Stavrinides & Ors v Bank of Cyprus Public Company Ltd

A company may be bound by an agent’s unauthorised act through apparent authority only where the claimant proves a representation by the principal, reliance induced by that representation, and the remaining conditions identified in Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] QB 480. An agent cannot confer authority on himself. Apparent authority may concern either authority to make the transaction or narrower authority to communicate an authorised decision. Reliance must be both honest and objectively reasonable. An extraordinary transaction, together with circumstances putting the claimant on notice of the agent’s lack of authority, defeats reliance.

The claimants sought specific performance or damages based on a letter purportedly issued by Laiki Bank agreeing to accept £1.65 million in full and final settlement of approximately £3 million of secured borrowing. The defendant, Bank of Cyprus Public Company Ltd, had acquired substantially all of Laiki Bank’s assets following the Cypriot banking crisis. It accepted that the letter would bind it if genuine and enforceable, but contended that it was forged and that the signatory lacked actual or apparent authority.

The court considered the authenticity of the March letters, the signatory’s actual authority, apparent authority, reliance, and the defendant’s counterclaim for the outstanding indebtedness.

1. Authenticity and actual authority. The 15 March Letter was a false instrument created by Mr Antoniou. The purported approvals by the general manager and head of the business centre were fabricated. Mr Antoniou had no actual authority to agree a write-off, and the bank’s procedures for approving substantial debt write-offs had not been followed.
2. Apparent authority. The court adopted the four conditions stated by Diplock LJ in Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] QB 480 at 506. The claimant had to establish a representation by the principal, or an authorised person managing its business, that the agent had authority; inducement and reliance; and that the company had capacity to enter the transaction. The principles were approved in British Bank of the Middle East v Sun Life Assurance Co. of Canada (UK) Ltd [1983] 2 Lloyd’s Rep 9 and applied in Armagas Ltd v Mundogas S.A. [1986] 2 Lloyd’s Rep 109; [1986] 1 AC 717 and First Energy (UK) Limited v Hungarian International Bank Ltd. [1993] 2 Lloyd’s Rep 194.
3. Transactional and conduit authority. A representation may concern authority to enter the transaction itself or narrower authority to communicate a decision made by an authorised person. The latter is conduit authority and ordinarily supports reliance losses rather than enforcement of the transaction or expectation losses. English law does not permit self-authorisation: the representation must originate from the principal or an agent with actual authority. The agent’s fraud does not itself prevent apparent authority, but notice of the lack of authority does.
4. Application. Laiki Bank had represented Mr Antoniou only as a relationship manager. The claimants knew that significant facility decisions required formal approval at senior level and in Cyprus. The proposed £3 million write-off in return for secured sale proceeds was extraordinary. The claimants were therefore put on notice that Mr Antoniou lacked authority. Mr Stavrinides also lacked an honest belief in that authority. Reliance consequently failed.
5. The bribery issue and consideration were unnecessary to decide. The defendant’s counterclaim succeeded in full on the sums proved. The claim was dismissed.