WHEN DOES A PERSON HAVE AUTHORITY TO ENTER INTO A CONTRACT ON BEHALF OF A COMPANY?
In B High House International Pte Ltd v MCDP Phoenix Services Pte Ltd [2023] SGHC 12, a key issue before the High Court was when a person can be said to have actual or apparent authority to enter into a contract on behalf of a company.
Background to the dispute. By a Payment Processing Agreement dated 15 August 2019, B High House International Pte Ltd (‘BHH’) and a Mr Berger agreed that, among other things, Mr Berger was to procure a company to process online payments from customers for and on behalf of BHH.
Subsequently, and supposedly in accordance with the Payment Processing Agreement, Mr Berger engaged MCDP Phoenix Services Pte Ltd (‘MCDP’) as the processing entity under the Payment Processing Agreement.
The dispute. According to BHH, from 12 September 2019, MCDP began making late and deficient payments in respect of two accounts, which amounted to at least €821,534.46 as of 10 January 2020.
The parties attempted to resolve these issues but did not manage to do so. And on 4 February 2020, BHH ceased all payment processing through MCDP.
BHH’s case. In its amended Statement of Claim, BHH pleaded that the total outstanding sum owed to it by MCDP was US$2,680.535.21, which comprised of the sums due to it in respect of the two accounts, as well as a further sum of US$944,585.52 in respect of a third account.
Further, BHH claimed that it had been defrauded by the director of MCDP, who utilised MCDP as a vehicle to defraud and dishonestly misappropriate or divert monies belonging to BHH.
BHH argued that while the funds had been transferred to MCDP, instead of transferring the funds on to BHH, MCDP had “squirreled them away”.
And a key component of BHH’s case was that it had entered into the Payment Processing Agreement with the MCDP. Flowing from this, MCDP was said to owe BHH a duty to transfer payments received on a timely basis, and to render a true and complete account of all funds payable to BHH (including outstanding unpaid sums). BHH claimed, among other things, that in failing to pay over the outstanding sum of US$2,680,535.21, MCDP had acted in breach of its contractual duties under the Payment Processing Agreement.
MCDP’s defence. MCDP contended that BHH’s claim should have been properly brought against Mr Berger and not MCDP, as MCDP was never a party to the Payment Processing Agreement and did not owe BHH any contractual duties, therefore it could not be said to have breached any such duties.
MCDP’s position was that BHH had contracted with Mr Berger, and that Mr Berger had in turn made use of services from other entities – including MCDP – so as to fulfil his contractual obligations to process the payments.
Who were the contracting Parties? In its reply, BHH argued that Mr Berger had actual authority, or alternatively, apparent authority, to act on behalf of MCDP and as its representative in agreeing to offer payment processing services to BHH.
Alternatively, BHH argued that MCDP had ratified the Payment Processing Agreement negotiated and entered into by Mr Berger and was to be estopped from denying that it is bound by the said agreement.
So, the issue of who were the contracting Parties became relevant and material.
High Court’s decision as to actual authority. Chionh J noted that in this matter, BHH was not alleging that Mr Berger had express actual authority to act on behalf of MCDP, but instead had implied actual authority, to be inferred from the conduct of the parties and the circumstances of the case (at [139]).
Chionh J considered that the “cornerstone of actual authority, whether express or implied, is a consensual agreement between the principal and the agent as to the existence of the latter’s authority and the scope of that authority” (at [181]).
BHH’s evidence for actual authority. BHH cited four pieces of evidence which, according to them, proved actual authority on Mr Berger’s part to enter into the Payment Processing Agreement on MCDO’s behalf:
Mr Berger’s assistant had provided Mr Berger with an email update on MCDP’s cost of providing the payment processing services on the same day that the Payment Processing Agreement was entered into with BHH;
After Mr Berger successfully negotiated the Payment Processing Agreement with BHH, MCDP’s director had supplied Mr Berger with a draft Merchant Services Agreement, which Mr Berger then forwarded to BHH;
Mr Berger was paid commissions by MCDP in relation to the processing of BHH’s funds; and
The fees that the MCDP charged in relation to the processing of the Plaintiff’s funds were the same as those agreed in the Payment Processing Agreement that the Plaintiff entered into after negotiations with Mr Berger.
