Ostensible Authority and Estoppel

The Privy
Council in Kelly v. Fraser, [2012]
UKPC 25, recently revisited the issue of whether an agent can be said to have
ostensible authority on the basis of his own representations.
Mr. Fraser, the
Respondent, became the CEO of Island Life Insurance Company on 1st February,
2000, and shortly after that became a member of the Salaried Staff Pension Plan
(“SSP”) of the company. The SSP was operated under a trust deed, which vested
the management of the plan to trustees. The trustees delegated day-to-day
administration to the employee benefits division of the company. Mr. Fraser was
initially employed by another company, and had contributed to that company’s
pension scheme. He discussed with Mr. Masters, the Vice-President of Island
Life’s employee benefits division, the possibility of a transfer of the accrued
value of his entitlement from the other company’s scheme to SSP. Under SSP’s
trust deed, such transfer was to be carried out “in a manner and on the terms and conditions determined by the trustees
in their sole discretion… but if in the judgment of the trustees this is
impractical, inadvisable or inexpedient, the benefits and amounts accrued to
the contributor shall remain in the said other company pension plan…”
A
letter requesting approval for the transfer was sent to the trustees, but
evidently, no further action was taken on the letter. It was admitted that the
trustees were not aware of the application/letter. Subsequently, in December 2000,
Mr. Masters wrote the Mr. Fraser, confirming that “the Trustees… have transferred…” the accrued benefits to the SSP.
In reality the trustees had not. Subsequently, the SSP was to be wound up, and
the issue arose as to whether Mr. Fraser’s entitlement to the corpus should be
calculated on the basis of his ordinary contributions alone, or on the basis of
the ordinary contributions plus the accrued benefits.
The short point
was whether Mr. Master’s representation could act as an estoppel against the
Trustees from subsequently denying that the transfer had occurred. It was
admitted that only the Trustees had the authority to approve the transfer: Mr.
Masters had no such authority. Equally, it was admitted that Mr. Masters had no
actual authority to inform Mr. Fraser that everything was in order if it was
not. The question therefore was whether Mr. Masters had the ostensible
authority to tell Mr. Fraser that whatever steps needed to be taken to carry
out the transaction had been duly performed, although he had no authority
(actual or ostensible) to take those steps himself.
The trustees
relied on certain observations of Goff LJ (confirmed by Lord Keith in the House
of Lords) in Armagas v. Mundogas,
[1986] AC 717 to the effect that English law does not accept the general
proposition that ostensible authority of an agent to communicate agreement by
his principal to a particular transaction is different from ostensible
authority to enter into that particular transaction. In other words, Armagas suggests that ostensible
authority to communicate agreement is conceptually similar to ostensible
authority to enter into the agreement: so if there is no authority to agree,
there is no ostensible authority to communicate agreement either. There were
some views to the contrary: First Energy
v. Hungarian International Benk,
[1993] 2 Lloyd’s Rep 194, Egyptian International v. Soplex, [1985]
2 Lloyd’s Rep 36.  In First Energy, Evans LJ said that there
is “no requirement that the authority to
communicate decisions should be commensurate with the authority to enter into a
transaction
…”
After
considering these cases in Kelly v.
Fraser
, Lord Sumption explained
the position thus: “An agent cannot be said to have authority solely on the
basis that he has held himself out as having it. It is, however, perfectly
possible for the proper authorities of a company (or, for that matter, any
other principal) to organise its affairs in such a way that subordinates who
would not have authority to approve a transaction are nevertheless held out by
those authorities as the persons who are to communicate to outsiders the fact
that it has been approved by those who are authorised to approve it or that
some particular agent has been duly authorised to approve it…
Armagas was explained as turning on
its “complex and extraordinary facts”: in particular, the third party
knew that the agent had no authority to do the specific act, which the agent
held himself out as having the authority to do. Armagas was therefore treated
as a case where the third party has been put on notice, and that case “is
not authority for the broader proposition that a person without authority of
any kind to enter into a transaction cannot as a matter of law occupy a
position in which he has ostensible authority to tell a third party that the
proper person has authorised it…
By way of analogy, Lord Sumption pointed out
that a company secretary does not have the actual authority which the Board of
Directors has, but the secretary does have ostensible authority “by virtue
of his functions
” to communicate what the board has decided. The analogy is
interesting: and gives rise to an additional debate. Is ‘authority by virtue of
his functions’ another manner of saying ‘usual authority’ – and if that is so,
is that better regarded as implied actual authority rather than ostensible
authority? In Kelly’s case, it was admitted that there was no actual
authority (whether express or implied) to communicate as they did – the point
was solely pertaining to ostensible authority. Be that as it may, the Privy
Council seems to have confirmed that there may be situations where an agent has
the authority to communicate the acceptance of an agreement although he has no
authority to agree. That communication may in turn give rise to an estoppel as
against the principal.
This conclusion, reconciling Armagas
and First Energy, has also found acceptance in other common law
jurisdictions. Interested readers may refer to the judgment of Chan Sek
Keong CJ in Skandinaviska Enskilda v. Asia Pacific
Breweries
, [2011] 3 SLR 540. Kelly v.Fraser also has interesting observations on the issue of
what constitutes “detrimental reliance” for the purpose of creating an
estoppel: the Privy Council clarified that “
the detriment need not be
financially quantifiable, let alone quantified, provided that it is substantial
and such as to make it unjust for the representor to resile. A common form of
detriment, possibly the commonest of all, is that as a result of his reliance
on the representation, the representee has lost an opportunity to protect his
interests by taking some alternative course of action. It is well established
that the loss of such an opportunity may be a sufficient detriment if there
were alternative courses available which offered a real prospect of benefit,
notwithstanding that the prospect was contingent and uncertain
…” The advice of the Privy Council in Kelly is available on BAILII, and can be accessed here.

About the author

Mihir Naniwadekar

1 comment

  • Impromptu :

    Chosen at random but driven by intuition, requiring to be read in between lines are these:

    "The question therefore was whether Mr. Masters had the ostensible authority to tell Mr. Fraser that whatever steps needed to be taken to carry out the transaction had been duly performed, although he had no authority (actual or ostensible) to take those steps himself."
    “An agent cannot be said to have authority solely on the basis that he has held himself out as having it. It is, however, perfectly possible for the proper authorities of a company (or, for that matter, any other principal) to organise its affairs in such a way that subordinates who would not have authority to approve a transaction are nevertheless held out by those authorities as the persons who are to communicate to outsiders the fact that it has been approved by those who are authorised to approve it or that some particular agent has been duly authorised to approve it…”

    Well, the gut but sincere reaction is that the discussion is too brain teasing to enable a common reader but with a legal background, barring seasoned lawyers, to leave wondering what really is the 'proposition of law' that has been taken to court(s), for adjudication.
    The issue discussed is, in one's quick perception, does not seem to be a truly legal issue; in that, is not one necessarily based on any known principle of jurisprudence e.g. principles universally accepted and broadly conceded on the so called doctrine of 'holding out'. The views the foreign courts are said to have been taken could, in one's personal oipinion, at best, be regarded to suggest a solution or a pragmatic WAY OUT (to be precise, how to get out) in circumstances (not infrequently faced with in modern times) muddled with mind boggling confusions in the minds of not only the parties to the dispute and their legal advisers but also of the adjudicating authorities.

    May I say > Over to Experts/legal luminaries for an in-depth application of mind!

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