Hely-Hutchinson v Brayhead Ltd

In opening this appeal Mr Wheeler paid tribute to the judgment of Mr Justice Roskill. He said it was a tour de force. I agree. It was delivered straightaway after a five day hearing at the end of the term. It is set out in the report in 1967, 2 Weekly Law Reports; p. 1312. His findings of fact have been accepted by both parties before us. The discussion has been on the correct legal principles to be applied. I need myself only summarise the salient facts.

Lord Suirdale was for many years Chairman and Managing Director of a public company dealing in electronics called Perdio Electronics Limited. He held a great number of its shares and had guaranteed a loan to it from Merchant bankers called Guinness Mahon & Co. for £50,000. Mr Richards, a professional accountant, was the Chairman of another public company called Brayhead Limited. It also dealt in electronics. Towards the end of 1964 Perdio was sustaining losses. It needed financial assistance. Brayhead was ready to help. Its intention was eventually to get control of Perdio. At the end of 1964 Lord Suirdale sold 750,000 shares in Perdio to Brayhead at 3s.3d. a share, a deal involving over £100,000. About the same time Brayhead proposed to inject a sum of £150,000 into Perdio. On the 14th January, 1965, Lord Suirdale became a director of Brayhead. He did not attend a board meeting of Brayhead until the 19th May, 1965. At that meeting many matters were discussed and recorded in the minutes. But after the board meeting, in an office outside, there was a discussion between the directors. Agreements were then reached between Mr Richards on behalf of Brayhead, he being the Chairman, and Lord Suirdale. The upshot of it was that Lord Suirdale agreed to put more money into Perdio. But he was not prepared to do so unless his position was secured by Brayhead Limited. That was done by two letters. They form the subject matter of these proceedings.

One letter which is called the indemnity is on the paper of Brayhead Limited, dated the 19th May, 1965, addressed toViscount Suirdale. It reads:

"Re Perdio Electronics Limited. Acceptance credits.

Dear Lord Suirdale.

This letter may be taken as an undertaking to indemnify you against any loss which may occur by you having to fulfill your personal guarantee to Guinness Mahon & Co., Limited. for a figure not to exceed £50,000. It is agreed that the consideration for this indemnity will be a personal loan by you to Perdio Electronics Limited. in a aim not exceeding £10,000.

Yours sincerely,

A. J. Richards,

Chairman".

Then there is letter called the guarantee, also dated the 19th May, 1965, likewise on the paper of Brayhead and likewise addressed to Viscount Suirdale:

"Re Perdio Electronics Limited. Loan.

Dear Lord Suirdale,

It is hereby agreed that Brayhead Limited. Will guarantee repayment of any moneys loaned by you personally to Perdio Electronics Limited. It is a condition of this guarantee that at least six months notice will be given by you to Brayhead Limited. should the guarantee have to be implemented.

Yours sincerely,

A. J. Richards,

Chairman".

On the same occasion two other letters were signed for connected transactions.

In reliance on those letters Lord Suirdale advanced further sums to Perdio: in all a sum of £45,000. Brayhead also lent Perdio large sums. Unfortunately their efforts were unavailing to save Perdio. It went into liquidation. On the 27th September, 1965. Lord Suirdale resigned from the board of Brayhead. He had been a director for some nine months.

The merchant bankers, Guinness Mahon, called on Lord Suirdale to honour his guarantee. He paid them £50,000, and then claimed that sum from Brayhead under the letter of indemnity of the 19th May, 1965. He also wanted repayment of the £45,000 which he had lent Perdio. He claimed this sum under the letter of guarantee of the 19th May, 1965, and gave the requisite notice to Brayhead to repay. On the 27th November, 1965, he issued a writ against Brayhead.

