Law Report: An agent's apparent authority: First Energy (UK) Ltd v Hungarian International Bank Ltd - Court of Appeal (Lord Justice Nourse, Lord Justice Steyn and Lord Justice Evans), 24 February 1993.

An agent who had no apparent authority to conclude a transaction might nevertheless have apparent authority to make representations of fact concerning it, such as the fact that his principal had given the necessary approval for it.

The Court of Appeal dismissed an appeal by the defendant, Hungarian International Bank Ltd, and upheld a decision of Judge Michael Kershaw QC, sitting as a deputy High Court judge in the Commercial Court on 23 October 1991, giving judgment for the plaintiff, First Energy (UK) Ltd.

The case concerned an alleged contract under which the defendant was to provide the plaintiff with business finance. One of the issues was whether the defendant's agent had ostensible authority to communicate the offer upon which the contract was based. The judge held that he did, and that the plaintiff accepted that offer, so creating the contract.

Mary Arden QC and Michael Todd (Chaffe Street, Manchester) for the defendant; Giles Wingate-Saul QC and Andrew Sander (Davies Arnold Cooper) for the plaintiff.

LORD JUSTICE STEYN said a theme that ran through the law of contract was that the reasonable expectations of honest men must be protected. It was not a rule or principle of law. But if the prima facie solution to a problem ran counter to reasonable expectations of honest men, this criterion sometimes required a rigorous re-examination of the problem to ascertain whether the law did compel demonstrable unfairness.

In the present case, if their Lordships were to accept the implications which the defendant had placed on observations of the House of Lords in Armagas Ltd v Mundogas SA (1986) 1 AC 717, it would frustrate the reasonable expectations of the parties.

The plaintiff's case was that the defendant's agent, while not authorised to enter into the transaction, did have ostensible authority to communicate his head office's approval of the financing facility. He had sent the plaintiff a letter to this effect, which the judge held amounted to an offer capable of acceptance by the plaintiff.

The law recognised that in modern commerce an agent who had no apparent authority to conclude a particular transaction might sometimes be clothed with apparent authority to make representations of fact.

A decision that the agent did not have such authority would defeat the reasonable expectation of the parties. It would also fly in the face of the way in which in practice negotiations were conducted between trading banks and trading customers who sought commercial loans.

LORD JUSTICE NOURSE and LORD JUSTICE EVANS concurred.

Paul Magrath, Barrister.