Agency Law

• Citation: (2017) 18 SAL Ann Rev 50
• Date: 01 December 2017
• Published date: 01 December 2017
• Publication year: 2017

Apparent authority

3.1 The concept of a self-authorising agent is generally anathema in agency law, and despite seeming inroads made by the UK Court of Appeal, that general position has been affirmed locally, most recently in Ong Han Ling v American International Assurance Co Ltd1 (“Ong Han Ling”).

3.2 It is trite that an unauthorised agent may be able to bind his principal where he may be said to have “apparent authority”. Apparent authority arises where the principal, by his words or conduct, leads another (the contractor) to believe that the agent has the requisite authority to act on his (that is, the principal's) behalf. Where the contractor transacts with the apparently authorised agent on the faith of this belief, the principal may be bound by the acts of the unauthorised agent as though the latter is indeed duly authorised. Given that apparent authority arises as a result of the principal's representation to the contractor, it logically follows that the unauthorised agent's own representation as to his alleged authority cannot bind the principal. In this regard, the UK Court of Appeal decision in First Energy (UK) Ltd v Hungarian International Bank Ltd2 (“First Energy”) is said to stand rather close to the line,3 as it was accepted there that an agent who was known not to have the necessary authority to conclude a transaction could nevertheless erroneously represent in a binding manner that the principal had approved the transaction. In Skandinaviska Enskilda Banken AB (Publ), Singapore Branch v Asia Pacific Breweries (Singapore) Pte Ltd4 (“Skandinaviska”), the Court of Appeal expressed reservations about the correctness of First Energy and cautioned against treating such

representations as similar to other general representations. The court noted as follows:5

While an agent may possess authority (whether actual or ostensible) to make general representations pertaining to a certain transaction (such as, for example, a representation about the condition of the goods involved in a sale 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 the 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 an agent … [emphasis in original]

3.3 The argument was, however, attempted by the plaintiffs in Ong Han Ling. The case involved a fraudulent insurance agent who was representing the defendant insurers. She had sold a fictitious insurance policy to the plaintiffs by fabricating documents. She had then misused the premium paid to purchase different policies for the plaintiffs by forging the plaintiffs' signatures on the applications for these policies. The defendant insurers were therefore also defrauded by the agent. When the plaintiffs discovered the existence of these policies, the agent induced them to surrender the same by falsely representing that these had been erroneously listed in the plaintiffs' names. The surrender proceeds were misappropriated by the agent. The plaintiffs sought expectation damages on the basis that the fictitious policy was a valid contract binding on the defendant insurers. The plaintiffs had contended, inter alia, that although the agent did not have the actual authority to conclude the policy, she was nevertheless able to bind the defendant insurers because she had the actual authority to represent to the plaintiffs that their policy application had been approved. The High Court held that these arguments “[missed] the point”.6 As the policy was entirely fabricated, as was the alleged acceptance of the policy application by the defendant insurers, the agent could not be said to have purportedly contracted on the defendant insurers' behalf. It was

therefore unnecessary to have resorted to agency principles to decide the contract issue.7

3.4 The court, nevertheless, proceeded to consider the defendant insurers' contractual liability on agency principles. Noting that the Court of Appeal had, in Skandinaviska, read First Energy as limited in its application to only situations where the court expressly finds that the agent had actual or ostensible authority to make the specific representation that his principal had approved the impugned transaction, the court...