liquidation) into English law.

Question 24

Edmunds v. Bushell and Jones (1865)

Answer 24

Agent was manager of a business in which it was customary for managers to accept liability under bills of exchange - but this manager had no such express authority.
He nevertheless did so.
Held; the third party who were holders of the bills of exchange were entitled to sue on them, because he had ostensible authority and they were not affected by the RESTRICTION on his authority that they were unaware of.
Case often also used as an example of “usual authority”

Example that whilst the principal may restrict the agent’s authority, the third party is not affected by restrictions on the agent’s authority of which he is unaware.

Question 25

Farquharson v. King [1902]

Answer 25

Agent was employed as a clerk by dealers in timber - he devised fraudulent scheme -using an assumed name, sold some of their timber to third parties and then, using his real name, told the warehouse owners to deliver timber to the third parties (i.e. so he would make the profit, not his employer).
When company found out, sued him for conversion of ther timber (all in breach of actual authority).
H of L; held YES - he did NOT HAVE OSTENSIBLE AUTHORITY to do this.
Just because he had constructive possession of the plaintiff’s goods, did not give him ostensible authority to sell them.
Merely giving someone possession of your chattels or your movable property, does NOT give you any power of sale.

Thus, a restriction on agent’s authority not known.

Question 26

Overbrook Estates Ltd. v. Glencombe Properties Ltd. [1974]

Answer 26

Auction particulars specifically said that auctioneer had no authority to make any representations about property being sold.
Auctioneer made misrepresentations.
Purchasers borught claim for Misrepresentation against vendors - vendors argued that they had excluded liability - plaintiff argued that s.3 Misrepresentation Act 1967 avoids exemption claues for misrep.
Held; s.3 did not apply to a term restricting an agent’s authority because it was not excluding liability for misrepresentation, it was preventing a liability from arising in the first place.
I.E. you can limit your liability for misrepresentation by saying that your agent doesn’t have any power to make any representations, without falling foul of s.3.

Question 27

Rimmer v. Webster [1902]

Answer 27

Where an owner of property gives all the indicia of title to an agent (i.e. gives them the things that suggest they have title to the property – the relevant certificates, documents etc.), with the intention that he should deal with the property, any limit which he has imposed on his agent’s authority cannot be enforced against an innocent purchaser or mortgagee from the agent, who has no notice of the limit.

Question 28

Bailey v. Angove’s Pty Ltd. [2016]

Answer 28

Can authority ever be IRREVOCABLE?

Australian company (principal) sold wine on UK market through UK company acting sometimes as its agent and sometimes as a principal in its own right.
UK company went insolvent, so Australian company termianted the agency.
Q: Who was entitled to sue third parties for money owed to UK company under the agency arrangements?
Principal and UK company’s liquidator fought over this right.

UKSC held; the agency contract, having been terminated, the agents had no continuing power to sue for sums due under contracts with third parties made on principal’s behalf - only principal could sue.

Said that authority was revocable because agency contract explicitly said that it was revocable if the agent became insolvent.
But - LORD SUMPTION, obiter, an agency contract can be irrevocable if it’s an ‘AGENCY COUPLED WITH AN INTEREST’ – i.e. an agency set up in order to give the agent some specific power to do something for the agent’s own benefit.
gave examples of cases about agents being empowered to enforce securities for their own benefit, which they wouldn’t otherwise have a power to do.
This is a very a narrow exception to the general rule that authority is generally revocable by the principal - SUMPTION - can be revoked even if the revocation is a breach of contract ; just exposes the principal to a claim for damages.