by Laura Macgregor, Professor of Scots Law, University of Edinburgh.
Apparent authority is a key concept in agency law, acting to protect third parties negatively impacted by the activities of agents acting without authority. In relevant cases, the law seeks to strike a balance between the interests of the principal and those of the third party. London & Quadrant Housing Trust v Stokes, a decision by Mr Justice Martin Spencer, sitting in the English High Court, Queen’s Bench Division in March of this year ( EWHC 1120 (QB)) is a case which nicely illustrates the difficulties of achieving such a balance.
Criteria for application of apparent authority
The third party must prove that the principal has made an erroneous representation of the agent’s authority, which representation has been relied on by the third party to his or her detriment (for more detailed analysis, see Laura J Macgregor, The Law of Agency in Scotland (2013) paras 11-01 – 11.26). The principal’s representation can be by words or conduct, and recent cases have extended the meaning of a representation significantly. Famously, in First Energy (UK) Ltd v Hungarian International Bank Ltd ( 2 Lloyd’s Rep 194) an agent was considered authorised to communicate information on behalf of his principal, which information could include the extent of his own authority. This comes very close to recognising the idea of a self-authorising agent.
Facts of this Dispute and Course of the Litigation
Apparent authority cases are highly fact-sensitive, and so a clear view of the facts is required (only the issues in this case relevant to apparent authority are discussed here). The case concerned an alleged fraud carried out by two employees of London & Quadrant Housing Trust: CR and ZM. It was suggested that they had identified properties where tenants had recently died, and purported to let those properties to new tenants. Those tenants would not have succeeded to the tenancies had the Trust’s rules been properly applied. CR and ZM were, it was suggested, seeking to benefit personally from deposits and other payments made by the new tenants. The case report suggests that frauds of this nature took place in relation to twenty-one properties.
This particular defendant, JS, had been phoned by ZM, an employee of the Trust working in the housing department, and told that she had been allocated a property. She was called to a meeting with ZM. At that meeting, ZM produced a tenancy agreement, printed on genuine Trust documentation, incorporating JS’s name and including her personal details and details of the rent payable. The agreement was signed by JS and ZM. Three days later, JS forwarded colour copies of her own passport and her daughter’s passport, her National Insurance number, email address and mobile number to CR’s personal email account.
Although CR and ZM were employed by the Trust, they were not involved in allocating tenants to properties. They therefore acted without authority. In the litigation the Trust sought an order for possession of properties occupied by the various purported tenants who had taken possession under the fraudulent scheme. HHJ Saunders had, in the Central London County Court, refused the Trust’s application for possession of the property where JS was the purported tenant. In the context of the appeal, one of the key issues was whether JS had been involved in the alleged fraudulent scheme (a suggestion which she strongly denied). The way in which CR and ZM had identified JS was one of the “unresolved questions” in the case (to quote Spencer J (para 3)). Nevertheless, the appeal was ultimately dismissed, Spencer J finding that the two housing officers had apparent authority. To illustrate the nature of the balance being struck in cases of this type, we need to look in more detail at (a) the principal’s representation; and (b) the third party’s reliance.
The Principal’s Representation of Authority
Spencer J, in common with HHJ Saunders at first instance, referred to Ing Re (UK) Ltd v R & V Versicherung  EWHC 1544, quoting from the judgment of Toulson J, para 99:
The doctrine of apparent or ostensible authority is based on estoppel by representation. Where a principal (P) represents or causes it to be represented to a third party (T) that an agent (A) has authority to act on P’s behalf, and T deals with A as P’s agent on the faith of that representation, P is bound by A’s acts to the same extent as if A had the authority which he was represented as having. The general principle is too well established to need citation of authority (quoted at para 32).
Spencer J discussed whether a representation from the agent, rather than from the principal, could found apparent authority, drawing on dicta from Armagas Ltd v Mundogas Ltd ( AC 717), noting dicta suggesting this could only be established in extremely unusual cases. He also drew significant assistance from a case recently decided by Judge Luba QC, arising from the same fraudulent scheme. Judge Luba had stated:
The first question therefore is whether it can properly be said that the Trust represented to Ms Morgan that Ms Rennie was authorised to act on its behalf in the granting of tenancies. There are, to my mind, many indicia to show that the Trust was so representing. First and most obviously, Ms Rennie was an employee, employed by the Trust to deal with housing matters. She was based at the Trust’s regional housing office. She was dealing with properties in Southwest London such as this one. She was in possession of the keys of this property. She was in a position to give the keys of the property to Ms Morgan. She was also in a sufficient position of authority and control of records of the Trust to generate a rent payment card. (quoted at para 36 of the judgment).
Not only were these indicia equally present in the case before Spencer J, the presence of a fully signed tenancy agreement (absent from the case before Judge Luba) made the representation in this case even stronger by comparison.
