The case First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] 2 Lloyd's Rep  194 has been criticised for failing to follow orthodox doctrine on apparent authority.  Critically analyse and evaluate this criticism with reference to the relevant case law and academic commentary.

 

Answer:

In First Energy (UK) Ltd v Hungarian International Bank Ltd it was proven that even if an agent may not have apparent authority to conclude a given transaction such an individual may have apparent authority to make representations of fact legally binding the principal.

In a principal-agent relationship, there are three types of authority that can be granted to the agent: Express, Implied, or Apparent. Also called Ostensible Authority, apparent authority arises when the conduct of the principal allows the agent to enter contracts on his or her behalf. Legally, the agent binds the principal in front of a third party. Somehow, there is a representation from the agent's part that suggests that such a person has that kind of power. However, even when an agent has no authority to end a transaction, the agent may make related representations of fact.

In First Energy (UK) Ltd v Hungarian International Bank Ltd, First Energy sued Hungarian Bank to enforce a loan that was communicated by one of the bank's branch senior managers. The Bank alleged that the manager did not obtain specific authority to enter the transaction. Though, the fact that the manager had ostensible authority to inform the bank's headquarters about the approvals of the financing branch was considered by Judge Michael Kershaw QC (Queen's Counsel) reason enough for the manager to have apparent authority in loan matters. Moreover, the manager sent First Energy a letter regarding the loan in dispute which the judge amounted as an offer capable of acceptance. Then, judgment was given to First Energy making the loan enforceable. 

It was concluded that even if an agent may not have apparent authority to conclude a given transaction such an individual may have apparent authority to make representations of fact.

References:

• Hall Ellis Solicitors (2016). Apparent authority / ostensible authority. Retrieved from: https://hallellis.co.uk/ostensible-apparent-authority/
• Magrath, P. (1993). Law Report: An agent's apparent authority: First Energy (UK) Ltd v Hungarian International Bank Ltd - Court of Appeal (Lord Justice Nourse, Lord Justice Steyn and Lord Justice Evans), 24 February 1993. Independent. Retrieved from: https://www.independent.co.uk/news/uk/law-report-an-agents-apparent-authority-first-energy-uk-ltd-v-hungarian-international-bank-ltd-court-1455583.html