Hopkins v T L Dallas Group Ltd & Anor

Actual authority does not extend to an agent’s transaction entered into for the agent’s own interests or contrary to those of the principal. Nor does a senior executive’s usual authority automatically include unusual, onerous commitments outside the company’s ordinary business. Apparent authority depends on a representation by the principal, reliance by the third party and the absence of relevant incapacity. Where a transaction is abnormal or suspicious, the third party must make reasonable inquiries. A third party cannot rely on apparent authority where it knows, or deliberately fails to investigate, that the agent is acting in breach of duty. Separate undertakings may nevertheless secure one liability where that is the parties’ true intention. A demand need not be written unless the instrument so requires.

The claimant acquired by assignment from an insolvent company alleged rights under three letters signed by the deputy managing director of the defendants, insurance broking companies. The letters purported to create unconditional obligations to pay sums connected with trading by a customer of the claimant’s assignor. The defendants denied that the letters were binding, relying principally on lack of authority, breach of fiduciary duty, suspicious dealings and repayment. The issues included the construction and genuineness of the letters, the effectiveness of the assignments, the scope of the signatory’s actual and apparent authority, and whether any liability had been discharged.

1. The claim was dismissed. The court held that the first and second letters imposed, if valid, one liability of £372,000 between the defendants, rather than two liabilities of £372,000. The third letter created no liability because the contemplated £250,000 transaction had not taken place.

2. A demand under an undertaking, guarantee or performance bond need not be in writing unless the instrument, properly construed, requires it. The letters contained no such requirement. The assignments were also wide enough to transfer the right to make any demand and sue upon the resulting liability.

3. Actual authority is subject to the condition that it is exercised honestly and on behalf of the principal. It does not include authority to enter into an onerous commitment for the agent’s own benefit or for the benefit of another person. In addition, the commitments were outside the usual scope of the deputy managing director’s office. The signatory therefore had no actual authority. The court relied on Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549, Lysaght Bros & Co Ltd v Falk (1905) 2 CLR 421 and Macmillan Inc v Bishopsgate Trust (No 3) [1995] 1 WLR 978.

4. Apparent authority requires a representation by the principal, made by someone with actual authority, reliance by the third party, and corporate capacity. The prior dealings could support apparent authority for the second defendant, but the transactions were abnormal and suspicious. They involved unusually onerous obligations outside the business of an insurance broker. The third party knew, or at least should have known, that the signatory was acting in breach of fiduciary duty. It could not rely on apparent authority. The first defendant had no relevant course of prior dealings and was not bound.

5. Alternatively, if the letters had been binding, the liability had been fully discharged. The court accepted the signatory’s evidence and the payment evidence, and considered the assignor’s conduct—particularly its failure to demand payment, disclose the letters in its accounts or disclose them in liquidation—consistent only with repayment.