Sunday, January 16, 2011

The Red Jaguar: Apparent Authority and Tortious Liability

Ironically, many significant propositions in private law have been advanced in the course of a court’s attempt to unravel a transaction or scheme engineered by a rogue with considerable ingenuity – so much so that judges not infrequently ask the question “which of two innocent parties should bear the loss caused by a rogue” (See, for example, Re Jones [1926] All ER Rep 36). The immediate context for this observation is the decision of the Court of Appeal on 16 December, 2010, in Quinn v CC Automobile – where yet another rogue left one of two innocent parties to bear a loss of some £11,000.

In Quinn, a Mr and Mrs Quinn, who had a Silver Jaguar through a hire-purchase agreement with Black Horse Ltd., approached Car Craft, an automobile dealer, with the intention of purchasing a Red Jaguar in time for their daughter’s wedding, scheduled for 22 July, 2005. There they had the misfortune to meet a Mr. Khan, at the time employed by Car Craft as a car salesman, from whom they agreed to purchase a Blue Jaguar for £7500 plus the Silver Jaguar, with Car Craft to clear their remaining obligations under the hire purchase agreement with Black Horse. The next day, Mr. Khan told the Quinns that he had found a Red Jaguar after all, and, ten days later, met them at a service station on a motorway to cancel the Blue Jaguar agreement. At this meeting, it was agreed that the Red Jaguar would be sold on the same terms - £7500 plus Silver Jaguar plus hire purchase obligations – and the judge found at first instance that the Quinns did not subjectively find it odd or unusual to meet Car Craft’s agent at a service station or to conclude an agreement in this manner. On 20 July, two days before the wedding, Mr. Khan demanded an extra £700 to deliver the car, but settled for £400 when he was told that this was all the Quinns could afford, delivered the car and took possession of the Silver Jaguar. Mr. Quinn, happy with the transaction, was aghast when he subsequently received a letter from Black Horse informing him that the dues under the hire-purchase agreement had not been paid, and investigation revealed that Mr. Khan had sold the Silver Jaguar to an innocent third party, and had failed to clear the dues with Black Horse. It also transpired that the Red Jaguar never belonged to Car Craft. Mr. Quinn brought an action against Car Craft contending that it was vicariously liable for the tort of deceit committed by its agent.

Before considering the result in the case, it is useful to briefly describe certain basic propositions in the law of agency. It is well known that a principal is bound to a third party for the acts of an agent within either his actual or apparent authority. However, actual authority not only refers to the obvious case where a principal specifically authorises an agent to perform the act in question, but also to “implied actual authority”. The third party is said to be a stranger to actual authority, which is a relationship between the principal and the agent, and it follows that his knowledge or lack thereof is irrelevant. It is therefore important to distinguish implied actual authority from apparent authority, because apparent authority is a relationship to which the agent is a stranger, arising as it does on principles analogous to estoppel. Apparent authority prevents a principal from setting up the agent’s lack of actual authority because of his representation to the third party to the contrary. The representation may be specific, either by word or conduct or a state of dealing (“genuine apparent authority”) or general, where the apparent authority is said to arise from the position in which the principal has placed the agent. It follows that the third party cannot rely on apparent authority when he is aware of lack of actual authority. In all these cases, the principal is liable directly, not vicariously. This description is essentially a summary of the masterly analysis of the subject in Bowstead and Reynolds on the Law of Agency, especially Chapter 3, Section 1 and Chapter 8, Section 1.

In cases like Quinn, there are two additional complications – the principal is a company with limited legal power, and the claimant seeks to hold the principal vicariously liable in tort, not directly liable in contract. The reason the first of these matters is that it is possible for the company to resort to the doctrine of constructive notice to defeat a claim of apparent authority, subject to the doctrine of indoor management. While this difficulty did not arise on the facts of Quinn (it was found that Mr. Khan undoubtedly had apparent authority to sell the Red Jaguar and that there was no constructive notice), it is often a contentious point. A more detailed analysis is available in Mihir’s article, ‘The Law of Agency as Applied in Company Transactions’ 3 ECFR 280 (2008).

The second point – that liability is tortious – proved to be a source of controversy. The traditional approach to this question was to say that the principal/master is liable for tortious acts committed by the agent/servant in the course of his employment, which was understood to cover any wrongful act actually authorised, and any authorised act committed in a wrongful manner. In Lister v Hesley Hall, the House of Lords formulated a wider test, holding that the principal is liable for a tortious act when that is fair and just on the basis of the “close connection” between the act and the employment. However, Lister was not a case of deceit, and the House had held in Armagas v Mundogas that a principal is liable in such cases only if the representation is itself within apparent authority. The rationale is said to be that the torts of misrepresentation, deceit, and negligence (in statements) necessarily involve an element of reliance by the third party, which cannot reasonably arise when the representation is not apparently authorised (Bowstead and Reynolds, Chapter 8, Section 3).

In Quinn, the question for the Court was to identify the proper doctrine of authority that applies in defining “course of employment” for deceit purposes. The judge at first instance had held that although the Quinns subjectively believed that Mr. Khan was authorised to sell the Red Jaguar, they were “put on enquiry” by his sudden demand of an extra £700 and his unexplained willingness to accept a lower sum. The Court of Appeal (Gross LJ), after referring to Armagas and Lister, rejected this finding, in a crucial passage:

To my mind, an analysis founded on reliance and belief leaves little room for any consideration of whether the third party was “put on enquiry”. If there is proper scope for such consideration, it would seem to arise as an aspect of whether the third party turned a “blind eye” to his suspicions as to the employee’s apparent authority; possibly too, there could be debate as to whether the third party was put on enquiry if the employee was acting outside of the usual authority of a person holding the position he holds: see Bowstead and Reynolds on Agency (19th ed.), at paras. 8-054 – 8-055. But on no view can it be said that the third party is put on enquiry because of mere unreasonableness in failing to see through the employee’s deceit; a fortiori, if the transaction is within the class of acts that an employee in the position of the rogue is usually authorised to do [emphasis mine].

Although Court did not resolve the controversy over the scope of Lister in relation to deceit, the clarification that a third party cannot (save the “blind eye” case) be “put on enquiry” when the agent acts within his apparent authority is an important one, with potential ramifications for some areas of company law as well.


No comments: