United Kingdom House of Lords Decisions

Parliamentary Archives,
HL/PO/JU/18/246

Armagas Limited (Appellants)

v.
Mundogas S.A. (Respondents)

JUDGMENT

Die Jovis 22° Maii 1986

Upon Report from the Appellate Committee to whom was
referred the Cause Armagas Limited against Mundogas S.A.,
That the Committee had heard Counsel on Monday the 14th,
Tuesday the 15th, Wednesday the 16th, Thursday the 17th and
Monday the 21st days of April last upon the Petition and
Appeal of Armagas Limited of 80 Broad Street, Monrovia,
Liberia, praying that the matter of the Order set forth in
the Schedule thereto, namely an Order of Her Majesty's Court
of Appeal of 18th October 1984, might be reviewed before Her
Majesty the Queen in Her Court of Parliament and that the
said Order might be reversed, varied or altered or that the
Petitioners might have such other relief in the premises as
to Her Majesty the Queen in Her Court of Parliament might
seem meet; as upon the case of Mundogas S.A. lodged in answer
to the said appeal; and due consideration had this day of
what was offered on either side in this Cause:

It is Ordered and Adjudged, by the Lords Spiritual and
Temporal in the Court of Parliament of Her Majesty the Queen
assembled, That the said Order of Her Majesty's Court of
Appeal (Civil Division) of 18th October 1984 complained of in
the said Appeal be, and the same is hereby, Affirmed and that
the said Petition and Appeal be, and the same is hereby,
dismissed this House: And it is further Ordered, That the
Appellants do pay or cause to be paid to the said Respondents
the Costs incurred by them in respect of the said Appeal, the
amount thereof to be certified by the Clerk of the
Parliaments if not agreed between the parties.

Cler: Parliamentor

Judgment: 22.5.86

HOUSE OF LORDS

ARMAGAS LIMITED
(APPELLANTS)

v.

MUNDOGAS S.A.
(RESPONDENTS)

Lord Keith of Kinkel
Lord Brandon of Oakbrook
Lord Templeman
Lord Griffiths
Lord Oliver of Aylmerton

LORD KEITH OF KINKEL

My Lords,

The respondents ("Mundogas") are a Panamanian corporation
having as its shareholders three very substantial and important
commercial groups in different countries. Their business activities
comprise trading in liquid petroleum gas (L.P.G.) and chemicals,
shipowning and the chartering of ships. In 1979 the International
Gas Corporation of Oslo were owners of an L.P.G. carrying ship,
the M.T. Havfrost, later renamed Ocean Frost ("the vessel"). On
24 October 1979 they let the vessel on time charter to Mundogas
for a period of 12 months. The charter party contained an option
for Mundogas to purchase the vessel for delivery at the end of the
charterparty period at the price of U.S.$5,200,000, the option to
be exercised at the latest on 6 June 1980. A formal contract of
sale, also dated 24 October 1979, was drawn up and signed on
behalf of International Gas and of Mundogas. A Danish firm of
shipbrokers called World Marine Chartering A.S., one of the
partners in which was a Mr. Jon Tony Johannesen, acted as agents
in connection with this transaction. The signatory on behalf of
Mundogas was Mr. Harald Magelssen, their vice-president
(transportation) and chartering manager.

Early in 1980 it appeared to Mundogas that there were
prospects of selling the vessel at a profit over the option price,
and negotiations were initiated with a number of parties, but
nothing came of these. In May 1980 Mr. Johannesen interested
the principals of a Danish shipowning concern called the Armada
group in a possible purchase. These principals were Mr. Torben
Gunnar Jensen and Mr. Jorgen Poulsen Dannesboe. These
gentlemen informed Mr. Johannesen that they would not be
prepared to purchase the vessel unless at the same time Mundogas
agreed to charter it back for a period of three years at an
appropriate rate of hire. What happened next, according to the
findings of fact arrived at by the Court of Appeal [1985] 3 W.L.R.
640; 1 Lloyd's Rep. 1, which differed in certain respects from
those of the trial judge, Staughton J., [1985] 1 Lloyd's Rep. 1 but



