Article to read:

 McMeel, ‘The Philosophical Foundations of the Law of Agency’ (2000) 116 LQR
387
 Dowrick, ‘The Relationship of Principal and Agent’ (1954) 17 MLR 24
 Reynolds (1994) 110 LQR 21 (on First Energy (UK) Ltd)
 Peter Watts, ‘Some wear and tear on Armagas v Mundogas: the tension between
having and wanting in the law of agency’ (2015) LMCLQ, 36-61
 Ji Lian Yap, ‘Apparent authority: doctrinal underpinnings and competing policy
goals’ (2014) 1 JBL 72-82
Others
 J A Hornby, ‘The Usual Authority of an Agent’ [1961] 19 CLJ 239
 Andrew Tettenborn, ‘Agents, Business Owners and Estoppel’ [1998] 57 CLJ 274

Ji Lian Yap, ‘Apparent authority: doctrinal underpinnings and competing policy goals’
(2014) 1 JBL 72-82

 In such circumstances, the court may thus be faced with a contest between two
innocent parties.
 The July 2012 Privy Council decision in Kelly v Fraser  2 highlights the fact that there
may be agents who are not authorised to enter into a transaction on behalf of their
principal, but who are nonetheless authorised to represent that their principal has
approved the transaction. This article explores the distinction between the apparent
authority to enter into a transaction on behalf of a principal, and the apparent authority
to communicate the fact that a transaction has been approved, by considering this
distinction from the perspective of the estoppel theory and the objective consent
theory of apparent authority. Next, this article will consider the competing policy
issues arising from a situation where an agent represents that his principal has
approved a transaction, even though such approval has not in fact been granted. In
particular, this article will explore the tension between the need to protect the
reasonable expectations of third parties, and the need to ensure that principals are not
excessively or unjustly bound by the acts of their agents.

Protecting the interests of the principal

Kelly v Fraser is a recent illustration of the court protecting the interests of a third party who
reasonably relied on representations by the principals. However, a balance must be
maintained between the interests of the third party and the principal, so that the law relating
to apparent authority would continue to be a useful facilitator in commercial and consumer
transactions. Consequently, it has been emphasised that a representation by the agent himself
that he has authority is not sufficient to establish apparent authority.30 This must logically be
the case as otherwise, an agent could simply give himself authority. The principle that a
representation by the agent that he has authority is not sufficient to establish apparent
authority was applied in the House of Lords decision in Armagas v Mundogas , in which the
third party knew that the agent did not have general authority to enter into the relevant
transaction. In these circumstances, it was held that the third party could not rely on the
agent’s representation of his own authority to enter into that transaction, even though the
agent held a senior position in the organisation. It has been observed that where the
representation is made by the principal, it is justifiable to impose liability on the principal, but
where the representation is made by the agent, to impose liability on the principal would tilt
the balance too far in favour of the third party.31
Therefore, the difficulty with the approach in Kelly v Fraser and First Energy is that it
allows an agent who has no actual or apparent authority to enter into a transaction on behalf
of his principal to bind his principal to the transaction by informing the third party that the
relevant approval has been obtained. Indeed, it has previously been observed that
"to allow a person known to have no authority in effect to give himself authority by wrongly
purporting to notify a decision of someone else that the act is authorized is virtually to
abandon the idea that the doctrine of apparent authority rests on manifestation by the
principal." 32

