The use of agents is very common within the business world. They often prove useful in striking deals in markets were the principle lacks experience, or where they simply do not have the time or resources to address the matter themselves.
Agency does carry risks however; where the agent is inadequately supervised, or where their authority is too broad, the principle can sometimes find itself bound to an undesirable contract. This risk has once again been highlighted in a recent High Court case, involving non-other than the celebrity chief, Gordon Ramsey.
In Ramsay v Love  EWHC 65 (Ch), the principle, Mr Ramsey, sought to avoid a personal guarantee entered into on his behalf by his agent, Mr Hutcheson. Mr Hutcheson had acted as the Chief Executive Officer of Mr Ramsey’s companies, and as agent in personal matters, for more than twenty years.
Mr Ramsey bestowed significant trust and authority on Mr Hutcheson, granting him almost unlimited authority to enter into contracts. Such was the level of trust between Mr Ramsey and Mr Hutcheson that Mr Ramsey did not require Mr Hutcheson to keep him informed of his activities. This trust was built partially out of the fact that Mr Hutcheson was Mr Ramsey’s father-in-law. All of the above (including Mr Ramsey’s and Mr Hutcheson’s familial ties) was public knowledge.
The Fake Signatures…
However, unknown to Mr Ramsey, Mr Hutcheson would often use a signature machine to enter into contracts that required Mr Ramsey’s personal signature. Mr Ramsey argued that he was unaware of this practice and that Mr Hutcheson did not have authority to use the machine.
The personal guarantee in question in this case had been entered into with the use of the signature machine. Mr Ramsey argued that the creditor (Mr Love) could not rely on the guarantee, as using the signature machine to sign the personal guarantee was outside of Mr Hutcheson’s authority, and that in any event, the creditor should be estopped from relying on the guarantee as he had no knowledge of its existence.
The Court’s Decision
Sitting in the Chancery Division of the High Court, Mr Justice Morgan rejected all of Mr Ramsey’s arguments. Morgan J held that considering the wide authority that Mr Ramsey had granted Mr Hutcheson, the duration of the relationship, the fact that they had entered into similar agreements before and the close family ties between principle and agent, Mr Hutcheson was acting within his actual authority when he executed the personal guarantee. The fact that Mr Hutcheson may have done a bad deal and that Mr Ramsey now regretted the personal guarantee did not allow him to avoid it. Consequently Mr Ramsey was bound.
Interestingly, the creditor chose not to advance a secondary argument of ‘apparent authority’. This would have been logical considering the wide authority Mr Ramsey granted Mr Hutcheson (and their family ties) were public knowledge. The creditor chose instead to advance a complicated argument of estoppel by negligence, which the judge noted would have failed in this case.
This case highlights once again the importance of supervising the actions of agents and properly defining their actual authority.
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