ING RE (UK) Ltd. v R & V Versicherung Ag

The issues in this case are whether the defendant is bound by a contract signed by an agent supposedly on its behalf, but without authority to do so, on the grounds either that the agent had ostensible authority to do so or, if not, that the defendant ratified the contract. The case concerns an 85% reinsurance treaty which began as follows:

“This agreement is made by Risk Insurance and Reinsurance Solutions, a company duly authorised to bind the reinsurer to indemnify the Reinsured for all losses of whatsoever nature arising under business ceded to their so-called “2002 BLOCK QUOTA SHARE TREATY”…”

Risk Insurance and Reinsurance Solutions (“Risk”) was not a company but a name used by a group of companies. These included an English company, Risk Insurance and Reinsurance Solutions Limited (“Risk London”) and a French company, Risk Insurance and Reinsurance Solutions SA (“Risk Paris”). Risk London was not licensed to underwrite insurance and so the binding of risks was done by Risk Paris. Risk’s operations were under the general control of Mr Jean-Claude Chalhoub, who was the group Chief Executive Officer and based at the Paris office. The treaty was signed by Mr Jean-Noel Yvon, an accident and health underwriter employed by Risk Paris.

The present trial was a sequel to a judgment given on 18 November 2004 by Moore-Bick J after the trial of an action between the present defendant and a number of Risk companies (referred to collectively in the judgment as Risk) [2004] EWHC 2682 (Comm). That trial focused on the relationship between Mr Chalhoub and one of the defendant’s senior underwriters, Mr Daniel Gebauer, relating in particular to two binding authorities, signed in September 2001, under which the defendant authorised Risk Paris to write contracts of reinsurance on its behalf negotiated through the London market. The judge found that there was a dishonest conspiracy between Mr Chalhoub and Mr Gebauer in relation to those two binding authorities. Those binding authorities had nothing to do with the present claimant, but in the final section of his judgment the judge considered the validity of the quota share treaty to which this action relates. He found that Risk had no actual authority to enter into the contract on behalf of the defendant. The claimant was not a party to that action. However, it accepts in the light of that judgment that Risk had no authority to execute the treaty, but it claims that Risk had ostensible authority to do so and that in any event the defendant ratified the contract. The defendant disputes those claims.

The defendant is a large and reputable German reinsurance company. Mr Gebauer joined it in July 2000 as a senior underwriter and head of one of the departments dealing with non-life treaty reinsurance. He was suspended from duty on 29 November 2002 and resigned a week later.

The claimant is an English reinsurance company with offices in London. It is a subsidiary of Relia Star Life Insurance Company, which is based in Minneapolis and has a division called ING Re. The claimant began underwriting in the London market with effect from July 1997. Its managing director and chief underwriter was Mr Jonathan Bowers. He was in charge of the day to day operations of the office. He built up a substantial book of personal accident and health reinsurance business. In 2001 its total earned premium net of reinsurance was in the region of £35 million.

In early 2002 the Minneapolis office made a strategic decision to close down the group’s London operation and the claimant ceased underwriting in March 2002. Initially ING Re hoped that it might be able to find a buyer for its London operation.

Risk London was incorporated in September 2001 and opened its London office in March 2002.

On 9 August 2002 Mr Bowers sent an email to Mr Chalhoub saying that his American colleagues were interested in a straight sale of the claimant and wanted monetary offers. He added that “ING are also interested in a loss portfolio transfer of all risks sometime in 2003 and want to sell the 2002 block as well”. Mr Chalhoub asked for further detailed financial information, which Mr Bowers provided.

On 28 August 2002 Mr Chalhoub called Mr Bowers to say that the defendant was offering to take over the renewal of the claimant’s account for 2003. Mr Chalhoub asked whether Mr Bowers would be interested in coming to work for Risk London in order to manage the account and facilitate the transfer of business. Mr Bowers said that he would think about the offer.

On 5 September 2002 Mr Chalhoub came to London to meet Mr Bowers. The meeting was not at the claimant’s offices but at the office of Mr Chalhoub’s brother. At the meeting Mr Chalhoub gave to Mr Bowers copies of three documents: (1) a letter on the defendant’s paper dated 16 November 2001 addressed “To whom it may concern”, (2) a binding authority headed “Agreement No ING 19H2A#PA” provided by the defendant to Risk and dated 27 August 2002 (“the binder”), and (3) a one page document headed “Memorandum of Authority No ING 19H2A#PA” from the defendant to Risk of the same date (“the Memorandum of Authority”). Mr Bowers did not put these documents on the claimant’s files but kept them at his home. At the meeting Mr Chalhoub urged Mr Bowers to join Risk London in order to look after the book of business that he was hoping would be transferred to the defendant through Risk at renewal.

The “To whom it may concern” letter was signed by Mr Gebauer and read as follows:

“We confirm that Risk Insurance and Reinsurance Solutions has been authorised to accept business on our behalf. This agreement came into effect on 1 October 2001 and will continue until and after 31 December 2004.

We confirm that:

1.

We will guarantee to discharge without deduction set-off or counterclaim all liabilities to your clients arising under any business written on our behalf by Risk Insurance and Reinsurance Solutions and,

2.

Payments of any premium to Risk Insurance and Reinsurance Solutions shall be deemed to constitute payment to us and,

3.

We shall give you at least 90 days prior written notice of any changes in or withdrawal of Risk Insurance and Reinsurance Solutions authority and notwithstanding any such change or cancellation we shall continue to honour all obligations in respect of business accepted or agreements made by Risk Insurance and Reinsurance Solutions on our behalf prior to the effective date of the change or cancellation and,

4.

In no case our liability shall exceed the limits indicated in the relevant underwriting authority.

This Letter of Comfort is subject to the Confidentiality Agreement attached thereto.”

