Court Of Appeal Confirms Correct Legal Test For Determining A Principal's Liability For Its Agent's Fraudulent Misrepresentation

The Court of Appeal has confirmed that, where a claimant has suffered loss in reliance on an agent's fraud, the principal will be vicariously liable only if the fraudulent conduct was within the agent's actual or ostensible authority: Winter v Hockley Mint Limited [2018] EWCA Civ 2480.

The court rejected the test applied by the High Court, which was whether it was just and fair for the principal to bear the loss and whether there was a sufficiently close connection between the agent's wrongdoing and the class of acts he was employed to perform. The correct test is the objective one established by the House of Lords in Armagas Ltd v Mundogas SA [1986] AC 717, which requires a holding out or representation by the principal to the claimant that the agent had the necessary authority, including ostensible authority. This is likely to provide greater certainty as to when a principal will be liable for its agent's fraud.

However, whilst the Court of Appeal's decision states that there must be a holding out or representation by the principal, and not merely the agent, the facts which the court thought would (arguably) support a finding of ostensible authority in this case did not involve any direct statement from the principal to the claimant. Instead, they comprised acts such as the provision of an email address and notepaper which might lead the claimant to believe the agent had authority.

Although the Court of Appeal's comments on the factual matters were obiter (as the case is to be remitted to the High...