LM-2023-000035 - [2025] EWHC 1989 (Comm)

A contractor is generally entitled to assume that the person they are dealing with has the authority they appear to have. That general entitlement is the essence of the doctrine of apparent authority. There is however no such entitlement if a reasonable person in the shoes of the contractor would take steps to investigate that person’s authority, but the contractor has in fact failed to take those steps. If the contractor “fails to make the inquiries that a reasonable person would have made in all the circumstances to verify that the person with whom he is dealing does indeed have authority” then the entitlement is lost (see Law Debenture Trust Corp. v Ukraine [2023] UKSC 11 at paragraph 39).

Mr Reay’s argument is that a reasonable person in the shoes of Xtellus would have made inquiries. The point is set out in his opening submission at paragraph 90.2.3 as follows: “where one deals with a company via a person that one believes acts as an officer of the company, then one is on notice of the need to check whether that person is in fact an officer as alleged. This is true both of dealings with English companies and with foreign companies. Further, where the company is incorporated overseas, the law of the place of incorporation becomes relevant in determining what it is that needs to be checked.”

A number of authorities were cited as examples of a situation in which a reasonable person would (and would not) have made inquiries (Ciban Management Corp. v Citco BVI [2020] UKPC 21 where a number of “red flags” in respect of the apparent agent’s conduct, including the use of a personal email, were insufficient and PT Satria – at paragraph 94 – where the contractor knew that only the board had power to bind the Claimant and there were many “highly unusual features of the transaction” including the fact that the Claimant was selling its only asset). Whilst these examples are helpful they are simply illustrative of the general point. The question for me is whether a reasonable person in the shoes of Xtellus would (for the reasons relied on by Mr Reay) have investigated Dominik Leszczyński’s authority to bind the Defendant?

In my view the answer to that question is an emphatic no. In the present case there was nothing at all to put Xtellus on notice of the need to question Dominik Leszczyński’s authority.

The problem with Mr Reay’s formulation, and its application to the facts as I have found them (namely that the Defendant held Dominik Leszczyński out as a person with authority) is that it appears to apply where the contractor simply “believes” the relevant person has authority. It may be that a contractor would be well advised to undertake some checks before entering into a contract on the basis that a person who has not been held out to have authority does in fact have it. I agree with Mr Brown KC that, at least where the person has been held out, there is no general duty of inquiry “where one deals with a company via a person that one believes acts as an officer of the company.” To find there was such a duty would undermine (if not destroy) a contractor’s right to assume that the person they are dealing with has the authority they appear to have. As that right is the essence of the doctrine of apparent authority finding that such a duty existed would undermine the whole doctrine.