The binder began with the following paragraphs:

“RISK REFERENCE ING 19H2A#PA

ACCEPTANCES

Agreement of the reinsurer to accept from Risk Insurance and Reinsurance Solutions SA (here and after named Risk) reinsurance accounts previously written by ING and offered to the reinsurer at their individual anniversary dates as declared by Risk.

TYPE

All business specifically allocated and falling broadly within the following classes of business: Reinsurance of Accidental Death and Dismemberment including but not limited to Personal Accident, WC, Bodily Injury from occupation or 24/24 hours, Total and Partial Disablement from Accident or Sickness, War, Assistance, Repatriation, Kidnap and Ransom, Travel, Medical Expenses, Lost of License, Loss of Occupation, Credit Cards and/or in accordance with original conditions and/or as declared and ceded herein by Risk.

FORM

This Agreement serves as the entire contract between Risk and the reinsurer as agreed and prepared by Risk and in accordance with the terms herein.

PERIOD

Commencing at 24 hours on date September 1 2002, for an indefinite period of time, except if cancelled 210 days prior to any anniversary date. First anniversary date to read January 2 2004. Each individual account to run to its natural expiry, irrespective of the date of termination of this Agreement. Tacit renewal as original.

INTEREST

Accounts previously underwritten by ING and accepted by Risk on behalf of the reinsurer and/or as original.

LIMIT

USD 750.000 (or currency equivalent) any one person.

There was also a heading “Risk Fees” but they were not shown in the version given by Mr Chalhoub to Mr Bowers. The binder then set out a list of conditions and concluded with provisions about accounts, settlements and claims.

The binder had two signatories, one of whom was Mr Gebauer. Attached to it was a list of reinsurances underwritten by the claimant.

The Memorandum of Authority began with the same Risk reference followed by three paragraphs under the headings Acceptances, Type and Period. The wording of two of those paragraphs was identical to the wording of the equivalent paragraphs in the binder. The wording of the paragraph headed Acceptances differed from the wording of the equivalent paragraph in the binding authority in that it omitted the words “previously written by ING and offered to the reinsurer at their individual anniversary dates”. So in the Memorandum of Authority the paragraph read simply:

“Agreement of the reinsurer to accept from Risk Insurance and Reinsurance Solutions SA (hereinafter named Risk) reinsurance accounts as declared by Risk.”

In early October 2002 Mr Bowers had a meeting with Mr Mike Emerson, the president of ING Re, who was over from Minneapolis for meetings connected with the run off of the claimant. Mr Bowers’s and Mr Emerson’s evidence is that at the meeting Mr Bowers gave Mr Emerson copies of the “To whom it may concern” letter and the Memorandum of Authority, but not the binder. There is a dispute about the veracity of that evidence and what, if anything, was said about the documents.

At the end of October 2002 Mr Bowers left the claimant and went to work for Risk London. Mr Brad Lintern, who had been an underwriting assistant to Mr Bowers, took over the management of the London office and Mr Emerson became the claimant’s managing director.

During the period before Mr Bowers left the claimant he was in regular contact with the Minneapolis office by telephone. Some of his conversations were with Mr Erik Rasmussen, who was then (but is no longer) employed at the head office as a vice president of the parent company. One of Mr Rasmussen’s responsibilities was the management of business in run off, which included the business written by claimant.

Soon after joining Risk London, Mr Bowers on 8 November 2002 emailed to ING Re in Minneapolis a draft slip for a quota share reinsurance of the 2002 account. The slip was passed to Mr Rasmussen, who noted on it various points which needed to be amended or clarified.

On 25 November 2002 Mr Chalhoub’s personal assistant faxed to the claimant a message addressed to Mr Bowers. It read:

“Please find attached a copy of a fax from Mr Gebauer concerning ‘ING Re Personal Accident Book of Business’”.

The attached letter on the defendant’s paper bore the date 19 September 2002 and read as follows:

“Dear Mr Chalhoub

With reference to the agreement in respect of the take-over of the entire book of business of ING Re UK (A&H) and following our conversation in Monte Carlo, this is to formally confirm to you that we are interested in taking over the existing 2002 year of account. You may therefore proceed, negotiate and bind us in respect of the treaties underwritten by ING Re (UK) under the 2002 year of account retroactively from January 1, 2002.

Please keep us informed about the outcome of your negotiations.”

The document was received by Mr Lintern, who concluded that it must have been sent to the claimant’s office in error and have been intended for Mr Bowers at Risk London. So he faxed the message on to Mr Bowers.

It is the claimant’s case that a few days later, during a conference call between Mr Lintern and the Minneapolis team responsible for dealing with the run off of the claimant (including Mr Emerson and Mr Rasmussen), Mr Lintern mentioned that he had received this fax. He was asked to read out the message from the defendant to Risk and then to fax it on to the Minneapolis office, and did as he was asked. This is challenged by the defendant.

In the action between the defendant and Risk, Moore-Bick J found that the letter from Mr Gebauer to Mr Chalhoub was not produced in the ordinary course of business on the date that it bears. It was produced by Mr Gebauer at a later date but backdated for reasons which I need not go into further. (However, it has been referred to for purposes of identification in this trial as “the September fax”.) Moore-Bick J held that Risk was not entitled to rely on it as authority for writing the quota share treaty because the defendant’s procedures required a document of that kind to be signed by two authorised persons, or at least to have the informed approval of Mr Gebauer’s superior in addition to his own signature, and he was satisfied that Mr Chalhoub was aware from his previous dealings with the defendant that such a document had to be signed by two authorised persons. None of that, of course, was known to ING Re personnel (assuming for this purpose that they knew of, and relied on, the September fax).

Mr Noel of Risk Paris signed a quota share treaty slip on 14 January 2003 and the formal treaty wording on 6 March 2003.

