An agent can have apparent authority to make representations as to the authority of other agents

12/12/2006

The Commercial Court has held that an agent can have apparent authority to make representations as to the authority of other agents, provided that his own authority could finally be traced back to a representation by the principal or to a person with actual authority from the principal to make it. Where a principal represented or caused it to be represented to a third party that an agent had authority to act on the principal's behalf, and the third party dealt with the agent as the principal's agent on the faith of the representation, the principal was bound by the agent's acts to the same extent as if the agent had had the authority which he was represented as having. The same principle can also apply at one remove where the third party relied on a representation made by an agent having ostensible (but not actual) authority to make such a representation on behalf of the principal.

Thus, where the principal represented or caused it to be represented to a third party that agent one had authority to represent that agent two had authority to act on the principal's behalf, and the third party dealt with agent two as the principal's agent on the faith of such representations, the principal was bound to the same extent as if he had had the authority which he was represented as having. The critical requirement was that agent two's authority had to be traceable back to the principal by a representation or chain of representations upon which the third party acted and whose authority the principal was estopped from denying by his representation through words or conduct.

The Court also held, in dealing with the claim that the act of an agent had been ratified, that, in order that a person might be heard to have ratified an act done without his authority, it was necessary that, at the time of the ratification, he should have full knowledge of all the material circumstances in which the act was done, unless he intended to ratify the act and take the risk whatever the circumstances might have been. Knowledge of the legal effect might, however, be imputed to him, and it was not necessary that he should have notice of collateral circum-stances affecting the nature of the act. Dealing with an agent carried risks, because an agent might not have the authority which he claimed, but where a party dealt honestly with an agent whose principal went ahead with the transaction with knowledge of what the agent had ostensibly done on the principal's behalf, his reasonable expectation would surely be that the principal would be bound by the transaction. Entirely different considerations would apply if the party dealing with the agent had not been acting honestly, but had been involved in fraudulent conduct by the agent.

[i] ING Re (UK) Ltd v R&V Versicherung AG [2006] EWHC 1544 (Comm)

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