Agency and Partnership Law Partnership Law

• 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), Singapore Management University, School of Law.
• Published date: 01 December 2014
• Date: 01 December 2014

AGENCY LAW

Breach of warranty of authority

3.1 The doctrine of breach of warranty of authority was considered and applied by the High Court in Chu Said Thong v Vision LawLLC [2014] 4 SLR 375. In the course of judgment, Vinodh Coomaraswamy J noted that although liability for breach of warranty of authority was, at its core, a species of liability for misrepresentation (at [229]), such liability was historically classified as contractual. This contract arose upon the third party's acceptance of the agent's offer to warrant his authority in return for the third party's entry into the contract with the principal. The consequences of the classification were threefold: first, the liability was strict and not dependent on the presence of fault; secondly, as the agent and third party were counterparties to a contract, there was no further need to establish any other relationship between them; and lastly, the contractual measure of damages applied, which meant that the third party had to be placed in the position he would have been in if the warranty of authority had been true.

3.2 The plaintiffs were intending buyers of a house which was advertised as being on the market by a rogue named Victor Tan. Victor Tan had no connection with the true owner of the house and had fabricated in its entirety an option which purportedly granted him the right to buy the house from the true owner. He impersonated the true owner and engaged the defendant law firm to act in the sale of the property. The plaintiffs, prior to agreeing to buy the house, had spoken with Susan Chua, a conveyancing secretary employed by the defendant firm. The court found that Susan Chua had made two representations to the plaintiffsfirst, that the firm was acting for the true owner, and secondly, that the true owner had issued the option to Victor Tan. After speaking with Susan Chua, the plaintiffs transacted with Victor Tan, and subsequently paid over two sums of money: the first to Victor Tan in consideration for the option , and the second to the defendant firm as stakeholders upon the purported exercise of the option . When the fraud was uncovered, the defendant firm refunded the stakeholding money but rejected any further liability to compensate the plaintiffs for the sum lost to Victor Tan. The plaintiffs brought the present proceedings to claim this sum, as well as further compensation for the lost opportunity to purchase a different property, on the ground, inter alia, that the defendant firm had breached its warranty of authority.

3.3 The court found that Susan Chua was, on the evidence, acting within the scope of her employment when she made the subject representations to the plaintiffs. In the circumstances, any liability for those representations was properly attributable to the defendant firm. The court also found that the representations had induced the plaintiffs to transact with Victor Tan. In this connection, the court noted(at [242]) that whether the plaintiffs had acted reasonably or not in relying on the representations did not enter into the analysis on this cause of action as there was ordinarily no obligation imposed on a person in the plaintiffs' position to inquire about the putative agent's authority or its scope and extent. The defendant firm was, therefore, held liable for breach of warranty of authority. Applying the traditional but-for test of causation and the contractual test for remoteness of damage, the court found for the plaintiffs only in respect of the sums paid to Victor Tan. In respect of the claimed sums for the lost opportunity to acquire another property, the court found that the defendant firm's breach did not cause the loss, which was in any case too remote for recovery against the defendant firm.

3.4 The learned judge was, however, clearly concerned with overly extending the applicability of the doctrine of breach of warranty of authority, especially in the light of the developments in the law of negligent misstatement. His Honour detailed the extant difficulties with the doctrine and used the example of a hypothetical law firm approached by a new client to illustrate the anomalous nature of the doctrine. Woe betide the law firm if it should fail, despite its best efforts, to detect that its client was a fraudulent imposter, for it would potentially be liable for all loss suffered by anyone who was induced by the misrepresentation to do virtually anything . His Honour stated (at [269]):

Liability arises simply because of the subject matter of the misrepresentation: A[gent]'s authority to act for P[rincipal]. Looked at from the perspective of tort, and adopting...