Consequently, there has been both judicial and academic scepticism as to the correctness
of First Energy  . Such scepticism can be observed in the judgment of the Singapore Court of
Appeal in Skandinaviska v Asia Pacific Breweries, where it was observed that First
Energy might not be consistent with Armagas v Mundogas and might represent a departure
from the traditional basis of apparent authority. Indeed, the case of First Energy has been
described as "an example of a difficult case possibly making bad law". 33
In contrast, the decision in Kelly v Fraser indicates clear judicial support for First Energy .
The Privy Council in *J.B.L. 82 Kelly v Fraser  viewed Armagas v Mundogas as involving a
situation where the agent was holding himself out as having authority to do the specific thing
that the third party knew that he had no general authority to do. The court in Kelly v
Fraser further observed that Armagas v Mundogas was not authority for the broader
proposition that a person who did not have authority to enter into a transaction on behalf of
his principal cannot have ostensible authority to inform a third party that the appropriate
person has authorised the transaction. Therefore the court in Kelly v Fraser took the view
that First Energy  was consistent with the views of Lord Keith in Armagas v Mundogas .
In the light of the conclusions in Kelly v Fraser and First Energy , principals would therefore
be well advised to thoroughly monitor the communications of their agents with third parties
to avoid being bound by transactions that they did not authorise. This is an additional burden
on principals, which might decrease the efficiency of using agents and may indeed lead to
reluctance on the part of principals to employ the use of agents. Indeed, subsequent courts
might take the view that Kelly v Fraser effectively swings the balance too far in favour of the
third party, and this concern might lead to attempts to limit the scope of that case. This might
be achieved by taking the view that Kelly v Fraser should be confined to situations where the
principal, although not having granted approval for the transaction, could nonetheless be
objectively regarded as having acquiesced in it. As earlier discussed, the fact that in Kelly v
Fraser the funds were transferred into the Pension Plan and reflected in subsequent benefits
statements may arguably be regarded as indicating that the principals had acquiesced in the
transaction.

Conclusion
This article has explored various issues of legal doctrine and policy that arise from a situation
where an agent incorrectly represents that his principal has approved a transaction. This
article has considered the distinction between the apparent authority to enter into a
transaction on behalf of a principal, and the apparent authority to communicate the fact that a
transaction has been approved, by examining this distinction from a doctrinal perspective,
particularly in relation to the estoppel theory and the objective consent theory of apparent
authority. In addition, this article has considered the tension between the policy goals of
protecting the reasonable expectations of third parties, and of ensuring that principals are not
excessively or unjustly bound by the acts of their agents which fall outside the scope of their
actual authority. Both these policy objectives would have to be carefully balanced in order to
ensure the continued commercial utility of agency law.
Ji Lian Yap

A distinct legal status?

The Privy Council decision in Kelly v Fraser  focuses attention on situations involving agents
who have the power to report decisions that have been made by their principals, decisions
that the agents administer and implement but are not empowered to make themselves. Mr
Fraser was the president and chief executive of an insurance company and a member of its
Salaried Staff Pension Plan (the Pension Plan), which operated under the terms of a trust
deed. The trust deed vested the management and administration of the Pension Plan in
trustees (the trustees), who delegated the day-to-day administration of the Pension Plan to the
Employee Benefits Division of the insurance company.

The doctrinal basis of apparent authority

The estoppel justification for apparent authority is well entrenched in English law. Diplock
L.J.’s classic formulation of apparent authority in Freeman & Lockyer v Buckhurst  9 is based
on estoppel reasoning. Numerous English cases have referred to apparent authority as a form
of estoppel.10 Recently, Lord Neuberger in the Hong Kong Court of Final Appeal case
of Thanakharn v Akai Holdings Ltd 11 observed that apparent authority was a species of
estoppel by representation. It has been observed that no English judge below appellate level
could depart from the estoppel justification for apparent authority, and that the English Court
of Appeal would require considerable argument before making such a departure.12

Estoppel in the context of apparent authority has been described as taking a weak
form,13 because the representation giving rise to the estoppel may merely be  *J.B.L. 76  a
very general one (such as appointing the agent to his position in the organisation)- e.g Kelly v
fraser.
Bowstead & Reynolds on Agency, 19th edn, edited by P. Watts and F.M.B. Reynolds
(London: Sweet & Maxwell, 2010) para.8-029.

(b) Apparent authority

Rama Corpn Ltd v Proved Tin & General Investments Ltd [1952] 2 QB 147, Queen’s
Bench Division

The facts are irrelevant.

Slade J: Ostensible or apparent authority . . . is merely a form of estoppel, indeed, it has been
termed agency by estoppel, and you cannot call in aid an estoppel unless you have three
ingredients: (i) a representation, (ii) reliance on the representation, and (iii) an alteration of
your position resulting from such reliance.

Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480, Court
of Appeal
Peter Watts, ‘Some wear and tear on Armagas v Mundogas: the tension between having
and wanting in the law of agency’ (2015) LMCLQ, 36-61