The classes of policies covered by the treaty were defined in Article 4 as follows:

“This agreement shall apply to all new and renewing contracts in 2002 previously underwritten by the Reinsured and listed in Appendix 1. This includes all business specifically allocated and falling broadly within the following classes of business: reinsurance of Accidental Death and Dismemberment, including, but not limited to, Personal Accident, Workers Compensation, Bodily Injury from occupation or 24 hour coverage, Total or Partial Disablement from Accident or Sickness, War, Assistance, Reparation, Kidnap and Ransom, Travel, Medical Expenses, Loss of License, Loss of Occupation, Credit Cards and/or in accordance with original conditions. Reasonable adjustments to such contracts made in the ordinary course of business are also covered hereunder.”

The question whether to enter into the reinsurance treaty was considered by Mr Rasmussen, among others, but the final word rested with Mr Emerson. The treaty wording was signed by him on 17 March 2003.

On 12 March 2003 the defendant’s head of non-life treaty underwriting, Mr Carsten Hoff, received an underwriting report by Mr Bowers. It included the statement “Appendix 4 shows a forecast of the results of the ING quota share treaty which was bound in early 2003”. Appendix 4 stated “Expect first payment from ING by 31/03/03”. Mr Hoff circulated the report to other staff of the defendant by an email asking them to pay particular attention to appendix 4.

On 8 and 17 April 2003 the claimant paid premium into Risk’s bank account supposedly as agents for the defendant.

On 14 April 2003 the defendant applied for and obtained a worldwide freezing order against Risk, including the account or accounts into which the claimant had recently paid premium.

On 30 April 2003 the defendant placed an advertisement in Insurance Day announcing that it had withdrawn any underwriting authority from Risk. On the same day Mr Lintern wrote to the defendant asking whether Risk was still authorised to accept payment under the treaty. On 8 May 2003 the defendant replied that it had reason to question whether its apparent participation in the treaty was binding upon it and reserved its position until its enquiries were completed. On 20 June 2003 the defendant gave notice to the claimant that it did not regard the treaty as binding.

In its pleaded case the claimant relied on a various matters said to be representations to the market generally, but by the end of the trial the case presented on its behalf by Mr Hirst QC rested on three documents – the “To whom it may concern letter”, the Memorandum of Authority and the September fax.

In relation to the first two documents there is no doubt about their authenticity or the propriety of the claimant being shown them.

It was accepted that the “To whom it may concern letter” did not of itself amount to a representation that Risk had authority to enter into the quota share treaty on behalf of the defendant, but it was argued by the claimant that the documents had to be seen cumulatively. It was submitted that the Memorandum of Authority did amount to a representation of authority embracing the quota share treaty.

As to the September fax, it was accepted that Mr Gebauer had no actual authority to write as he did, but it was contended that he had ostensible authority to do so by reason of his position with the defendant. It was submitted that the September fax strengthened and confirmed Mr Emerson’s belief that Risk had the necessary authority to enter into the quota share treaty. Even if the Memorandum of Authority were ignored, it was submitted that the September fax alone would be sufficient to establish a case of ostensible authority.

Although the binder dated 27 August 2002 was shown by Mr Chalhoub to Mr Bowers, the claimant contended that Mr Bowers’s knowledge of it was not to be imputed to the claimant, because the document was given to him not in his capacity as an employee of the claimant but as a prospective employee of Risk London, and he never disclosed the document to any other employee of the claimant.

Mr Edelman QC on behalf of the defendant challenged the evidence that Mr Emerson or any of his colleagues in Minneapolis ever received, or were acquainted with the contents of, or attached any significance to, any of the three documents on which the claimant relies. Alternatively, he submitted that if Mr Emerson received the “To whom it may concern” letter and the Memorandum of Authority, it is probable that he was told that the latter was merely a summary of the binder relating to the acceptance of risks previously reinsured by the claimant on their expiry in 2003. It was denied in any event that the Memorandum of Authority amounted to a representation of authority to enter into the quota share treaty executed several months later. Further, it was argued that if Mr Bowers gave Mr Emerson the Memorandum of Authority while an employee of the claimant, Mr Bowers’s knowledge of the contents of the binder should be attributed to the claimant, whether he shared that knowledge with Mr Emerson or not, and that such knowledge would have made it plain that the Memorandum of Authority did not cover the quota share treaty.

As to the September fax, Mr Edelman submitted that the claimant was not entitled to rely on it as a representation to it by the defendant, both because Mr Emerson believed that it was not a document that he was intended to have seen and because he did not know the status of the author. Mr Edelman also submitted that if Mr Emerson saw the September fax, he ought to have realised that the Memorandum of Authority did not extend to the quota share treaty. More generally, he argued that the claimant did not act reasonably in the circumstances of this case if it relied on any of the three documents for concluding that Risk had authority to enter into the quota share treaty on the defendant’s behalf.

There are therefore mixed issues of fact and law to consider. I begin with the main contested questions of fact.

Whether these documents came to the attention of Mr Emerson, Mr Rasmussen and others at the head office in Minneapolis depends on the credibility of the factual witnesses called by the claimant.

To recap, Mr Emerson and Mr Bowers gave evidence that in early October 2002 Mr Bowers gave to Mr Emerson copies of the “To whom it may concern” letter and the Memorandum of Authority, but not the binder.

Mr Rasmussen gave evidence that he remembered Mr Emerson showing him some documents after his return from London. He specifically remembered being shown the “To whom it may concern” letter and may also have been shown the Memorandum of Authority, but he did not have a specific memory of that document.

As to the September fax, Mr Emerson, Mr Rasmussen and Mr Lintern all gave evidence that in or about early December 2002, during a conference call between Mr Lintern and members of the Minneapolis team responsible for matters concerning the London office, Mr Lintern mentioned that he had received the fax, read it out and was asked to fax it to the head office. Mr Lintern said that he did so and Mr Emerson said that he subsequently read it. Mr Rasmussen said that he thought he saw it, but did not have a strong recollection of doing so. He did, however, have a clear recollection of Mr Lintern reading its contents and being asked to fax it to Minneapolis.

