Apparent authority: what is the English law position on reliance?

by Mark Campbell, Senior Lecturer, Law School

Within English private law (and indeed other common law systems) many legal tests adopt a reasonableness standard. Various aspects of negligence liability are assessed in that way. The same is true in the law of contract: consider, for example, contractual formation and remoteness of damage.

That approach, one would have thought, applies within the law of agency in relation to the doctrine of apparent authority. Apparent authority is said to be a form of estoppel that requires the following. (1) A representation from principal to third party about the agent’s authority, and (2) reliance by the third party on the principal’s representation. In particular, one might have assumed that the third party’s reliance on the principal’s representation would be subject to a test of reasonableness.

That assumption was challenged in a case decided by the Hong Kong Court of Final Appeal in 2010: Thanakarn Kasikorn Thai Chamkat (Mahachno) v Akai Holdings Ltd (No 2) [2010] HKCFA 63. The court’s judgment was delivered by Lord Neuberger, sitting as a Non-Permanent Judge. The argument presented by Jonathan Sumption QC (as he then was) on behalf of one was the parties was that the test for reliance in the context of apparent authority should not be reasonable reliance. It should be, rather, the absence of dishonesty or irrationality. The court in Hong Kong accepted that position.

The Akai Holdings approach to reliance was subsequently followed in a number of English cases, including the Court of Appeal decision in Quinn v CC Automotive Group Ltd (t/a Carcraft) [2010] EWCA Civ 1412. In Quinn, it was said that ‘the touchstone is honest belief’ and that ‘the “reasonableness” of the third party’s belief is neither here nor there’: para 23. The court, however, held that it was ‘unnecessary to express any concluded view’ in relation to ‘irrationality’: again, para 23.

Then, in 2019, came the decision of the Privy Council in East Asia Company Ltd v PT Satria Tirtatama Energindo [2019] UKPC 30, a case appealed from Bermuda. Although the reliance issue had fallen away as a live issue, the Privy Council decided to address it. The point had been argued before the Privy Council and the Bermuda Court of Appeal had concluded the outcome would differ depending on the approach taken to reliance. Added to that the Privy Council was no doubt aware of the disruption and uncertainty caused by the introduction of Akai Holdings into English law.

The Privy Council’s view was that the Akai Holdings approach was out of step with a range of authorities from both the English Court of Appeal and House of Lords. The Privy Council, albeit obiter, restated the traditional position: namely, that the reliance element of apparent authority should be assessed according to a test of reasonableness. In other words, did the third party have reasonable grounds for its reliance on the principal’s representation. In the wake of that decision, I suggested there were several reasons why the Privy Council was correct to restate that the test as one of reasonable reliance: Mark Campbell, ‘Reasonable Reliance and Apparent Authority: East Asia Company Ltd v PT Satria Tirtatama Energindo [2019] UKPC 30’ (2019) 48 Common Law World Review 184.

Since then, East Asia v PT Satria has been cited in several English High Court judgments. It has also been cited with express approval in another Privy Council case, Ciban Management Corp v Citco (BVI) Ltd [2020] UKPC 21, para 29 (on appeal from the British Virgin Islands).

Having said that, in a case decided by the High Court in May 2021, Moulder J applied Quinn v CC Automotive (and thus the approach adopted in Akai Holdings): Harbour Fund lll LP v Kazakhstan Kagazy Plc [2021] EWHC 1128 (Comm), paras 109–17. While the written submissions had focussed on East Asia v PT Satria, the closing oral submissions proceeded on the basis the court was bound by Quinn: paras 109–10. One of the parties also attempted to argue for a narrower interpretation of the Akai Holdings approach, a point that was rejected: paras 111, 115–16.

Although often highly persuasive, it has long been recognised that Privy Council decisions are not binding on English courts. (That straightforward position has, however, been complicated by Willers v Joyce (No 2) [2016] UKSC 44, and on which see the critical comment by Peter Mirfield ‘A Novel Theory of Privy Council Precedent’ (2017) 133 Law Quarterly Review 1.) There is no specific mention of the position vis-à-vis English law in East Asia v PT Satria or Ciban, but the assumption in those cases seems to be that the English common law should reflect the restatement of the traditional position in East Asia v PT Satria.

What should we make of this? There are two possible responses. One would be to say that there is ample authority from the Court of Appeal and House of Lords in keeping with the traditional position of reasonable reliance. In that case, Quinn would be a case decided in error. The other would be to say that Quinn can be distinguished from earlier English authorities, including those from the House of Lords. In that case, the claim would be that, as a matter of strict precedent, Quinn does indeed represent the current English law position (albeit out of keeping with other common law jurisdictions such as Bermuda and the BVI).

My instinct is to say that Harbour Fund III v Kazakhstan Kagazy represents the swansong for Quinn (and Akai Holdings). If a further attempt is made to rely on Quinn as the authority which represents the English legal position, that attempt will be given short shrift. Either because (1) it cannot stand as a matter of precedent within English law, or (2) even if still binding in a technical sense, it will be overruled on appeal. To adopt wording from Willers v Joyce (para 17), it would seem to be ‘a foregone conclusion that the view taken by the JCPC’ in East Asia v PT Satria ‘will be accepted by the Court of Appeal or Supreme Court’.

It is likely that any lawyer who attempts to argue Quinn should be followed in the future will, ultimately, be wasting his or her time. For, even if the Privy Council did not say so explicitly in East Asia v PT Satria and Ciban v Citco, the assumption seems to be that English law does (or at least should) reflect the traditional position of reasonable reliance. Notwithstanding the persuasive status of Privy Council decisions and debates over what may be ratio or obiter within prior authorities, English judges at the highest level have been clear: Akai Holdings has had its day. And despite its application by the High Court in Harbour Fund III v Kazakhstan Kagazy, it would be unreasonable to suggest otherwise.

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