The English Court of Appeal case of First Energy v Hungarian International Bank ( 2 Lloyd’s Rep 194) poses particular problems for those seeking to understand the law of apparent authority in agency. The House of Lords in Armagas Ltd v Mundogas SA ( A.C. 717) suggested that there is no such thing as a “self authorising agent.” For apparent authority to operate, the representation as to the agent’s authority must come from the principal and not from the agent. Steyn L.J. in First Energy, however, recognised that an agent may be clothed by his principal with the authority to make representations of fact. Those might include the extent of the agent’s own authority. In First Energy the third party was aware that the agent was not authorised. As such, this was a case in which apparent authority could not arise. The Court of Appeal nevertheless found in favour of the third party, who was able to claim damages from the principal. The case therefore robs the requirements of apparent authority of much of their force.
All may not be lost, however. The case of Skandinavska Enskilda Banken AB (Publ) v Asia Pacific Breweries (Singapore) Ptd Ltd and Anor (( S.G.C.A. 22) has already been commented on in this blog for useful statements made in the Supreme Court of Singapore on vicarious liability in agency. This case also provides a useful illustration of the limited nature of First Energy as an authority.
The Court in Skandinavska noted that each of the judges in First Energy considered their ruling to be consistent with Armagas, and this led them to conclude that First Energy could be distinguished from Armagas only on the facts ( S.G.C.A. 22). The Court identified three factors that were significant in the exercise of distinguishing the two (para 47):
(a) Whereas in Armagas the third party could easily have checked the agent’s authority, this would have been more difficult in First Energy in view of the agent’s senior role;
(b) Whereas in Armagas the agent was found not to have any authority to enter into a three year charterparty, in First Energy the agent was held to have apparent authority that board approval had been obtained;
(c) Whereas the agent in Armagas had limited authority, the agent in First Energy had wide ranging authority, including the authority to communicate his principal’s approval of the transaction in question.
The Court’s approach to this issue is encapsulated in para 51 of the judgment:
“It is clear from the foregoing examination of The Raffaella [ 2 Lloyd’s Rep 36 at 42-43].
and First Energy that in both cases, the court’s decision was based on a specific finding of fact that the principal concerned had held out its agent as having authority to make, in relation to the transaction in question, representations of the class or kind of representations that the agent actually made, even though the agent knew he had no actual authority to enter into the transaction itself. In particular, it was made abundantly clear in First Energy that Mr J, as the senior manager of HIB’s Manchester office, had overall responsibility of that office. In such circumstances, it made good commercial sense that a customer of HIB’s Manchester office should be able to rely on what was conveyed to him by Mr J. In contrast, in the present case, Chia was merely the finance manager of APBS, a title which does not connote the possession of any specific authority. The senior management of APBS, including the APBS Board, was also within easy reach of the Appellants. In the circumstances of the case, the Judge found as a fact that APBS had not held out to the Appellants, whether by its actions or by Chia’s position as Finance Manager, that Chia had any authority to make on its behalf any representations of the class or kind of representations that Chia actually made. The Judge’s finding is purely one of fact; therefore, unless the Appellants are able to show that this finding of fact is plainly wrong or is against the weight of the evidence, their appeals based on apparent authority must fail.”
This case correctly emphasises that it is only where the agent occupies a senior position in the principal’s business that the solution in First Energy is relevant. Only in those circumstances is a third party justified in relying solely on the agent’s representation of the extent of his own authority.