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You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> Armagas Ltd v Mundogas (The Ocean Frost) [1985] UKHL 11 (22 May 1985)
URL: http://www.bailii.org/uk/cases/UKHL/1985/11.html
Cite as: [1986] 1 AC 717, (1986) 2 BCC 99197, [1986] 2 All ER 385, [1986] 2 Lloyd's Rep 109, [1985] UKHL 11, [1986] AC 717, [1986] 2 WLR 1063

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JISCBAILII_CASE_TORT

    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.

    - 2 -

    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,

    - 3 -

    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

    - 5 -

    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

    - 6 -

    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] A.C. 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.

    - 7 -

    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.

    - 9 -

    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.

    - 10 -

    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.

    - 11 -


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