In commercial reality, counterparties rarely interact with a board of directors as a collective body. Negotiations are conducted by traders, managers, and brokers, and communications are often recorded through rapid channels such as email or messaging platforms. Consequently, the question “who made the representation on behalf of the company, and was it reasonable to rely on it” frequently becomes decisive both for (i) the existence of a binding contract and (ii) the allocation of risk.
Disputes concerning authority, therefore, operate at the intersection of factual reconstruction and legal doctrine. The tribunal must reconstruct the chain of communications, the role of the individuals involved, and the commercial context, and then apply the legal tests governing authority.
Actual authority: express and implied
Actual authority refers to the internal relationship between principal and agent. It may be express, where authority is directly conferred, or implied, where authority is inferred from conduct and surrounding circumstances. Implied authority may arise from the agent’s role, a consistent course of dealing, repeated conduct acquiesced in by the principal, or post-factum approval of similar acts.
The decision in Hely-Hutchinson v Brayhead illustrates this mechanism: authority may be inferred not from formal documentation but from the principal’s conduct in allowing the agent to act in a particular manner. The implied authority also arises where the agent does things that fall within the usual scope of that office.
Where actual authority is established, the contractual analysis is typically straightforward. If the agent acted within authority, the company is bound, and any further dispute concerns performance or breach.
Apparent authority: representation, reliance, and estoppel
Apparent authority is an external doctrine designed to protect third parties who reasonably rely on a representation of authority. The classic formulation, associated with Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd, provides that a company may be bound even where actual authority is absent, if:
- the principal made a representation that the agent had authority;
- the counterparty relied on that representation; and
- such reliance was reasonable.
A critical limitation was articulated in Armagas v Mundogas (The Ocean Frost): a counterparty cannot establish authority solely on the basis that the agent asserted he was authorised. There must be a holdout by the principal. Self-authorisation by the agent is insufficient.
A frequent commercial scenario arises where an individual lacks authority to conclude a transaction but acts as a conduit, communicating that internal approvals have been obtained.
This creates an important practical distinction:
- authority to perform a legally binding act (sign, accept, conclude); and
- authority to communicate the status of approval or execution.
This distinction becomes particularly relevant where the agent functions as the sole conduit between the parties and the counterparty is objectively compelled to rely on that communication channel.
Ratification and personal liability: warranty of authority
Where an agent acts without authority, the principal may retrospectively validate the act through ratification. If ratification does not occur, English law may impose personal liability on the agent under the doctrine of implied warranty of authority. Theliability may arise even where the authority has terminated without the agent’s knowledge.
In practice, disputes concerning authority are fact-intensive. The tribunal examines:
- the chain of communications;
- the individual’s role and title;
- past practice regarding who signs or confirms transactions;
- subject-to-approval language;
- direct communications from management;
- post-contractual conduct.
The most common error by counterparties is to infer authority solely from negotiation activity: the assumption that a person who negotiated, promised, or confirmed must have had authority.
The mirror error occurs on the principal’s side. Where a company allows an employee to act consistently as the sole contact, transmit decisions, and later confirms those communications, a tribunal may infer implied authority or at least apparent authority to communicate approval. Modern practice also recognises that post-contract communications may inform the assessment of authority and reasonable reliance.
But, to keep a practice-oriented approach, let’s consider the authority issue on two practical examples, which we encountered in our practice.
Case Study
Case 1: Self-representation is not sufficient
It is common practice that international commercial contracts are often negotiated and concluded via brokers, who act as intermediaries between the sellers and the buyers.
In this case, the brokers took the initiative to approach prospective buyers and introduce the possibility of acquiring the goods. During the ensuing negotiations, they represented themselves as authorised representatives of the sellers, despite lacking any actual authority to do so. Notably, there was no prior course of dealing or established commercial relationship between the sellers and the buyers, a factor that further contextualises the parties’ interactions.
Nonetheless, the brokers and the buyers proceeded to negotiate the contractual terms, culminating in the exchange of a business confirmation and a draft agreement. The broker advised the buyers to contact the sellers directly for the formalisation of the contract.