If Mr Emerson did not see any of the three documents relied upon, it would follow that there must have been a conspiracy between himself, Mr Rasmussen, Mr Lintern and Mr Bowers to give false evidence.

Their credibility was challenged on three fronts. First, there is no physical evidence that any of the three documents ever found its way to the Minneapolis office. There is no copy of them on any of the files maintained in Minneapolis and no documentary evidence to show that any of them was received at that office. Secondly, Mr Edelman submitted that the defendant’s position in the correspondence between the parties when the dispute first arose was inconsistent with the case now maintained by it. Thirdly, Mr Edelman pointed to a number of features of the evidence of the various witnesses which he submitted was unsatisfactory.

The absence of the documents or any reference to the documents in the Minneapolis files, or of any fax transmission sheet confirming that the September fax was sent to Minneapolis, is a matter of serious weight. It is odd indeed that there is no trace of any of these documents in any of the Minneapolis files. Mr Emerson said that he recalled a file containing them but that the file must have been lost. The oddity is compounded by the further oddity that there is a record for the fax transmission of the September fax by the claimant to Mr Bowers at Risk but not to Minneapolis.

The points made about the correspondence can only be explained by quoting the relevant extracts.

On 30 April 2003 Mr Lintern wrote to the defendant as a result of the notice placed in Insurance Day stating that it had withdrawn any underwriting authority from Risk. Mr Lintern asked for confirmation that Risk was still authorised to accept treaty balances under the quota share treaty.

On 8 May 2003 the defendant replied to Mr Lintern as follows:

“In the normal course of events I would ask you to account directly to R&V with the premium. However, as a result of information which has only recently come to light, R&V has reason to question whether its apparent participation on this treaty is binding upon it. I say this because:

1.

the binding authority executed in favour of Risk was expressly limited to renewals of ING business post 1.9.02 and;

2.

the document relied upon by Risk as evidence of its authority to bind R&V to the quota share agreement (a fax dated 19 September 2002) is of doubtful provenance and legal effect.

Until such time as R&V has been able to complete its enquiries (following which it will need to take further advice) I am unable to confirm to you that the premium should be paid to R&V.”

On 13 May 2003 Mr Lintern wrote to the defendant:

“In your letter you indicate that you are investigating this matter. We would like to provide you with the following information to assist in this regard.

First, please be advised that ING Re (UK) required very careful confirmation from Risk that it was duly authorised to enter into the agreement on behalf of R&V. In making these representations to us, Risk relied on the following documentation:

1.

a letter from Daniel Gebauer of R&V dated 19 September 2002 directing Risk to proceed, negotiate and bind R&V in respect of the treaties underwritten by ING Re (UK) under the 2002 year of account retroactively from January 1, 2002. I am enclosing a copy of that letter for your reference.

2.

a letter dated 2 September 2002 from Mr Gebauer to Risk, again, with specific reference to the ING Re (UK) Treaty, in which R&V confirms that THE R&V will not issue cancellation of the master agreement before 1 April 2005.

3.

a memorandum of authority dated 27 August 2002 signed by R&V specifically addressing the ING Re (UK) program. I am attaching a copy of that memorandum of authority for your reference.

4.

a general letter of authority from R&V dated 16 November 2001 to “Whom It May Concern”, stating that R&V is guaranteeing the authority of Risk to accept business on behalf of R&V and that R&V is committing to provide prior notice of at least ninety (90) days in the event of any change or withdrawal of this authority. I am attaching a copy of this letter of authority for your reference.

Based on the above, it is difficult for ING Re (UK) to understand how R&V can possibly take the position that ING Re (UK) was not entitled to rely on the authority of Risk to bind R&V to the agreement. Certainly the letter of 19 September 2002 is a direct communication from R&V specifically authorising the Agreement. At the least, R&V had specific knowledge of the parties intent to enter into the Agreement, had specific knowledge that ING Re (UK) was relying on the stated authority of Risk to enter into the Agreement, and R&V never communicated anything to the contrary to ING Re (UK) until this very recent after the fact correspondence.”

On 20 May 2003 the defendant wrote to Mr Lintern commenting:

“Although you say that you relied upon the documents that were shown to you by Risk (being communications purportedly sent by Daniel Gebauer to Risk) I note that there is no suggestion that ING Re relied upon any communication addressed directly to it by R&V.”

Mr Lintern had not in terms stated in his previous letter that the claimant had relied on documents shown to it by Risk, but the defendant evidently interpreted the letter as carrying that implied meaning. The letter went on to make various points about the documents and the claimant’s entitlement to rely upon them.

On 20 June 2003 the claimant’s English solicitors came overtly on to the scene. They had been consulted before Mr Lintern wrote his letter of 13 May 2003, but that letter had been drafted by American legal advisors and Mr Lintern was not sure whether the English solicitors had any input.

In a letter dated 20 June 2003 the claimant’s solicitors set out various reasons to support the contention that Risk had authority to enter into the quota share treaty. After making these points the letter continued:

“Risk had actual authority to bind R&V to the 2002 QST (as per Mr Gebauer’s fax and/or the Agency Agreement), and if it did not (which our client does not accept), by its conduct R&V ratified the 2002 QST, alternatively it is estopped from asserting that it is not bound.”

The letter did not develop the grounds either of ratification or of ostensible authority.

Lawyers for the defendant responded by a letter dated 21 July 2003, disputing that the claimant was entitled to rely on the treaty whether on the basis of actual authority, apparent authority or ratification.

