Armagas Ltd v Mundogas SA (The Ocean Frost)

JurisdictionEngland & Wales
Judgment Date18 October 1984
Judgment citation (vLex)[1984] EWCA Civ J1018-2
CourtCourt of Appeal (Civil Division)
Docket Number84/0371
Date18 October 1984
Armagas Limited
Plaintiffs (Respondents)
Mundogas S.A.
Defendants (Appellants)

[1984] EWCA Civ J1018-2


Lord Justice Stephenson

Lord Justice Dunn

Lord Justice Robert Goff




(On appeal from Mr. Justice Staughton, Commercial Court)

Royal Courts of Justice.

MR. GORDON POLLOCK, Q.C., and MR. RICHARD SIBERRY, instructed by Messrs. Freshfields, appeared for the Appellants (Defendants).

MR. ROBERT ALEXANDER, Q.C., MR. RICHARD MAWREY and MR. SIMON RAINEY, instructed by Messrs. Bentleys Stokes & Lowless, appeared for the Respondents (Plaintiffs).


(As approved)


The Plaintiffs bought the "Ocean Frost" from the defendants and chartered it back to the plaintiffs. The deal was negotiated for them by a broker named Johannesen, with his friend the defendants' Vice President (Transportation) and Chartering Manager named Magelssen. The plaintiffs had a time charter for three years signed by Magelssen on the defendants' behalf, and assumed that when the defendants took delivery of the vessel they took delivery of her under that charterparty. But a year later the defendants said that they were acting under a 12 month charterparty and knew nothing of the three year charterparty. They repudiated Magelssen's signature and denied that he had signed on their behalf: he had authority to sell the vessel but not to conclude or sign the three year charterparty and they refused to carry out its terms or pay the hire outstanding under it.


Magelssen admitted that he had made and signed that charterparty without the knowledge or authority of the defendants, but he alleged that Johannesen knew that he had no such authority. The plaintiffs claimed that he had actual authority, or if not, ostensible authority, or if he had no authority, actual or ostensible, from the defendants, he was acting in the course of his employment by the defendants in falsely representing that he had their authority whereby the plaintiffs were induced to enter into the contract of sale and charter of the vessel to their detriment. The defendants have relied on successive versions given by Magelssen of what he agreed with Johannesen and by successive amendments have alleged that he was acting outside the scope of his authority or the course of his employment, was promised a bribe by Johannesen to the plaintiffs' knowledge and agreed with Johannesen that the charterparty was never intended to be binding.


Out of a mass of evidence emerged many conflicts of fact, which the judge had the difficult task of resolving and this court has heard discussed in the forefront of counsel for the defendants' argument. However those conflicts are resolved, the question of the defendants' responsibility for Magelssen's actions can be decided on facts which are not materially in contention.


As so often, the case has changed its shape as it has progressed. The plaintiffs "went all out" to prove that Magelssen actually had the authority he claimed—and they failed. Their own witnesses admitted that for a contract of this kind he required specific authority from the defendants, that is to say, from some person or persons higher in the defendants' employment than he. They knew that he required it and believed that he had got it. He required specific authority because it was not within the general authority of persons employed in his position. The very reason for that requirement was his lack of any apparent or ostensible authority. The plaintiffs knew that his authority was limited to exclude this transaction and that the defendants were not representing to them that he had authority to conclude it nor holding him out as having authority to conclude it. This was therefore an unauthorised transaction not binding the defendants. So when actual authority fell to the ground ostensible authority fell with it. Many if not all the arguments addressed to us on ostensible authority by the plaintiffs' counsel ignored that fatal consequence of the accepted need for actual authority.