Upon receiving the draft agreement, the sellers proceeded to review it and propose amendments. These revisions were subsequently challenged by the buyers as being inconsistent with the previously exchanged business confirmation. This reaction came as a surprise to the sellers, who had understood the brokers’ role to be limited to presenting a potential transaction for consideration, and not to include any authority to bind them to contractual terms.
To make things worse, at that point, the brokers completely vanished from the discussion and did not provide any comments on the matter.
Facing the increasing market, the buyers stated that they were suffering losses due to the sellers’ failure to perform and claimed them for the same.
However, the buyers’ position is weakened by the following circumstances:
- The buyers relied on the brokers’ self-representation that they were authorised to make a deal on the sellers’ behalf, which is not a sufficient ground for establishing the authority under English Law (Armagas Ltd v Mundogas SA (The Ocean Frost).
- Moreover, in this case, the buyers relied on the brokers’ authority without making preliminary enquiries a reasonable person would have made in the circumstances to verify it, as required according to the principle established in East Asia Co Ltd v Pt Satria Tirtatama Energindo.
It should be mentioned that English Law provides a mechanism which potentially allows for the shift of responsibility for losses caused by the broker’s actions to the brokers themselves.
Thus, according to the judgment in Ireland v Livingstone, if the agent goes beyond the lawful instructions of the principal or assumes the authority not given to him, the principal is generally not bound, and the agent may be held personally liable.
However, the application of this principle depends heavily on the circumstances of the particular case.
Case 2: Employee is not automatically authorised
In the second case, an employee of the seller’s company initiated contact with a representative of the buyers to explore the potential conclusion of a purchase agreement. The buyers expressed general interest and entered into discussions. As this marked the first interaction between the parties, they undertook a mutual KYC process, during which the sellers provided corporate documentation, including a comprehensive list of individuals authorised to represent and bind the company.
While the KYC procedure was ongoing, the parties continued negotiating the draft contract. At a certain stage, the sellers’ employee who had initiated the contact indicated that the draft was “confirmed.” The buyers interpreted this statement as constituting legal acceptance of the agreement and requested a signed version of the contract.
Subsequently, the sellers’ CEO intervened in the correspondence, asserting that no binding agreement had been concluded, as the draft had not been approved by any duly authorised representative of the sellers. In light of rising market conditions, the buyers alleged that the sellers had wrongfully refused to perform the contract and sought reimbursement of the corresponding damages.
However, in this case, it is contentious that the sellers’ employee possessed either actual or apparent authority to represent them and therefore that the contract was legally concluded, because:
- The documents shared during the KYC process clearly provided that the employee lacked actual express authority to legally represent the company.
- The authority to legally represent the company did not fall within the usual scope of the employee’s role. Given this, the employee’s actual implied authority did not clearly arise under the Hely-Hutchinson test.
- The apparent authority is also questionable since the sellers had never made any representation that the employee had the authority to enter into a contract of that kind, as required under the Freeman & Lockyer test.
Conclusion
In recent years, international trade has become faster and less formalised. Negotiations are often conducted not only via email but also through informal channels, such as WhatsApp or other instant messaging services.
This increases the risk that negotiations may be conducted by a company representative who does not have sufficient authority to conclude the discussed transaction. It also leads to situations where a quick interim “confirmation” provided, for example, in correspondence, is mistakenly treated by one of the parties as final.
In light of this, when entering into commercial negotiations, we strongly recommend paying attention not only to the commercial aspects of the proposed deal but also to the legal integrity of the negotiations themselves, in particular, the authority of the individuals involved.
For instance, in the interest of avoiding unnecessary ambiguity, we would recommend at least providing the business confirmations with a “subject to signing” clause, which prevents the premature conclusion of the contracts and helps to avoid an inaccurate perception of the confirmations by your counteragents.
For practitioners, authority disputes are rarely resolved by a single argument. They require a structured analysis of actual authority, apparent authority, approval mechanics, and post-contract conduct, supported by a detailed evidentiary record. A coherent strategy at this intersection of agency law, corporate formalities, and commercial practice can be outcome-determinative. This is especially true in GAFTA and other English law arbitrations, where the question of who had authority, and how that authority was represented, often defines whether a contract exists at all.
