Agency and Partnership Law

• Date: 01 December 2015
• Author: Pearlie KOH LLB (Hons) (National University of Singapore), LLM (University of Melbourne); Advocate and Solicitor (Singapore); Associate Professor, School of Law, Singapore Management University. Stephen BULL BA, LLB (Hons) (Wellington), LLM (Harvard); Solicitor (England and Wales), Barrister and Solicitor (New Zealand), Member of the New York Bar; Associate Professor (Practice), School of Law, Singapore Management University.
• Published date: 01 December 2015
• Citation: (2015) 16 SAL Ann Rev 87

Actual authority

3.1 Actual authority creates a legal relationship between the principal and his agent pursuant to which the agent is empowered to act on the principal's behalf. Such empowerment may be by express words (and hence express authority) or implied from the conduct of the parties and the circumstances of the case (and therefore implied authority): see Hely-Hutchinson v Brayhead Ltd[1968] 1 QB 549 (‘Hely-Hutchinson’) at 583. Implied authority is, as much as express authority, a species of actual authority. Nevertheless, it often coincides with apparent authority, which, being merely what appears to others as authority, is in fact no authority at all.

3.2 This coincidence is often illustrated by contrasting the well-known English cases of Hely-Hutchinson and Freeman & Lockyer v Buckhurst Part Properties (Mangal) Ltd[1964] 2 QB 480 (‘Freeman & Lockyer’). In Hely-Hutchinson, the English Court of Appeal found that the chairman of the defendant company had the implied actual authority to give an indemnity on behalf of the company. This finding was reached on the basis that the board of the defendant company had, by its consent and acquiescence, permitted him to act as the managing director. In contrast, a differently constituted Court of Appeal declined to imply actual authority on broadly similar facts in the earlier decision of Freeman & Lockyer, preferring instead to found liability on the basis of apparent authority. Diplock LJ stated (Freeman & Lockyer at 501):

I accept that such actual authority could have been conferred by the board without a formal resolution recorded in the minutes … but to confer actual authority would have required not merely the silent acquiescence of the individual members of the board, but the communication by words or conduct of their respective consents to one another and to [the director in question]. [emphasis added]

3.3 It may well be that it is of little consequence in many cases which particular concept applied. After all, despite the fact that, conceptually, implied authority is the very antithesis of apparent authority (see Ian Brown, ‘Authority and Necessity in the Law of Agency’(1992) 55 MLR 414 at 416), the result of a successful plea of one or the other, is ultimately very much the same. However, there may be cases where a plaintiff's case is better, or perhaps more confidently, advanced on the basis of actual, rather than apparent, authority. In Hely-Hutchinson, for example, the fact that the plaintiff was himself a member of the board of the defendant company meant that there were concerns whether the requisite representation and reliance could be established. As counsel for the defendant company had argued (Hely-Hutchinson at 574):

… in order to establish [the director's] ostensible authority [the plaintiff] would in effect have to rely on a representation assumed to have been made by the board of [the defendant company] (of which he himself was a member) to himself …

It is not clear what impact this would have had on an argument premised on apparent authority.

3.4 The High Court decision of Singapore Salvage Engineers Pte Ltd v North Sea Drilling Singapore Pte Ltd[2016] SGHC 5 was a case in which both concepts were potentially applicable. The case, however, had proceeded solely on the basis of implied actual authority.

3.5 The plaintiff had provided certain specialist marine services to the defendant which had been procured by one Choo, and for which the defendant had not made payment. The defendant, whose business was to provide support services for operations carried out on an oil rig, did not deny that Choo was employed as its ‘procurement logistics manager’ but asserted that Choo did not have the express authority to transact on the defendant's behalf for values that went beyond $5,000. The plaintiff was claiming for a sum that far exceeded this limit. The question therefore was whether Choo nevertheless had the implied actual authority to contract with the plaintiff on the defendant's behalf.

3.6 The evidence showed that, whilst there might have been an internal protocol requiring Choo to obtain approval prior to exceeding the $5,000 transaction limit, he rarely, if ever, complied with this. There was little oversight or supervision over Choo's activities, and transactions entered into by Choo on the defendant's behalf, whether with the plaintiff or other vendors, were never repudiated, even where these exceeded $5,000. The court found that Choo's superiors must have known about Choo's activities but nevertheless permitted him to proceed. The court noted that, quite unlike other cases involving agents who exceeded their authority for personal gain, Choo had acted entirely honestly and to the best of his ability. In the circumstances, the court held that it was a necessary inference on these facts that the defendant had given Choo the actual, albeit implied, authority to transact on its behalf beyond the $5,000 limit.

3.7 It was, however, an undisputed fact that although Choo held the position of ‘procurement logistics manager’, he had scant knowledge or experience to source for suitable vendors in the industry. As the court noted (at [23]), notwithstanding Choo's formal position, ‘he would have been unable to make any substantive decisions on such matters, and that was presumably the reason for the alleged limitations on his authority’. Under such circumstances, it seemed at least arguable that something more than acquiescence would have been required to establish actual authority. The defendant's adoption of the otherwise unauthorised transactions could be analysed as acts of ratification, which do not, as a general rule, effect the agency relationship represented by actual authority: see Tan Cheng Han, The Law of Agency (Academy Publishing, 2010) at para 06.007. Neither does ratification confer future authority: see Chitty on Contracts vol 2 (Hugh G Beale gen ed) (Sweet & Maxwell, 32nd Ed, 2015) (‘Chitty on Contracts’) at para 31–027; see also Peter Watts & Francis M B Reynolds, Bowstead and Reynolds on Agency (Sweet & Maxwell, 20th Ed, 2014) (‘Bowstead and Reynolds’) at para 2–048. On the other hand, repeated acts of ratification could amount to a sufficient representation of authority upon which a finding of apparent authority could be premised.

Apparent authority

3.8 Apparent authority arises where a person (referred to here for convenience as the ‘principal’ although he is not technically one), by his words or conduct, leads another (the contractor) to believe that he has authorised a particular person to act as his agent. Where the contractor transacts with the apparent agent on the faith of this belief, the principal may be bound by the acts of his apparent agent as though the latter had indeed been authorised. Returning to the facts of Singapore Salvage Engineers Pte Ltd v North Sea Drilling Singapore Pte Ltd, it may be readily appreciated how the conduct of the defendant, in repeatedly affirming the unauthorised acts of Choo, could very well amount to a representation to the plaintiff that Choo possessed the requisite authority to transact for the defendant. The same end result, that the defendant was bound by the transaction, could therefore be arrived at on this very different conceptual basis.

3.9 It bears repeating, however, that apparent authority, quite unlike a situation of actual authority, does not create an agency relationship between the principal and the apparent agent. Instead, the legal relationship is one between the principal and the contractor, and is created by the principal's representation to the contractor, manifested in the form of words or conduct, which the contractor relied upon to alter his legal position. The doctrine is often said to be a form of estoppel, albeit a ‘weak’ one: see Chitty on...