Judge Luba had also confirmed that “matters such as internal organisation and management or the Trust’s job description for a case manager were irrelevant”, continuing:
This is not a case, for example, of a tenant dealing with a London & Quadrant gardener or gas fitter and saying such had guaranteed them a tenancy. Quite plainly, the Trust was representing that Ms Rennie was authorised on its behalf to deal with housing matters. There was no reason to suggest or think that that would not include dealing with the grant of a tenancy (quoted at para 38 of the judgment).
The Third Party’s Reliance
In relying on the principal’s representation, the third party must act reasonably. He or she is expected, for example, to take notice of suspicious circumstances which should have alerted him or her to the fact that the agent lacked authority. Spencer J assessed JS’s actions, referring to the opinion of the judge at first instance:
Much, therefore, hinges on the credibility of the defendant in which I remind myself that ordinary members of the public are not expected to know the intricacies of housing law or housing allocation policy, or indeed how this works in practice, particularly against the background that different local authorities may act differently… She [JS] was unshakeable in her account that the two involved presented themselves as housing officers and that she had no reason to believe other than this was a regular transaction. She maintained that she did not have any prior knowledge of the individuals concerned” (para 21).
Spencer J emphasised that this is an objective, and not a subjective, analysis:
I do not accept … that the defendant was so experienced in such applications for housing, having made previous applications, that she must have suspected that someone (sic) was wrong with this particular transaction. A reasonable person (and I consider that the defendant falls into this category of persons) would not query an approach in the manner made by these particular housing officers, who were properly appointed, albeit (unbeknown to the defendant) acting well outside their authority (para 34).
English (and Scots) law can be contrasted in this respect with French law, the French courts taking significantly greater notice of the attributes, experience and intelligence of the third party in their application of the concept of mandat apparent (see S Saintier, ‘Unauthorised Agency in French Law’ in D Busch and L Macgregor (eds), The Unauthorised Agent: Perspectives from European and Comparative Law, (2009) 17).
In argument before him, counsel for the Trust had argued that the fact that this tenancy had arisen from a cold call to JS was sufficient to take the case out of the ordinary course of events which would usually lead to the granting of a tenancy. Spencer J did not agree – in her evidence, JS had given “perfectly coherent reasons why she thought she had been approached” (para 40).
Analysis and Conclusions
Few are likely to disagree with Spencer J’s decision on a policy level. Although it had been suggested by counsel for the Trust that JS had not been entirely honest in some of the documents which she had completed, Judge Saunders found her to be: “a straightforward and reliable witness” (quoted at para 25). She was dealing with employees of the Trust and had very little reason to doubt the veracity of statements made by them. She would not have had knowledge of the “internal machinations” of the Trust (quoted at para 29).
We can remind ourselves of apparent authority’s legal requirements: (1) the principal’s representation and (2) the third party’s (reasonable) reliance on that representation. CR and ZM were indeed housing officers, armed with headed notepaper and with access to keys. These facts, read together, established a representation by conduct on the part of the Trust.
Judge Luba’s emphasis that the employees were not gardeners or gasfitters is interesting. Given that CR and ZM worked in the housing department, it was perfectly reasonable for JS to think that they were authorised to allocate properties to tenants (even if they were not). Had she been dealing with a gardener, this conclusion would not have been reasonable. This is reminiscent of Lord Steyn’s dicta in First Energy (UK) Ltd v Hungarian International Bank Ltd, emphasising the senior role of Jamison (the agent in First Energy) and contrasting this with the position of the agent in Armagas ( Lloyd’s Rep at 204).
Older Scottish cases provide useful illustrations of situations where it was concluded that the third party ought to have been suspicious of the surrounding circumstances. In one such case, an agent offered a price well below market value, indicating that he was “hard up” and “badly wanting money” (Thomas Hayman & Sons v The American Cotton Oil Co (1907) 45 SLR 207). Applying these lessons to this case, we can ask whether JS ought to have been suspicious. Spencer J rejected submissions based on the fact that she had significant experience of applying for housing. Different landlords will have different procedures. Should she have been suspicious when asked to send information to a personal email address? In these days of working from home, that request is hardly suspicious.
Apparent authority does not involve strict liability: the principal is liable for the third party’s losses only where s/he has made an erroneous representation of the agent’s authority. One could say, perhaps, that the principal is therefore only liable where s/he has been “at fault”. There are benefits to this approach. Third parties are “outsiders”, lacking knowledge about the relationship between principal and agent, and the extent of the agent’s authority. As such, they deserve the law’s protection. Outcomes like the one we see in this case encourage principals properly to supervise errant agents. There are some disadvantages, however. Is the idea of the principal’s representation becoming so wide that it is an empty requirement? It is suggested that this expansive approach is likely to continue, and we may continue to see little by way of a balancing exercise.