Carr v Bower Cotton

Authority to transfer client funds may arise from a combination of communications and conduct, even where no single document contains the complete authority and the authority is not in writing. Written investment arrangements and a power of attorney must be read together and in their factual context. Where a solicitor seeks confirmation because a proposed transfer appears inconsistent with the agreed safeguards, the client’s subsequent instruction, conversation and signature may objectively establish wider authority. The court assesses the scope of that authority from what the parties communicated and objectively understood at the relevant time.

Mr Carr transferred US$4 million to the client account of Bower Cotton in connection with an investment scheme operated by Kelci Management Consultants Ltd. The investment agreement and a limited power of attorney contemplated secured investments and imposed responsibilities on the respondent firm as solicitor. After Mr Simms became concerned that the proposed transfer would occur without security, he sought express authority from Mr Carr.

Mr Carr gave a written instruction, spoke to Mr Simms by telephone and countersigned an overnight letter. Bower Cotton then transferred the money to an account controlled by persons associated with Kelci, from which it was misappropriated. Blackburne J rejected Mr Carr’s contention that the transfer exceeded Mr Simms’ authority. The central issue on appeal was whether the authority actually communicated by Mr Carr extended to the transfer made.

1. Appeal dismissed unanimously. The Court of Appeal held that it was unnecessary to resolve all the difficult construction issues arising from the badly drafted investment agreement and power of attorney.
2. The documents had to be read together and in the light of the factual matrix. Although clause 13(b) was broadly worded, it did not authorise a transfer wholly outside the power of attorney. Mr Simms was nevertheless entitled to regard the proposed unsecured transfer as outside the original investment arrangements and to seek specific authority.
3. That authority was constituted cumulatively by three events: Mr Carr’s written instruction, the telephone conversation, and his countersignature and return of the overnight letter. Authority did not need to be contained in one document or to be in writing.
4. Objectively construed in their context, those events showed that Mr Carr intended the funds to be placed under Kelci’s control without security. The precise destination and account name were not material limitations on the authority. Mr Simms was therefore authorised to make the transfer to the UniBank account.
5. Mr Carr’s later conduct could not be used to construe the terms of an authority already given, but it could throw light on what his earlier words and conduct had communicated. The appeal was dismissed.

• Court of Appeal (Civil Division): appeal dismissed.
• High Court, Chancery Division: Blackburne J rejected Mr Carr’s contention that the transfer exceeded Bower Cotton’s authority in a judgment handed down on 19 December 2001.