Part 2 - Whether B has ostensible authority to sign the letter of undertaking to pay RM 50M

without A’s permission?

Stone Master Corporation Bhd v Dato Koh Mui Tee & Ors [2019] MLJU 1177 - HC,
Darryl Goon Siew Chye

In this context, it is also pertinent to have regard to the often- quoted observations of Lord
Denning in Hely-Hutchinson v Brayhead Ltd and Another [1967] 3 All 98 at p 102:

‘It is implied when it is inferred from the conduct of the parties and the circumstances of the
case, 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.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 board

appoint the managing director, they may 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.

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.
Playboy Enterprises International, Inc v Zillion Choice Sdn Bhd & Anor [2011] 2 MLJ
59 - HC, Azahar Mohamed J

[49] For 'apparent authority' to exist, the agent must not purport to make the agreement as
principal himself. Therefore the source of the 'apparent authority' has to be the principal, not
the agent. If there is no representation by the principal, there can be no apparent authority
conferred on the agent, even if the agent represents the contrary. It is trite law that an agent
cannot ordinarily confer ostensible authority on himself. He cannot pull himself up by his
own shoe laces (United Bank of Kuwait Ltd v Hammoud and others [1988] 1 WLR 1051).

Chew Hock San & Ors v Connaught Housing Development Sdn Bhd [1985] 1 MLJ 350
referred to Freeman's case (supra) – FC, Seah Mohamed Azmi, Syed Barakbah FJJ

The accepted principle is that the "apparent" authority must be made by someone who had the
"actual" authority to make such representation as empowered by the memorandum and
articles of association of the company. This is normally conferred upon the Board of
Directors or those having the powers of management to delegate authority to some other
person.

By so doing the principal represents to anyone who becomes aware that the agent is so acting
that the agent has authority to enter on behalf of the principal into contracts with other
persons of the kind which an agent so acting in the conduct of his principal's business has
usually "actual" authority to enter into."

In our considered judgment, this was a case where it would not normally be expected to be
within the authority of D.W.1 to act as he did in the circumstances, and any holding out by
D.W.1 at the material time was done without the knowledge and consent of the respondent.
We agree with the learned Judge that there was no representation by the respondent that
D.W.1 was authorised to accept bookings on its behalf.

British Bank of the Middle East v Sun Life Assurance Co of Canada (UK) Ltd [1983] 2
Lloyd's Rep 9. – HOL, Lord Diplock

There letters of undertaking issued by a branch manager, a junior employee of the respondent
insurance company to the Bank were held not to be binding on the insurance company on the
ground, inter alia, that the branch manager had no authority, express or implied, to execute
the undertakings on behalf of the company. It was not a case of the company holding out the
branch manager as having its authority, express or implied, to answer the letter in the way he
did but rather the case where he, without the knowledge or permission of the insurance
company, held himself out as having such authority.

British Thomson-Houston Co Ltd v Federated European Bank Ltd – COA, Scrutton,

Greer & Slesser L.JJ

'If the articles merely empower the directors to delegate to an officer authority to do the act,
and the officer purports to do the act, then;

(a) if the act is one which would ordinarily be beyond the powers of such an officer, the
plaintiff cannot assume that the directors have delegated to the officer power to do the act;
and if they have not done so, the plaintiff cannot recover

(b) if the act is one which is ordinarily within the powers of such an officer, then the
company cannot dispute the officer's authority to do the act, whether-the directors have or
have not actually invested him with authority to do it.

Freeman & Lockyer (A Firm) v Buckhurst Park Properties (Mangal) Ltd & Anor
[1964] 2 QB 480 – COA, Willmer, Pearson and Diplock L.JJ.

As to how a company can make a representation that a person has its authority, where the
principal is not a natural person, but a fictitious person, namely, a corporation, two further
factors arising from the legal characteristics of a corporation have to be borne in mind.

The first is that the capacity of a corporation is limited by its constitution, that is, in the case
of a company incorporated under the Companies Act, by its memorandum and articles of
association, the second is that a corporation cannot do any act, and that includes making a
representation, except through its agent.

The second characteristics of a corporation, namely, that unlike a natural person it can only
make a representation through an agent, has the consequence that in order to create an
estoppel between the corporation and the contractor, the representation as to the authority of
the agent which   creates his 'apparent' authority must be made by some person or persons
who have 'actual' authority from the corporation to make the representation.

The commonest form of representation by a principal creating an 'apparent' authority of an

agent is by conduct, namely, by permitting the agent to act in the management or conduct of
the principal's business. Thus, if the company’s board of directors who have 'actual' authority
under the memorandum and articles of association to manage the company's business permit
the agent to act in the management or conduct of the company's business, they thereby
represent to all persons dealing with such agent that he has authority to enter on behalf of the
corporation into contracts of such kind.