are not challenged by the appellants, was that Mr. Johannesen and
Mr. Magelssen entered into a fraudulent conspiracy to bring a
spurious three year charterparty into existence and to deceive Mr.
Jensen and Mr. Dannesboe into believing that the charter was
genuine, so as to induce them to agree to the purchase of the
vessel. Mr. Magelssen had authority from Mundogas to agree to a
straightforward sale of the vessel. He had no authority to agree
to a three year charter back of the vessel, and was well aware
that it would be impossible for him to obtain such authority. Mr.
Johannesen arranged with Mr. Jensen and Mr. Dannesboe that the
transaction was to be with a company to be incorporated by the
latter in which Mr. Johannesen's firm, World Marine, was to have
a 49 per cent. interest. Mr. Johannesen offered Mr. Magelssen "a
piece of the ship," and later transferred to him a one third share
in World Marine's interest. In pursuance of the conspiracy Mr.
Johannesen falsely represented to Mr. Jensen and Mr. Dannesboe
that Mr. Magelssen had actual authority to agree not only to the
sale of the vessel but also to its charter back by Mundogas for
three years. They were told that he had no general authority
from Mundogas to enter into such a transaction, but that he had
sought and obtained specific authority for it. The transaction was
not one which Mr. Jensen and Mr. Dannesboe believed to be within
the usual authority of an employee in Mr. Magelssen's position.

In the result, a contract of sale was entered into dated 30
May 1980 under which Mundogas agreed to sell the vessel to a
company to be named by the Armada group for the sum of
U.S.$5,750,000. Delivery was to take place not earlier than 1
February and not later than 15 March 1981, in order to allow for
the expiry of Mundogas's current charter with International Gas.
The contract was signed by Mr. Johannesen on behalf of Mundogas,
he having obtained telex authority to do so, and by Mr. Dannesboe
on behalf of the purchaser. Shortly afterwards the appellant
company Armagas Ltd. was incorporated by the Armada group and
nominated as purchaser of the vessel. On 19 June 1980, in
Copenhagen, Mr. Magelssen signed, purportedly on behalf of
Mundogas, a charterparty dated 30 May 1980 whereby Armagas
agreed to let the vessel to Mundogas for a period of 36 months,
with delivery not before 1 February 1981, the rate of hire to be
"as agreed." The charterparty was signed by Mr. Dannesboe on
behalf of Armagas. At the same time Mr. Magelssen and Mr.
Dannesboe signed an addendum to the charterparty agreeing that
the rate of hire was to be a minimum of U.5.$350,000 per month
and that the owners were to have an option exerciseable not later
than 10 January 1981 of cancelling the charterparty. The reason
for the option to cancel was that it had been agreed orally
between Mr. Jensen and Mr. Johannesen that if Armagas could find
a buyer for the vessel at $6.5 million or more, on or before 10
January 1981, the vessel would be sold, the charterparty cancelled
and the profit divided equally between the Armada group, World
Marine and Mundogas. It was further agreed that the three year
charterparty was to be kept strictly private and confidential, not
only in the ordinary sense, i.e. that outsiders were not to be
allowed to learn of its terms, but also to the extent that its
existence was to be kept a secret from the chartering and
operations department of Mundogas.

At this time a rate of hire of $350,000 per month was a
reasonable one having regard to the state of the market. Mr.



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Magelssen and Mr. Johannesen believed, mistakenly as it turned
out, that the market would continue to be buoyant, and that they
would be able to arrange with Mundogas a series of 12 month
charters covering the period of the spurious three year charter
party at monthly rates of hire not less than $350,000. This was
essential to the success of their scheme. So in November 1980
they drew up a 12 month charter by Armagas to Mundogas at the
monthly rate of $365,000 commencing when the vessel passed to
Armagas early in 1981. This document, dated 28 November 1980,
was signed by Mr. Johannesen on behalf of Mundogas, and he
asked Mr. Jensen to sign it on behalf of Armagas, representing
that it was required for the internal purposes of Mundogas. Mr.
Jensen was willing to do so only if at the same time an addendum
was made to the three year charter party reducing its period to
two years, and produced the text of such an addendum. There
followed a period when Mundogas was pressing Mr. Johannesen to
obtain the signature of Armagas to the 12 month charter and Mr.
Jensen was pressing him to obtain Mundogas' signature to the
addendum. Neither was in the event ever signed. In April 1981
the vessel completed her service under the charter by International
Gas, and became the property of Armagas. She remained however
in the service of Mundogas, as the latter believed, under the
twelve month charter, and as Armagas believed, under the three
year charterparty. The managers and master of the vessel were
each provided with a copy of the 12 month charter unsigned by
Armagas, Mr. Jensen and Mr. Dannesboe having been persuaded by
Mr. Johannesen to do this on the ground that the three year
charter had to be kept secret.

