Breach of warranty of authority (again)

An entry in this blog dated 26 June 2009 drew attention to the case of Halifax v DLA Piper [2009] CSOH 74.  Although the main focus of that case was the potential liability of an agent acting on behalf of a non-existent principal, readers may recall that Lord Hodge left open the possibility of a further action between the same parties on the grounds of breach of warranty of authority.  Sadly (for those of us eagerly anticipating such judgments) the Halifax case has now been settled.  Nevertheless, breach of warranty of authority has again been discussed in the Outer House in Frank Houlgate Investment Company Limited v Biggart Baillie LLP [2009] CSOH 165.

The case concerns the conduct of a fraudster who obtained sums from the pursuer for investment in a company known as Securimax.  An initial £100,000 was advanced, and a further £500,000 was to be advanced subject to the grant of a standard security over the fraudster's "ancestral estate" which was, according to the fraudster, Balbuthie Farm in Fife.  The standard security was executed and registered.  Eventually, the pursuer discovered that all was not well on reading an article in an evening newspaper which included a picture of the fraudster and a report of his conviction for fraud.  On telephoning the ancestral home, the pursuer discovered that the fraudster was not the registered owner of that property.  Addtionally, it transpired that the fraudster had forged the pursuer's signature on a discharge of the standard security and arranged for registration of the discharge in the Land Register. 

The case is of interest for its analysis of alleged negligence on the part of the solicitor acting for the fraudster.  That issue is not discussed here, but rather the alternative ground of breach of warranty of authority. 

Lord Drummond Young quotes the definition of this idea appearing in Bowstead & Reynolds on Agency (16th edn, 1996, cited with approval in Penn v Bristol & West Building Society, [1997] 1 WLR 1360):

"Where a person, by word or conduct, represents that he has authority to act on behalf of another, and a third party is induced by such representation to act in a manner in which he would not have acted if that representation had not been made, the first-mentioned person is deemed to warrant that the representation is true, and is liable for any loss caused to such third party by a breach of that implied warranty, even if he acted in good faith, under a mistaken belief that he had such authority."

 Reference is also made to another Scottish case in which this action is discussed, Anderson v Croall & Sons Ltd (1903) 6F 153.

The pursuers had based their argument on the fact that the solicitor had represented that he had authority to act on behalf of the registered owner of the land in question, over which the standard security was granted.  Lord Drummond Young swiftly rejected this argument [para 27]:

"What is significant in the formulation of the principle, however, is that the supposed agent, A, represents that he has authority to act for B in a particular transaction, with the result that the third party, C, is induced to act on that representation.  Thus the representation relates to the person for whom the supposed agent purports to act.  It does not relate to the capacity in which that person, the supposed principal, will enter into the transaction, or as to the property that person holds, or as to that person's title to any property."

Applying these principles of law to the facts of the case, the solicitor had not breached his warranty of authority – he had been authorised by a particular client to act on his behalf.  Whether or not that client had good title to the land was irrelevant in the context of the assessment of a possible case of breach of warranty of authority, and the pursuers therefore failed to establish a relevant case in this respect.

It is hoped that further cases may continue to shed light on this under-developed part of agency law.  My thanks to Esther Duncan, Dundas & Wilson CS LLP and Denis Garrity, Brodies LLP, for bringing the case to my attention.