The final letter in this sequence of correspondence was from the claimant’s solicitors dated 12 September 2003. In it they said:

“ING Re do not accept R&V’s stance with regard to the alleged invalidity of the QST due to any alleged lack or absence of authority on the part of Risk to accept the QST on R&V’s behalf. These assertions are rejected by ING Re.

The fax from Mr Gebauer to Mr Chalhoub of 19 September 2002 on its face was authority from Mr Gebauer, a senior officer at R&V, with specific instructions to accept and enter into this specific contract. Our client was aware of and relied upon the content of that fax for the purposes of continuing their negotiations with Risk culminating in the agreement to and signing of the QST. That being the case, our client relied upon the actual, alternatively apparent, authority contained in the fax.”

Mr Edelman made a number of points about this correspondence. First, the statement in the letter dated 13 May 2003 that “ING Re UK required very careful confirmation from Risk that it was duly authorised to enter into the Agreement on behalf of R&V” suggests on its natural meaning that the claimant specifically questioned Risk about its authority but the evidence shows that this did not happen. The point was put in cross-examination to Mr Lintern (who at the relevant time was responsible for the management of the London office and as such was the intermediary between Risk and the Minneapolis team):

Q. “Did you seek confirmation from Risk of their authority prior to entering into the quota share?”

A. “No.”

The same point was put to Mr Emerson, who dealt with it as follows:

A. “Well, I can tell you that we relied on those documents. I am sure Risk relied on them as well.”

Q. “I know that is what you are telling us now. What I am asking, Mr Emerson: are you now saying that this letter is just simply untrue, that you did not require careful confirmation from Risk, it is all wrong, someone has it completely wrong?”

A. “We did require careful confirmation of the authority issue. We did rely on the documents we received. I do not know why this letter says, “Risk relies on the following documentation.”

Q. “Or why it says, “ING required careful confirmation from Risk”, as though you had asked Risk a question?”

A. “I cannot comment on why it specifically says that, I can only tell you what we did.”

Secondly, Mr Edelman pointed out that one of the four documents referred to in the letter of 13 May 2003 (the letter from Mr Gebauer to Risk dated 2 September 2002) was irrelevant, but he submitted that the genesis of the inclusion of this irrelevant document was significant. Mr Bowers said in his witness statement that on 29 April 2003 (i.e. at the time when the defendant announced that it was terminating Risk’s underwriting authority) he emailed to Mr Lintern four documents. These were the same documents as were identified in the letter from Mr Lintern to the defendant dated 13 May 2003. It was suggested that Mr Lintern had simply used for his letter the documents which he had only just received from Mr Bowers, including one which was irrelevant.

Thirdly, Mr Edelman relied heavily on the fact that the thrust of the letter of 13 May 2003 was to set out what had been relied upon by Risk rather than by the claimant. If the claimant had seen and relied upon the relevant documents before entering into the quota share agreement, it would have been an obvious point to state. As it was, the case on ostensible authority emerged only later and by degrees.

Fourthly, Mr Edelman made the point that when the claimant’s solicitors first articulated the case on apparent authority, in their letter of 12 September 2003, they relied only on the September fax, saying that “our client was aware of and relied upon the content of that fax…”.

Mr Hirst submitted that Mr Edelman was trying to make too much of the correspondence, which had to be read in context. It began with the defendant challenging Risk’s authority and, in particular, the provenance of the September fax. Mr Lintern’s reply did not differentiate between reliance by Risk and reliance by the claimant, and he observed that the defendant interpreted Mr Lintern’s response as an assertion that the claimant had relied on the relevant documents. As lawyers became directly involved, the legal issues became teased out and separately identified.

I am conscious that the correspondence has to be read as a whole, but remembering that it was the work of different hands. For example, I note that the last letter in the sequence was a brief letter which did not go in to all the arguments. It addressed the issues in three paragraphs and then addressed the question how they would be resolved, whether by arbitration or litigation. It identified the September fax on its face as amounting to clear authority to enter into the contract and therefore creating either actual or ostensible authority. I would be hesitant in drawing much from the fact that the author did not in that letter refer to other documents. Looking at the correspondence more broadly, the points made by Mr Edelman fall to be considered together with the absence of the relevant documents or reference to them in the Minneapolis files, or of any evidence confirming that the September fax was sent to Minneapolis, in evaluating the credibility of the oral evidence which I heard.

Against that background, I turn to my appraisal of the oral evidence of the claimant’s witnesses of fact.

Mr Bowers and Mr Lintern both gave evidence on one matter which I found impossible to accept. It concerns the fax dated 25 November 2002 from Risk Paris addressed to Mr Bowers but faxed to the claimant, attaching a copy of the September fax.

When witness statements were exchanged, not only was there no documentary evidence to show that these documents were forwarded from the claimant’s London office to the Minneapolis office, but no copies of those documents could be found on the claimant’s files.

In his first witness statement Mr Lintern gave the following explanation:

“After the end of the conference call [in which he said that he told the Minneapolis team about receiving these documents] and after I had faxed through a copy to the Minneapolis office, I then stapled together the original fax that I had received from Risk Paris, and put it into a file, with a view to giving the “original” fax to Jonathan Bowers. Subsequently, I had a meeting with Jonathan Bowers and I handed over the file with the original fax in it. Consequently, there is not a copy of the Risk Paris fax on the ING Re UK files.”

This explanation was supported by Mr Bowers, who said in his first witness statement:

“On the evening of 25 November 2002 Brad Lintern of ING Re London sent me a faxed copy of the 19 September 2002 R&V fax from R&V (Mr Gebauer) to Mr Chalhoub. This was the first time I was aware of this fax. Subsequently, Mr Lintern gave me the original fax he had received, when I met him for a coffee, and he explained that he had received the fax in error and had passed it on to me straight away.”

