Agency and Partnership Law

• Citation: (2013) 14 SAL Ann Rev 62
• Published date: 01 December 2013
• Date: 01 December 2013

Apparent authority

3.1 The important role that agents play in commerce is not doubted. However, when transactions are entered into through the intermediary of agency, the intended contractual parties are exposed to the risk of fraud and dishonesty on the part of the agent. Cavenagh Investment Pte Ltd v Kaushik Rajiv[2013] 2 SLR 543 was a case involving the purported lease of an apartment owned by the plaintiff and managed by a managing agent. Both the plaintiff and the managing agent were companies controlled by C, who was the sole shareholder and director of each company. The wrongdoing agent, R, was an employee of the plaintiff's managing agent, who, through a number of forgeries including the signature on the lease agreement, succeeded in leasing the plaintiff's apartment to the defendant's employer for the defendant's occupation. At all times, the defendant dealt only with R who had all the keys and access cards to the apartment. R was, however, acting on his own accord and without authority. The plaintiff, who had no knowledge of the lease until some two years later, claimed against the defendant for damages for trespass to land. Clearly, it was crucial for the defence to establish that the defendant's occupation of the premises was pursuant to a lease that was valid and binding on the plaintiff. As it was common ground that R had no actual authority (at [21]), the defendant's case had to rest on the doctrine of ostensible authority.

3.2 The elements that must be established before apparent or ostensible authority is made out are clear. As the doctrine is premised on estoppel, the principal's representation, that created the appearance of authority of an agent, made to the other contracting party, lies at the core of the doctrine. It was therefore incumbent on the defendant to show that the plaintiff had represented to him that R was authorised to enter into the lease on the plaintiff's behalf. In this regard, the court noted that whilst evidence of the internal workings of the plaintiff's managing agent (such as whether R was trusted to do certain things, the extent of his responsibility, and the distribution of duties amongst the employees of the managing agent) would be relevant to establish the scope of R's actual authority (which was in any case untenable, given the forgeries, on the present facts), evidence of this nature was irrelevant to the present inquiry as to ostensible authority. Instead, the defendant was required to show that in allowing R to act in a certain way, the plaintiff had created a state of affairs which amounted to a representation that R had the authority to do certain acts. This was a question which must be decided on the specific facts of each case. On the present facts, the court considered that the only reasonable representation by the plaintiff was the act of equipping R with the keys and access cards to the plaintiff's property. However, this act did not amount to a representation that R had the authority to enter into leases on the plaintiff's behalf as this was commonly done by landlords in Singapore for the purpose of conducting viewings for prospective tenants and such like ministerial acts.

3.3 In any case, the evidence showed that the defendant had specifically insisted that R obtain, for the lease agreement, the signature of C, the sole director of the plaintiff. As the court noted, the defendant could not now contend that there had been a representation as to R's authority to enter into the lease on the plaintiff's behalf. Even if there had been such a representation, the evidence was clear that the defendant had not relied on the same.

3.4 The defendant also sought to rely on the decision of the English Court of Appeal of First Energy (UK) Ltd v Hungarian International Bank Ltd[1993] 2 Lloyd's Rep 194 (‘First Energy’) to argue that R had the ostensible authority to communicate and represent to him the plaintiff's approval of the lease. In First Energy, the regional manager of the defendant bank had made an offer of credit facilities to the plaintiff which the latter had accepted. The bank, however, declined to provide the finance and the plaintiff sued for breach of contract. Although the regional manager did not have the authority to conclude the transaction, and this fact was known to the plaintiff, the court found that the regional manager had ostensible authority by virtue of his position to communicate that head office approval had been given for the facilities offered. Evans LJ noted (at 206) that there was ‘no requirement that the authority to communicate decisions should be commensurate with the authority to enter into a transaction of the kind in question’. This case was considered by our Court of Appeal in Skandinaviska Enskilda Banken AB (Publ), Singapore Branch v Asia Pacific Breweries (Singapore) Pte Ltd[2011] 3 SLR 540 at [59] (see further (2011) 12 SAL Ann Rev 48), where it observed as follows:

A representation as to the principal's approval of a transaction goes to the heart of the agency relationship. While an agent may possess authority (whether actual or ostensible) to make general representations pertaining to a certain transaction … this authority, in a situation where the agent does not also possess authority (whether actual or ostensible) to enter into the said transaction on the principal's behalf, cannot include authority to make the specific representation that the principal has approved that transaction. To argue that an agent has authority to represent that his principal has approved a transaction – which is, in effect, authority to bind the principal to the transaction – because he (the agent) has authority to make general representations about the transaction and, hence, also has authority to represent that his principal has approved the transaction is contrary to the established principle that there cannot be self-authorisation by...