The fraudulent scheme blew up in April 1982. The freight
market had fallen to such an extent that a rate of $350,000 per
month was out of the question. There was no possibility of Mr.
Johannssen being able to keep the ball in the air by negotiating
with Mundogas a rate of at least that amount for the following 12
months. Furthermore, by this time Mr. Magelssen had left the
employment of Mundogas. On 2 March Mundogas gave Mr.
Johannssen notice of redelivery of the vessel on 2 April 1982, and
on 8 April they tendered redelivery to Armagas. The latter
refused to accept it, founding on the spurious three year
charterparty. Mundogas disclaimed all knowledge of that

charterparty, and asserted that they were redelivering in terms of
the 12 month charter.

My Lords, the foregoing represents the minimum statement
of the facts of the case necessary to enable the legal issues which
arise to be examined. The judgment of Robert Goff L.J. in the
Court of Appeal [1985] 1 Lloyd's Rep. 1, 49-64 contains a most
impressive analysis of all the material evidence leading to detailed
findings of facts to which reference may be made.

In June 1982 Armagas commenced proceedings against
Mundogas claiming damages for breach of the three year charter
partys, by wrongfully repudiating it. It was alleged that Mr.
Magelssen had actual authority to bind Mundogas to that
charterparty. In the course of the trial before Staughton J., and
in the light of the way in which the evidence was developing,
Armagas amended its pleadings so as to claim alternatively
damages in tort for Mr. Magelssen's deceit in falsely representing
that he had authority to enter into the three year charterparty,



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Mundogas being alleged to be vicariously liable for that deceit.
Mundogas contended that if it was bound by the three year charter
it was entitled to bring the contract to an end by reason of
alleged bribery of Mr. Magelssen by Armagas, and counter-claimed
for damages. The basis of this claim was the offer by Mr.
Johanssen to Mr. Magelssen of "a piece of the ship", to which Mr.
Jensen and Mr. Dannesboe were said to be party. Staughton J.
held that Mr. Magelssen had no actual or ostensible authority from
Mundogas to conclude the charterparty, but he went on to hold
that he had ostensible authority from Mundogas to communicate
the latter's approval of his concluding it, and he therefore found
that Mundogas were bound by the charterparty and liable in
damages for breach of it. In case, however, that decision might
be wrong, Staughton J. went on to consider the issue of Mundogas'
vicarious liability for Mr. Magelssen's deceit, and to decide that
issue against Armagas. On the issue of bribery, he decided against
Mundogas.

The Court of Appeal (Stephenson, Dunn and Robert Goff
L.3J.) [1985] 1 W.L.R. 640 reversed the decision of Staughton J. on
liability for breach of contract and agreed with him that Mundogas
was not vicariously liable for Mr. Magelssen's deceit. Opinions in
favour of Mundogas were expressed upon the bribery issue.
Armagas now appeal, with leave, to this House.

Upon the issue of Mr. Magelssen's authority to conclude the
three year charterparty on behalf of Mundogas, counsel for
Armagas accepted that he did not have actual or ostensible
general authority to enter into contracts of such an onerous
character, but argued that he had ostensible specific authority to
enter into this particular contract. Ostensible authority comes
about where the principal, by words or conduct, has represented
that the agent has the requisite actual authority, and the party
dealing with the agent has entered into a contract with him in
reliance on that representation. The principle in these

circumstances is estoppel from denying that actual authority
existed. In the commonly encountered case, the ostensible
authority is general in character, arising when the principal has
placed the agent in a position which in the outside world is
generally regarded as carrying authority to enter into transactions
of the kind in question. Ostensible general authority may also
arise where the agent has had a course of dealing with a
particular contractor and the principal has acquiesced in this
course of dealing and honoured transactions arising out of it.
Ostensible general authority can, however, never arise where the
contractor knows that the agent's authority is limited so as to
exclude entering into transactions of the type in question, and so
cannot have relied on any contrary representation by the principal:
Russo-Chinese Bank v. Li Yau Sam [1910] AC 174.