Then a curious thing happened. In the course of searching through files for an unrelated purpose, Mr Lintern came across the original two page fax of 25 November 2002 which had come out of the London office fax machine. So the account of having given it to Mr Bowers was plainly wrong. Mr Lintern made a second witness statement describing his discovery of the document and adding the following further explanation:

“As a result of finding this original fax, it is clear that I did retain the original, but for some reason it was not put on the relevant underwriting file. Because it was not on the underwriting file, this led me to believe that I had handed this particular original fax to Jonathan Bowers when I met him about a week or so later, as explained in paragraph 11 of my first statement. It would now appear to be the case that the original was in fact retained by us, and incorrectly filed. However, my recollection is that when I met up with Jonathan Bowers at a later stage I handed him a further photocopy of the original fax.”

Mr Bowers also made a further witness statement supporting Mr Lintern’s revised explanation. In it he said:

“In paragraph 56 of my first statement I mentioned that Brad Lintern of ING Re London gave me the original fax of 25 November 2002 that he had received from Risk Paris. I have read Brad Lintern’s supplemental statement of 20 January 2006 in which he explains that he has managed to find the original fax from Risk Paris. Consequently, I would like to correct the second sentence of paragraph 56. Mr Lintern must have given me a copy of that fax when we met up for a coffee.”

Mr Bowers and Mr Lintern were both pressed in cross-examination about why Mr Lintern should have given Mr Bowers a further copy of the fax.

Mr Bowers was asked about it on day 1 at page 115:

Q. “Why would he want to give you a copy? What was the point?”

A. “I used to meet up with Mr Lintern quite regularly, and I still do. He passed me a copy because he felt that I ought to have another copy of it to make sure that the fax transmission came through.”

Q. “Well, did he not phone you and say: did the fax come through alright?”

A. “I did not recall him phoning me, no.”

Q. “It is a very odd thing to do; he sent it by fax to you. Nothing to suggest that you have not received it. And then out of the blue, he gives you a copy of it.”

A. “Well, that is what happened.”

Mr Lintern was questioned about it on day 2 at pages 74 to 75:

Q. “Paragraph 11, you say that you gave the original of the fax back to Mr Bowers. You now know that that is wrong, do you not?”

A. “Yes, that is incorrect – that is correct, I was wrong when I made this statement. I believed when I made this statement, that I was, yes, that was my knowledge, but clearly I was wrong.”

Q. “Did you reconstruct that piece of evidence from the fact that the original could not be found on the files or did you genuinely have a recollection that you had handed back the original?”

A. “I clearly remembered handing Mr Bowers a copy of the fax when we met and because I did not have the original copy, I assumed that I had given him the original, which now I know is not correct.”

Q. “What was purpose of giving a copy to Mr Bowers?”

A. “I gave Mr Bowers a copy just really for the sake of good order. Sometimes faxes do not make it to their recipients. I copied it and gave it to him when I met with him. I would often give him documents which may be pertinent to things that we were discussing at the time…”

Q. “Usually when people want to know that a fax has been sent properly, they look at the fax transmission report. They see: yes, two or three pages transmitted ok, that is alright?”

A. “That is very true but I also gave him a copy when I met with him for the sake of good order.”

Q. “Did you not telephone him and say: did you get the fax?”

A. “No.”

Mr Lintern also said (at day 2 page 84) that it was just a coincidence that he and Mr Bowers had the same mis-recollection about Mr Lintern giving Mr Bowers the original of the fax.

I am unable to accept this evidence. I regard it as improbable that Mr Lintern would have photocopied the fax and given a copy of it to Mr Bowers in case he had not received it. Nor is it likely to have been mere coincidence that both Mr Bowers and Mr Lintern made the same mistake in their first witness statements. It is much more probable that the process of taking their statements involved questions being asked which led to them reconstructing, inaccurately, that Mr Lintern must have given the fax to Mr Bowers. The subsequent discovery of the fax on the claimant’s files required an explanation how they had both come to give a previously incorrect account. I suspect that they cast around for what they thought was the most plausible explanation that they could give. It is possible that by this stage they had persuaded themselves that Mr Lintern had given the fax to Mr Bowers and that, if it was not the original, it must have been a copy. But I did not find their evidence on the subject satisfactory. That causes me to approach their evidence on other matters with caution.

Mr Rasmussen was of a different calibre. He was in my judgment an impressive witness. In his witness statement and in his oral evidence he was careful how far he was prepared to go. For example, in paragraph 9 of his witness statement he said that Mr Emerson showed him the “To whom it may concern” letter and added:

“I cannot now specifically remember, but it may be the case that Mike Emerson also showed me a copy of a Memorandum of Authority that had been signed by R&V on 27 August 2002.”

Questioned about that paragraph in cross-examination on day 3 at page 28 he said:

“I have a very strong recollection of the “To whom it may concern” letter. My recollection of the Memorandum of Authority is not as strong. So that is the way it was written.”

In relation to the September fax, he said in paragraph 14 of his witness statement that he recalled that Mr Lintern in London read the contents to the Minneapolis team on a conference call and that they asked him to fax it over to them. His statement did not say that he actually saw the fax although it implied that this was likely. In his evidence at day 3 page 75 he said that he thought he saw it but that he did not have a strong recollection.

If Mr Rasmussen had been partisan, it would have been easy for him to assert that he had been shown the Memorandum of Authority as well as the “To whom it may concern” letter and that he had seen the September fax. The natural explanation for him not doing so was that he was being careful not to go beyond that which he was confident he could actually recall.

His answers in cross-examination were straightforward. He did not pause to consider what answer might best advance the claimant’s case, but answered quickly and without prevarication, on many occasions agreeing with the points put to him.