This consequence the judge sought to avoid by ingeniously suggesting and holding that, though Magelssen had no ostensible authority to make this contract, he had ostensible authority to notify approval by the top management, whether he had that approval or not (pages 40B, 41B). This authority to communicate a decision in an agent who has no authority to take a decision is so paradoxical that it comes as no surprise that the defendants' counsel could find no support for it anywhere but in the judgments of four Canadian judges, two of them dissenting judgments. The reason for its novelty is not hard to find: What is it but an agent's authority to represent or warrant that he has authority? And how does his principal hold him out as having authority to hold himself out as having it except by the principal placing him in a position to make the contract, conduct which has been already decided not to constitute a holding out by the principal? And if that holding out of the agent as authorised to communicate the principal's decision can ever be derived from previous transactions concluded by the agent and accepted as binding by the principal, I agree that the few previous transactions in this case cannot amount to any such holding out of Magelssen by the defendants.


The judge recognised that if Magelssen had ostensible authority to communicate or notify approval of the charterparty, he had ostensible authority to conclude the charterparty, as indeed he said in his second judgment (at page 3G), which means that this warranty of authority was not broken, though it was untrue—another paradox.


The only authority for the judge's conclusion on Magelssen's ostensible authority is the decision of the majority of the Manitoba Court of Appeal in Berryere v. Firemen's Fund Insurance Company (1965) 51 DLR (2d) 603. I prefer the dissenting judgment of Guy JA in that case. So, I think, did the majority of the Alberta Supreme Court's Appellate Division in Jensen v. South Trail Mobile Ltd. (1972) 28 DLR (3d) 233, where McDermid JA, dissenting, followed Berryere's case; and so also did the majority of the British Columbia Court of Appeal following Jensen's case in Cypress Disposal Ltd. v. Inland Kenworth Sales (Nanaimo) Ltd. (1975) 54 DLR (3d) 598, where Seaton JA, dissenting, followed Berryere's case again and distinguished Jensen's case. Clement JA, Allen JA concurring, disposed of Jensen's claim to bind the defendant company to a contract entered into by their representative Kozmenuik in two sentences (at page 242):—

"Kosmenuik disclosed to Jensen the limitations on his authority to sell, and it was his duty to do so. I am unable to attribute to this circumstance a holding out by the company that Kozmenuik was authorised to inform Jensen in effect that he, by his own signature, could bind the company."


Farris C.J., in a judgment with which McIntyre JA agreed, dealt even more curtly with the claim of Cypress Disposal Ltd that the defendants were bound by a contract made by their salesman Nontell:—

"The only representation by the principal was that the salesman had no authority to contract. Any statements made by Nontell to the contrary cannot change that."


The judgment of the High Court of Australia given by Gibbs, J in Crabtree Vickers Pty Ltd v. Australia Direct Mail Advertising and Addressing Company Pty Ltd, (1975) 133 CLR 72, indicates (at page 78) that the actual representation of authority may be made by the agent on behalf of his principal "either by a previous course of dealing or by putting the agent in a position or by allowing him to act in a position from which it can be inferred that his actual representation of authority in himself is in fact correct". But the cases in which a principal's conduct estops him from denying that the agent's representation is in effect his own representation must be rare indeed, and this case is not one of them.


If Magelssen had no ostensible authority to bind the defendants to this transaction, was he nevertheless acting in the course of his employment by them so as to make them vicariously liable for his fraudulent misrepresentation that he had their authority and for any loss suffered by the plaintiffs in acting upon his representation and entering into the transaction? Was the representation made in the course of his employment, though outside the scope of his authority?


One person employs another to do something for him. He may employ him as his servant to carry out certain duties generally; he may employ him as an agent, usually to carry out a particular task. It has become usual to describe the servant as employed by the master, the agent as engaged by the principal. The master or principal may be a corporation and therefore act only through servants or agents. The job or jobs which the master gives his servants to do, the job or jobs which a principal gives his agents to do, may be anything from driving a lorry to valuing a property, from building a house to negotiating or concluding a building contract. But in every case the responsibility of the master or principal to third parties for what his servant or agent has done depends primarily on what the master or principal has employed or authorised the servant or agent to do. When the servant or agent has done something wrong, something which injures a third party or gives a third party a cause of action in contract or in tort against him, the first question to be answered in determining whether the master or principal is responsible for the wrongful act is: What is the scope of the employment or authority given by the one to the other?


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