Parti v Aysha Hamad Nassir Sabah Al-Nassir Al Sabah & Ors

An agent’s actual authority is subject to the fiduciary duty to act honestly and in the principal’s interests. Where an agent procures the principal’s consent through a breach of that duty, the consent is ineffective unless it was given with full and informed knowledge of the breach and the transaction’s disadvantageous circumstances. Apparent authority may raise different considerations. At the summary judgment stage, a defence must proceed to trial where the evidence gives it a real prospect of success, including evidence that the purchaser knew of, or deliberately shut his eyes to, the agent’s breach.

The claimant appealed against a Master’s order granting summary judgment and specific performance of an agreement to sell a residential property. The defendants contended that their agent had exceeded his authority by agreeing a substantial undervalue while acting in breach of fiduciary duty, and that the claimant knew or deliberately ignored that breach. The Master held that the defendants had a real prospect of establishing the claimant’s knowledge but considered that the defendants’ express authorisation of the sale defeated that defence. The appeal concerned the effect of the agent’s breach on actual authority and on the defendants’ consent, and whether the claim was suitable for summary determination.

1. Appeal allowed. The Master had correctly identified a defence with a real prospect of success based on the claimant’s knowledge or deliberate shutting of his eyes to the agent’s breach. That issue required disclosure, cross-examination and trial.
2. An agent owes a fiduciary duty of loyalty and must act bona fide for the principal’s benefit. Actual authority is subject to that condition. If the agent acts in breach of duty and contrary to the principal’s interests, the act is outside the scope of actual authority.
3. The principal’s subsequent instruction to enter the transaction does not automatically cure the defect. Consent is effective only if the principal gave full and informed consent, including knowledge that the transaction was a gross undervalue and that the price had been recommended through the agent’s breach. The Master therefore erred in treating the sisters’ express authorisation as conclusive.
4. The distinction between actual and apparent authority is material. An agent’s improper motive may be irrelevant where a third party relies on apparent authority, but it remains relevant to the existence and scope of actual authority. The issue of apparent authority remained open for trial.
5. The surrounding circumstances, including the substantial undervalue, the absence of marketing or an independent valuation, the speed of the transaction and the connection between the purchaser and the agent, gave the defendants a real prospect of proving constructive notice or wilful blindness. The claimant did not need to know the precise breach or its full extent.
6. The appeal was allowed against the summary judgment order. The court indicated that the matter was suitable for a speedy trial and raised the possible sale of the property with the proceeds held pending the result.

1. High Court (Chancery Division): Allowed the appeal from the Master’s order of 23 April 2007 granting summary judgment and specific performance. The issues were left for trial.