It is possible to envisage circumstances which might give
rise to a case of ostensible specific authority to enter into a
particular transaction, but such cases must be very rare and
unusual. Ex hypothesi the contractor knows that the agent has no
general authority to enter into the transaction, as was the position
here. The principal might conceivably inform the contractor that,
in relation to a transaction which to the contractor's knowledge
required the specific approval of the principal, he could rely on
the agent to enter into the transaction only if such approval had



been given. In such a situation, if the agent entered into the
transaction without approval, the principal might be estopped from
denying that it had been given. But it is very difficult to
envisage circumstances in which the estoppel could arise from
conduct only in relation to a one-off transaction such as this one
was. That, however, was the case which Armagas sought to make
out, and which the trial judge accepted as having been made out.
The way he put it was that although Mr. Magelssen did not have
ostensible authority to conclude the three year charterparty, yet
he did have ostensible authority to notify to Mr. Jensen and Mr.
Dannesboe approval by Mundogas of the transaction. He took the
view that by appointing Mr. Magelssen to be vice-president
(transportation) and chartering manager Mundogas represented that
he had authority to convey such approval. This conclusion appears
to have originated in an idea which the judge himself had in the
course of the trial. Armagas had not pleaded any such
representation nor reliance on it by Mr. Jensen and Mr. Dannesboe,
and naturally there had been no evidence by the latter that they
did rely on it. The truth clearly was that they relied on the
knowingly false representation made by Mr. Johannesen, in
implementation of his fraudulent conspiracy with Mr. Magelssen,
that the latter had obtained specific authority from Mundogas.
Mr. Magelssen purported to conclude the charterparty in
Copenhagen on 19 June 1980, and may thus be taken to have made
a direct representation of his own that he was empowered to do
so. But no representation by Mr. Magelssen can help Armagas.
They must be in a position to found upon some relevant
representation by the responsible management of Mundogas as to
Mr. Magelssen's authority: Freeman & Lockyer v. Buckhurst Park
Properties (Mangal) Ltd. [1964] 2 Q.B. 480, 505 per Diplock L.J.
Counsel for Armagas sought to find such a representation in the
appointment of Mr. Magelssen as vice-president (transportation) and
chartering manager, the circumstance that he had some general
authority to enter into charterparties and that on two previous
occasions he had entered into charterparties, with the specific
approval of Mundogas conveyed by him, which were beyond his
ostensible general authority, and the fact that it would have been
unreasonable to expect Armagas to obtain direct confirmation from
Mundogas of its approval, particularly in view of the shortness of
time. But the nature of Mr. Magelssen's appointment was known
not to carry general authority to conclude a charterparty such as
this one, the two previous transactions referred to, though known
to Mr. Johannesen the fellow conspirator, were not known to Mr.
Jensen or Mr. Dannesboe, and the difficulty of obtaining
confirmation from Mundogas is irrelevant.

In support of the view taken by the trial judge, reliance was
placed upon Berryere v. Fireman's Fund Insurance Co. (1965) 51
D.L.R. (2d) 603, a decision of the Manitoba Court of Appeal. The
facts were that one Kariotis applied to an insurance agent for
automobile insurance, and was told that because of a previous
accident the application would have to be approved by the
defendant insurance company. Kariotis later asked the agent
whether the application had been approved. The agent wrongly
told him that it had been and issued him with the equivalent of a
temporary cover note. Shortly afterwards, and before the
defendants had reached a decision on whether to approve the
application, Kariotis was responsible for a driving accident
resulting in injury to the plaintiff, who obtained judgment for