1st piece. The gist of BHH’s case on the 1st piece of evidence was that it showed that Mr Berger was taking reference from, and conveying, the payment processing costs imposed by MCDP and the “parameters of the payment processing solution” that MCDP would provide when negotiating with BHH.
However, the figures which Mr Berger quoted to BHH were higher than the figures which Mr Berger’s assistant had provided to him.
Chionh J found that BHH’s argument was without merit (at [179]), as Mr Berger’s email did not even allude to his “taking reference from” or “conveying” MCDP’s payment processing costs and/or the parameters of another party’s payment processing solution.
Further, Chionh J noted that if Mr Berger had indeed been acting as MCDP’s agent, one would not have expected him to make upward adjustments to the figures provided to BHH.
2nd piece. As to the second piece of evidence, the entity named in the draft Merchant Service Agreement was “Kings Road Capital”, rather than MCDP.
Chionh J found that all that the evidence pointed to was that MCDP’s director had some sort of connection to Kings Road Capital, and not that Kings Road Capital was in any way related to MCDP (at [186]).
Further, Chionh J found that BHH could not explain why, if MCDP had indeed authorised Mr Berger to contract on its behalf, Kings Road Capital should have been stipulated in the draft Merchant Services Agreement as the contracting party.
3rd and 4th pieces. As to the third and fourth pieces of evidence, BHH submitted that Mr Berger being paid commissions was consistent with Mr Berger acting as BHH’s agent.
Chionh J found that the fact that Mr Berger was paid a commission did not in any way imply that he had actual authority to contract on MCDP’s behalf (at [191]).
Instead, Chionh J held that the following facts militated against the inference or the implication that Mr Berger had implied actual authority to contract on MCDP’s behalf as it was Mr Berger who was calling the shots (at [192]):
(a) Mr Berger was the one who had devised a fee structure;
(b) Mr Berger marked up the fees to be charged to BHH so as to create a commission structure;
(c) Mr Berger determined what MCDP’s cut of the fees would be, with the remainder being his own share; and
(d) MCDP accepted Mr Berger’s fee structure so long as it appeared financially viable.
Therefore, Chionh J held that BHH was unable to show implied actual authority on Mr Berger’s part.
High Court’s decision as to apparent authority. As for apparent authority, BHH pleaded that MDCP had represented that Mr Berger had apparent authority to act as MCDP’s representative, and that MCDP made this representation by providing payment processing services to BHH in accordance with the Payment Processing Agreement, and by MCDP’s participation in group text-message discussions between BHH, MCDP and Mr Berger relating to the performance of the terms of the Payment Processing Agreement (at [197]).
However, Chionh J held that BHH could not rely on this representation to establish that Mr Berger had apparent authority from MCDP.
This is because MCDP’s alleged conduct occurred subsequent to the conclusion of the Payment Processing Agreement, whereas one of the key factors to prove apparent authority is that the claimant was induced by a representation to enter into the contract.
In this case, BHH could not produce any evidence whatsoever of any representation from MCDP that Mr Berger had authority to conclude the Payment Processing Agreement on its behalf; much less that BHH was induced by such a representation from MCDP to enter into the contract (at [198]).
Therefore, Chionh J rejected BHH’s case on apparent authority (at [202]), and dismissed BHH’s claim.
Conclusion. When entering into a contract with a company, it is crucial to ensure that the person that you are dealing with has the authority to enter into contracts on behalf of the said company.
For instance, this may be done by ensuring that the person signing a contract does so in his capacity as the CEO or director of the said company (and that you have verified the person’s identity as a director via, e.g., a BizFile search), or there is a document produced (such as, e.g., an agency agreement entered into with the company and verified by the company) confirming that the person has been duly authorised to enter into contracts on behalf of the company.
B High House International Pte Ltd v MCDP Phoenix Services Pte Ltd [2023] SGHC 12 is a stark reminder that if you do not verify this, and it turns out that the person you are dealing with does not have authority to enter into the contract on behalf of the company, you may be faced with a situation where you cannot sue the company for recourse if the contract breaks down due a to a lack of contractual relationship with the company.
This publication is not intended to be, nor should it be taken as, legal advice; it is not a substitute for specific legal advice for specific circumstances. You should not take, nor refrain from taking, actions based on this publication. Chancery Law Corporation is not responsible for, and does not accept any responsibility for, any loss or damage that may arise from any reliance based on this publication.