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. Solari 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.