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damages against him. The plaintiff then sued the defendants under
legislation providing that the proceeds of a policy of motor
insurance should be applied in payment of a judgment for damages
obtained against the insured. The question was whether the agent
had bound the defendant insurance company to the policy. The
trial judge answered this question in the affirmative, and the
Court of Appeal by a majority affirmed his decision. Schultz J.A.,
with the concurrence of Monnin J.A., held that the agent, having
been provided with a supply of cover notes and given wide powers
to bind the company by issuing them, had been clothed with
indicia of authority which impliedly included authority to convey to
Kariotis the result of the reference to the company of his
application. He distinguished Russo-Chinese Bank v. Li Yau Sam
[1910] AC 174 on the ground that there the fraudulent employee
was never held out as having any authority beyond the limited one
he was known to the plaintiff to have. Guy J.A. dissented upon
the ground that Kariotis knew of the limitations upon the agent's
authority to enter into a policy of insurance with him and that the
cover note which the agent issued was neither itself a policy of
insurance nor any guarantee that insurance was in force.
Berryere's case was referred to in two other Canadian decisions,
Jensen v. South Trail Mobile Ltd. (1972) 28 D.L.R. (3d) 233, in the
Alberta Supreme Court Appellate Division, and Cypress Disposal
Ltd, v. Inland Kenworth Sales (Nanaimo) Ltd. (1975) 54 D.L.R. (3d)
598, in the British Columbia Court of Appeal. Both of these were
majority decisions. In the first of them the dissenting judge
applied Berryere's case, but the two majority judges did not. In
the second the majority distinguished Berryere's case as decided on
its own particular facts, while the dissenting judge would have
followed it and distinguished the Cypress Disposal case. It may
well be that Berryere's case was rightly decided on its facts,
having regard to the wide powers ostensibly given to the agent to
bind the insurance company, although there is much force in the
dissenting judgment of Guy J.A. But however that may be I do
not regard the case as authority for the general proposition that
ostensible authority of an agent to communicate agreement by his
principal to a particular transaction is conceptually different from
ostensible authority to enter into that particular transaction.
Robert Goff L.J. said of the learned trial judge's view in this case
[1985] 3 W.L.R. 640, 651-652:

". . . the effect of the judge's conclusion was that, although
Mr. Magelssen did not have ostensible authority to enter
into the contract, he did have ostensible authority to tell
Mr. Jensen and Mr. Dannesboe that he had obtained actual
authority to do so. This is, on its face, a most surprising
conclusion. It results in an extraordinary distinction
between (1) a case where an agent, having no ostensible
authority to enter into the relevant contract, wrongly
asserts that he is invested with actual authority to do so, in
which event the principal is not bound; and (2) a case
where an agent, having no ostensible authority, wrongly
asserts after negotiations that he has gone back to his
principal and obtained actual authority, in which event the
principal is bound. As a matter of common sense, this is
most unlikely to be the law."

I respectfully agree. It must be a most unusual and peculiar case
where an agent who is known to have no general authority to

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enter into transactions of a certain type can by reason of
circumstances created by the principal reasonably be believed to
have specific authority to enter into a particular transaction of
that type. The facts of the present case fall far short of
establishing such a situation. I conclude that the Court of Appeal
rightly rejected the claim based on ostensible authority.

The next matter for consideration is the claim on the
ground of vicarious liability on the part of Mundogas for Mr.
Magelssen's deceit. The broad proposition of law founded upon is
that an employer is vicariously liable for the torts of his employee
committed in the course of his employment. "Course of
employment" is a concept which has engendered much disputation
and spawned a plethora of reported decisions. The starting point
should be to consider the fundamental principles which govern
vicarious liability in the field of intentional wrongdoing by the
servant, particularly by way of dishonest conduct. It is
unnecessary to consider the development of the basis of vicarious
liability in relation to torts such as negligence or trespass, which
has followed a somewhat different line. Dishonest conduct is of a
different character from blundering attempts to promote the
employer's business interests, involving negligent ways of carrying
out the employee's work or excessive zeal and errors of judgment
in the performance of it. Dishonest conduct perpetrated with no
intention of benefiting the employer but solely with that of
procuring a personal gain or advantage to the employee is
governed, in the field of vicarious liability, by a set of principles
and a line of authority of peculiar application. The genesis of
these principles is to be found in the statement of Holt C.J. in
Hern v. Nichols (1700) 1 Salk 289: "Seeing somebody must be a
loser, by this deceit, it is more reason that he that employs and
puts a trust and confidence in the deceiver should be a loser than
a stranger." In Lickbarrow v. Mason (1787) 2 Term Rep. 63, 70,
Ashhurst J. spoke to similar effect: "That, whenever one of two
innocent persons must suffer by the acts of a third, he who has
enabled such third person to occasion the loss must sustain it."
These broad statements do, however, fall to be confined within the
limits that justice truly requires. In Farquarson Brothers. & Co. v.
C. King & Co. [1902] AC 325, 342 Lord Lindley observed that
the doctrine enunciated by Ashhurst J. was far too wide. "So far
as I know, the doctrine has never been judicially applied where
nothing has been done by one of the innocent parties which has in
fact misled the other." That was a case where the issue was
estoppel by ostensible authority, a fraudulent clerk in the
employment of the plaintiffs having procured a purported sale of
their timber to the defendants, the value of which the plaintiffs
sought to recover. But the question of ostensible authority in. the
contractual field is closely intertwined with that of vicarious
liability for the fraud of a servant. Then in Slingsby v. District
Bank Ltd. [1932] 1 K.B. 544, 560, Scrutton L.J., under reference to
the passage quoted from Lord Lindley, explained "enabling" in the
dictum of Ashhurst J. as meaning that the employer has in some
way held out or represented the servant as having authority to do
the acts complained of. It is well settled that a master is not
liable for the dishonest tort of his servant merely because the
latter's employment has given him the opportunity to commit it:
Morris v. C. W. Martin & Sons Ltd. [1966] 1 Q.B. 716 per Diplock
L.J. at 737.