In paragraph 10 of his witness statement Mr Rasmussen said that Risk’s website “confirmed that the Risk operation in London underwrote facultative business on behalf of R&V”. In cross-examination (at day 3 pages 23 to 24) he was taken to the website entry, which said that Risk London represented R&V. The cross-examination continued:

Q. “You know that when it says “London office represents R&V” that it means that they are a contact office, they do not underwrite?”

A. “Yes.”

Q. “You see, in your witness statement, paragraph 10, you said that the website confirmed that the Risk operation in London underwrote facultative business on behalf of R&V. That is not correct, is it? It is not what it confirms at all?”

A. “Yes, my witness statement could be clearer by saying that they represented R&V.”

Q. “In fact what this suggests is that the London office does not have any underwriting authority at all for R&V?”

A.

“Yes.”

Mr Rasmussen’s original statement had therefore been wrong in this particular and he was quick to concede it.

In paragraph 13 of his witness statement Mr Rasmussen referred to “documents that I had been provided with, for example the “To whom it may concern” letter of 16 November 2001.”

In cross-examination at day 3 page 26, Mr Rasmussen said that his best recollection was that Mr Emerson showed him a copy of the “To whom it may concern” letter. Mr Edelman drew attention to the difference between being provided with and being shown a document.

I have referred to this matter and to the point about Risk’s website because Mr Edelman highlighted them as indications that Mr Rasmussen was an unreliable witness. I do not regard them as points of significance. As I listened to and observed Mr Rasmussen giving evidence, he satisfied me that he was telling the truth as he recalled it.

Mr Emerson was a vital witness. He said in his witness statement that in September 2002 Mr Bowers reported that he had a meeting in London with Mr Chalhoub during which he had been handed certain copy documents which showed that the defendant had authorised the renewal of the claimant’s account with effect from January 2003 through Risk’s underwriting operations in London or Paris. In October, when Mr Emerson was in London for meetings, Mr Bowers gave him a copy of the “To whom it may concern” letter and the Memorandum of Authority. These documents indicated to him (according to paragraphs 15 and 20 of his statement) that Risk had a wide authority which covered but was not restricted to the renewal of risks currently underwritten by the claimant. In his oral evidence (day 2 pages 135 to 137) he said that he thought that the defendant’s agreement to take on the renewal of the business was a strong signal that they would be willing to underwrite a quota share treaty in respect of the current year’s business, because it was by and large the same business, but he did not expect underwriting of a quota share treaty to begin until Mr Bowers became an employee of Risk.

Soon after Mr Bowers started his underwriting job with Risk in November 2002 he sent to the Minneapolis office a draft slip for the quota share treaty. Mr Emerson said in his oral evidence (but not in his written statement) that he compared the slip with the Memorandum of Authority (day 2 page 106, day 3 page 3 and day 3 page 7). He said that around that time he opened a quota share file, which he still has, but it does not contain the “To whom it may concern” letter, the Memorandum of Authority or the September fax which he subsequently received (day 2 pages 103, 107). He was adamant that they had been on a file which had gone missing (day 2 pages 102 to 105 and day 3 pages 11 to 13).

Mr Emerson said in his witness statement and confirmed in his oral evidence that he first learned of the September fax when Mr Lintern said during a conference call that he had received it in error. He added in re-examination that he thought at the time that it was a document which the defendant probably did not want the claimant to see (day 3 page 4). He said in cross-examination, but not in his witness statement, that he compared the September fax with the Memorandum of Authority (day 2 page 135). He added in re-examination that he compared the signatures and noted that they were the same (day 3 page 3). He acknowledged that he did not know who the signatory was or that he was the chief underwriting officer of the defendant (day 3 page 11).

Mr Edelman submitted that Mr Emerson’s evidence was unsatisfactory in that it contained a large amount of embellishment. He also argued that Mr Emerson’s claim that the “To whom it may concern” letter, the Memorandum of Authority and the September fax had all been placed on a file which had gone missing did not bear serious examination and that Mr Emerson failed to deal satisfactorily with the criticisms put to him over the correspondence at the time when the dispute arose.

I have considered these matters carefully but in my judgment Mr Emerson was an honest witness. I do not believe that he, Mr Rasmussen, Mr Bowers and Mr Lintern entered into a conspiracy to lie about the documents which Mr Emerson says that he received.

Mr Bowers gave as his reason for providing Mr Emerson with copies of the “To whom it may concern” letter and the Memorandum of Authority that he was showing that he had a “potential relationship with R&V and Risk to write business” once he joined Risk (day 2 pages 25 to 26). The explanation is quite likely. He said that he did not give Mr Emerson a copy of the binder because he did not think that Mr Chalhoub was keen for him to pass that on (day 2 page 27). That is also not implausible.

Mr Bowers said that he did not recall saying that the Memorandum of Authority was a summary of the authority under which he would be writing the renewal business, but that it was likely that he said so. Mr Emerson said that he did not recall Mr Bowers saying that the Memorandum of Authority related to the binding authority under which Mr Bowers would be writing the renewal of the account, and that Mr Bowers did not limit the Memorandum of Authority to just the renewal of that account (day 2 pages 112 to 113). I accept that it is likely that Mr Bowers did say words which connected the Memorandum of Authority with the writing of the renewal, and that is consistent with a sentence in paragraph 20 of Mr Emerson’s witness statement in which he said that “I had been given a copy of the Memorandum of Authority signed by R&V concerning the renewal of our account going forward as from January 2003 which was to be operated by Risk’s London operation”. But I doubt whether Mr Bowers would have said or implied that Risk’s underwriting authority was limited to writing a renewal of that account, and I accept Mr Emerson’s evidence that he did not.

When Mr Lintern received unexpectedly the September fax, it would have been natural for him to mention this when talking to the Minneapolis office. It would also have been natural for the Minneapolis office to ask for a copy of the document.