The defence of Dray head is twofold First, they say that the letter of indemnity and the letter of guarantee are not binding on the Company, because Mr Richards had no authority,actual or ostensible, to write those letter on and that Lord Suirdale, being himself a director of Brayhead, had notice of that want of authority. So there was no contract by the Company. Second, they say that if there was a contract by the Company, it is unenforceable by Lord Suirdale because he was director and had an interest which he did not disclose at any board meeting. Lord Suirdale challenges those defences. But he says if they are available to the Company he can come down on Mr Richards personally as upon a warranty of authority.

I need not consider at length the law on the authority of an agent, actual, apparent, or ostensible. That has bean done in the judgments of this Court in the case of Freeman & Lockyer v. Buckhurst Park Properties (Manual) Limited, 1964, 2 Queen's Bench, p. 480. It is there shown that actual authority may be express or implied. It is express when it is given by express words, such as when a board of directors pass a resolution which authorises two of their number to sign cheques. It is implied when it is inferred from the conduct of the parties and the circumstances of the cape, such as when the board of directors appoint one of their number to be managing director. They thereby impliedly authorise him to do all such things as fall within the usual scope of that office. Actual authority, express or implied, is binding as between the company and the agent, and also as between the company and others, whether they are within the company or outside it.

Ostensible or apparent authority is the authority of an agent as it appears to others. It often coincides with actual authority. Thus, when the board appoint one of their number to be managing director, they invest him not only with implied authority, but also with ostensible authority to do all such things as fall within the usual scope of that office. Other people who see him acting as managing director are entitled to assume that he has the usual authority of a managing director. But sometimes ostensible authority exceeds actual authority. For instance, when the hoard appoint the managing director, theymay expressly limit his authority by saying he is not to order goods worth more than £500 without the sanction of the board. In that case his actual authority is subject to the £500 limitation, but his ostensible authority includes all the usual authority of a managing director. The company is bound by his ostensible authority in his dealings with those who do not know of the limitation. He may himself do the "holding-out". Thus, if he orders goods worth £1,000 and signs himself "Managing Director for and on behalf of the Company", the Company is bound to the other party who does not know of the £500 limitation, see British Thomson-Houston Co. Limited. case, 1932, 2 King's Bench, p. 176, which was quoted for this purpose by Lord Justice Pearson in Freeman & Lockyer. 1964, 2 Queen's Bench at p. 499. Even if the other party happens himself to be a director of the company, nevertheless the company may be bound by the ostensible authority. Suppose the managing director orders £1,000 worth of goods from a new director who has just joined the company and does not know of the £500 limitation, not having studied the minute book, the company may yet be bound. That is the sort of case envisaged by Lord Simonds in Morris v. Kanssen, 1946 Appeal Cases, at the bottom of page 475 and the top of page 476, and considered by Mr Justice Roskill in the present case, 1967, 2 Weekly Law Reports at pp. 1327-8.

Apply these principles here. It is plain that Mr Richards had no express authority to enter into these two contracts on behalf of the company: nor had he any such authority implied from the nature of his office. He had been duly appointed chairman of the company but that office in itself did not carry with it authority to enter into these contracts without the sanction of the board. But I think he had authority implied from the conduct of the parties and the circumstances of the case. The Judge did not rest his decision on implied authority, but I think his findings necessarily carry that consequence. The Judge finds that Mr Richards acted as defacts managing director of Brayhead. He was the chief executive who made the final decision on any matter concerning finance. He often committed Brayhead to contracts without the knowledge of the board and reported the matter afterwards. At page 1324 the Judge said: "I have no doubt that Mr Richards was, by virtue of his position as de facto managing director of Brayhead, or, as perhaps one might more compendiously put it, as Brayhead's chief executive, the man who had, in Lord Justice Diplock's words, 'actual authority to manage', and he was acting as such when he signed those two documents". At page 1331, letter D, the Judge said: "The board of Brayhead knew of and acquiesced in Mr Richards acting as de facto managing director of Brayhead".

The Judge held that Mr Richards had ostensible or apparent authority to make the contract, but I think his findings carry with it the...