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The leading case in this field is Lloyd v. Grace, Smith &
Co. [1912] AC 716, the facts of which are too well known to
require recapitulation. The proposition established by that case is
epitomized in the speech of Earl Loreburn at p. 725:

"If the agent commits the fraud purporting to act in the

course of business such as he was authorised, or held out as

authorised, to transact on account of his principal, then the
latter may be held liable for it.

Lord Shaw of Dunfermline said at pp. 739-740:

"The case is in one respect the not infrequent one of a
situation in which each of two parties has been betrayed or
injured by the fraudulent conduct of a third. I look upon it
as a familiar doctrine as well as a safe general rule, and
one making for security instead of uncertainty and insecurity
in mercantile dealings, that the loss occasioned by the fault
of a third person in such circumstances ought to fail upon
the one of the two parties who clothed that third person as
agent with the authority by which he was enabled to
commit the fraud."

Later he equiparates ostensible authority with actual authority.
The principal importance of the case lies in its having dispelled
misunderstanding of certain observations by Willes J. in Barwick v.
English Joint Stock Bank (1867) L.R. 2 Ex. 259, and having
established that it is not necessary to a master's liability for the
fraud of his servant that the fraud should have been committed
for the master's benefit. It was argued for Armagas that in Lloyd
v. Grace, Smith & Co. the fraudulent clerk was not acting within
the scope of his actual or ostensible authority but was acting in
the course of his employment, and that it was the latter which
made the employer liable. In the present case, so it was
maintained, Mr. Magelssen was acting in the course of his
employment though not within the scope of his actual or ostensible
authority, so Mundogas was liable. In my opinion the attempted
distinction has no validity in this category of case. Lord
Macnaghten, in Lloyd v. Grace, Smith & Co. [1912] AC 716, 736,
regarded the two expressions as meaning one and the same thing.
The essential feature for creating liability in the employer is that
the party contracting with the fraudulent servant should have
altered his position to his detriment in reliance on the belief that
the servant's activities were within his authority, or, to put it
another way, were part of his job, this belief having been induced
by the master's representations by way of words or conduct. In
Uxbridge Permanent Benefit Building Society v. Pickard [1939] 2
K.B. 248, 254-255, Sir Wilfrid Greene M.R., rejecting the argument
that the actings of the fraudulent solicitors' clerk who had induced
the building society to advance money to a non-existent client,
were analogous to "a frolic of his own" said:

"With all respect to that argument, I cannot accept it. It
appears to me to be drawing an analogy where no analogy
exists, because in the case of the servant who goes off on a
frolic of his own, no question arises of any actual or
ostensible authority upon the faith of which some third
person is going to change his position. The very essence of
the present case is that the actual authority and the



- 8 -

ostensible authority to Conway were of a kind which, in the
ordinary course of an everyday transaction, were going to
lead third persons, on the faith of them, to change their
position, just as a purchaser from an apparent client or a
mortgagee lending money to a client is going to change his
position by being brought into contact with that client.
That is within the actual and ostensible authority of the
clerk."

In further pursuance of the argument, reliance was placed on a
dictum of Denning L.J. in Navarro v. Moregrand Ltd. (1951) 2
T.L.R. 674, 680 a case where a house agent had obtained an
illegal premium from a tenant and the landlord was found liable
for its repayment, who after referring to Lloyd v. Grace, Smith &
Co. and the Uxbridge case, as authority for the view that a
servant acting within his actual or ostensible authority was acting
in the course of his employment, continued:

"But the judge inferred from those cases the converse
proposition - namely, that if a servant or agent is not
acting within his actual or ostensible authority, then he is
not acting in the course of his employment. I do not think
that that is correct: it is a confusion between the
responsibility of a principal in contract and his responsibility
in tort. He is only responsible in contract for things done
within the actual or ostensible authority of the agent; but
he is responsible in tort for all wrongs done by the servant
or agent in the course of his employment, whether within
his actual or ostensible authority or not. The presence of
actual or ostensible authority is decisive to show that his
conduct is within the course of his employment, but the
absence of it is not decisive the other way."

This dictum, which was not concurred in by the other two
members of the Court of Appeal, may have some validity in
relation to torts other than those concerned with fraudulent
misrepresentation, but in my opinion it has no application to torts
of the latter kind, where the essence of the employer's liability is
reliance by the injured party on actual or ostensible authority.

Reference was also made to an observation of Lord Oaksey,
delivering the advice of the Judicial Committee of the Privy
Council in United Africa Co. v. Saka Owoade [1955] AC 130, 144,
a case where the defendants were held liable to the plaintiffs for
the conversion of their goods by the defendants' servants, to whom
the goods had been entrusted for carriage. He said:

"There is in their Lordships' opinion no difference in the
liability of a master for wrongs whether for fraud or any
other wrong committed by a servant in the course of his
employment. It is a question of fact in each case whether
the wrong was committed in the course of the servant's
employment ..."

This observation appears unexceptionable so far as it goes, but it
was not uttered in the context of a consideration of the basis of
liability for a servant's fraudulent misrepresentation and does not,
in my opinion, provide any assistance in elucidating that basis.

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Many other cases were cited, but none of them, in my view,
provides any further certain guidance. In the end of the day the
question is whether the circumstances under which a servant has
made the fraudulent misrepresentation which has caused loss to an
innocent party contracting with him are such as to make it just
for the employer to bear the loss. Such circumstances exist where
the employer by words or conduct has induced the injured party to
believe that the servant was acting in the lawful course of the
employer's business. They do not exist where such belief, although
it is present, has been brought about through misguided reliance on
the servant himself, when the servant is not authorised to do what
he is purporting to do, when what he is purporting to do is not
within the class of acts that an employee in his position is usually
authorised to do, and when the employer has done nothing to
represent that he is authorised to do it. In the present case Mr.
Magelssen was not authorised to enter into the three year
charterparty, to do so was not within the usual authority of an
employee holding his position, and Armagas knew it, and Mundogas
had done nothing to represent that he was authorised to do so. It
was contended for Armagas that concluding the contract for the
sale of the vessel was within Mr. Magelssen's actual authority, and
that inducing the sale by falsely representing that he had authority
to enter into the charterparty amounted to no more than an
improper method of performing what he was employed to do, such
as in other contexts was sufficient to attract vicarious liability.
But the sale of a ship backed by a three year charterparty is a
transaction of a wholly different character from a straightforward
sale, even if the charterparty is not to be regarded as a
transaction separate and distinct from the sale, and Mr. Jensen
and Mr. Dannesboe knew that Mr. Magelssen had no authority to
enter into a transaction of that character on his own
responsibility.

I conclude that the Court of Appeal rightly held that
Mundogas were not vicariously liable in English law for Mr.
Magelssen's deceit. It is, therefore, unnecessary to consider two
other issues upon which opinions were expressed by the trial judge
and by the Court of Appeal, namely the position under the law of
Denmark, where the tort was committed, as regards the vicarious
liability of Mundogas, and the matter of bribery. By reason of the
views which your Lordships formed, in the course of the hearing,
upon the two primary issues, no argument was required to be
advanced upon those subordinate questions.

My Lords, for these reasons I would dismiss the appeal with
costs.

LORD BRANDON OF OAKBROOK

My Lords,

I have had the advantage of reading in draft the speech
prepared by my noble and learned friend, Lord Keith of Kinkel. I
agree with it, and for the reasons which he gives I would dismiss
the appeal.

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LORD TEMPLEMAN

My Lords,

For the reasons given by my noble and learned friend, Lord
Keith of Kinkel, I would dismiss this appeal.

LORD GRIFFITHS

My Lords,

I have had the advantage of reading in draft the speech
prepared by my noble and learned friend, Lord Keith of Kinkel. I
agree with it, and for the reasons which, he gives I would dismiss
the appeal.

LORD OLIVER OF AYLMERTON

My Lords,

I have had the advantage of reading in draft the speech
prepared by my noble and learned friend, Lord Keith of Kinkel. I
agree with it and for the reasons which he gives I too would
dismiss the appeal.

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