It is difficult to form a firm conclusion on how accurate is Mr Emerson’s memory about some of the finer details, for example, whether he compared the Memorandum of Authority with the slip, whether he compared the wording of the Memorandum of Authority with the wording of the September fax and whether he compared the signatures on the documents. It is easy to suspect of embellishment a witness who gives details on contested issues which were not in his witness statement. When asked why such details were not in his witness statement Mr Emerson said (day 3 page 8):

“I did not realise that my integrity was going to be challenged in this. I did not realise that I had to spell out every particular step I took along the way.”

I accept the truthfulness of that answer and that when he gave additional details in evidence he was not deliberately inventing them. How far they are accurate is another matter. More than four years have passed since the events in question. I accept that before agreeing to the quota share treaty Mr Emerson had received and read the “To whom it may concern” letter, the Memorandum of Authority and the September fax, and that they influenced his mind. I do not believe that he subjected them to the degree of analysis which they received during the trial. Nothing in the evidence causes me to believe, for example, that he considered specifically whether the period of the Memorandum of Authority would include the retroactive writing of risks (through the quota share treaty) after the commencement of the period. His mental process was more general. He believed that Risk had a broad agency relationship with the defendant and that it covered the writing of the quota share treaty.

Of the three documents Mr Emerson regarded the Memorandum of Authority as the most important. He described the impact of the September fax on his thinking as follows (day 3 page 4):

“At that time…we had established whether or not there was authority; that was not an issue when we received that fax. It was certainly confirmation of what we thought was true at the time.

I think that fax more than anything affirmed the enthusiasm that we thought the other party had for the deal.”

I am not persuaded on the balance of probabilities that Mr Emerson positively compared the signature on the September fax with the earlier documents. On his own evidence the question of Risk’s authority to enter into the quota share treaty was not an issue in his mind when he received the September fax. There was no evidence that anyone discussed who the signatory was. Mr Emerson’s evidence that he compared the signature with the other documents emerged very late.

The doctrine of apparent or ostensible authority is based on estoppel by representation. Where a principal (P) represents or causes it to be represented to a third party (T) that an agent (A) has authority to act on P’s behalf, and T deals with A as P’s agent on the faith of that representation, P is bound by A’s acts to the same extent as if A had the authority which he was represented as having. The general principle is too well established to need citation of authority.

I accept that the same principle can also apply at one remove where T relies on a representation made by an agent having ostensible (but not actual) authority to make such a representation on behalf of P. Thus, where P represents or causes it to be represented to T that A1 has authority to represent to T that A2 has authority to act on P’s behalf, and T deals with A2 as P’s agent on the faith of such representations, P is bound by A2’s acts to the same extent as if he had the authority which he was represented as having. The critical requirement is that A2’s authority must be able to be traced back to the principal by a representation or chain of representations upon which T acted and whose authenticity P is estopped from denying by his representation through words or conduct. There is little case law on this variant of the doctrine, but I agree with the statement in Bowstead and Reynolds on Agency, 17^th Ed. (2001) at paragraph 8-021:

“It seems correct in principle to say that an agent can have apparent authority to make representations as to the authority of other agents, provided that his own authority can finally be traced back to a representation by the principal or to a person with actual authority from the principal to make it.”

The principle appears to have been accepted by the House of Lords in British Bank of the Middle East v. Sun Life Assurance Co. of Canada (UK) Ltd [1983] 2 Lloyd’s Rep 9 at page 16, column 1, although the attempt to rely on it failed on the facts.

The relevance of this principle in the present case is that Mr Gebauer had no actual authority to issue the September fax, and the claimant’s case is founded on his having ostensible authority to do so.

In his well known judgment in Freeman and Lockyer v. Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480, 503, Diplock LJ said:

“An “apparent” or “ostensible” authority, on the other hand, is a legal relationship between the principal and the contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the “apparent” authority, so as to render the principal liable to perform any obligations imposed upon him by such contract.” (Emphasis added).

Bowstead and Reynolds suggest, at paragraph 8-020, that the statement that the representation must be intended to be acted on is “too narrow”. Intention in the formation of contracts has to be approached objectively, that is, as it would appear to a reasonable person in the circumstances of the parties. It is undoubtedly the case that many instances of ostensible authority arise by implication from acts of a quite general nature, typically putting an agent in a position which may normally be expected to carry a certain level of authority. Ordinarily if a person makes a representation by words or conduct, whether to an individual, a group or to the public at large, that another person has authority to enter into a contract on the representor’s behalf, his intention on an objective view would be that a person to whom the representation is made should be able to deal with the person represented as having authority to deal with him as if he were dealing with the principal. It would be no answer for the person making the representation to say that this was not his subjective intention. If, however, the circumstances are such that the person dealing with the supposed agent knew or ought reasonably to have appreciated that the representation relied upon was not intended to be made to him or for his benefit, then there is no good reason in principle why that person should be entitled to rely on the representation to create a contract.

As Mr Emerson rightly acknowledged in his evidence (day 2 page 128) this document established that there was a relationship between the defendant and Risk, but it went no further than that. It did not attempt to define the extent or limits of Risk’s authority. It did not constitute a representation that Risk had authority to enter into the quota share treaty on the defendant’s behalf.

The Memorandum of Authority was a somewhat unusual document. Both parties called expert witnesses who gave their views about how it would be understood in the market. The claimants’ expert, Mr Dumenil, said that he had never heard the term “Memorandum of Authority” and so would not know exactly what was meant by it (day 3 page 145). The defendant’s expert, Mr Hoare, said that his underwriting agency had a “not dissimilar document” which summarised in a few paragraphs the authority given to it by its principals but made no reference to internal arrangements (day 3 page 171).

The question is whether a reasonable underwriter in the position of the claimant, who saw the Memorandum of Authority without the binder, would have been justified in regarding it as a statement of authorisation covering the quota share treaty.

Mr Dumenil said in his report:

“This document, signed by R&V, bears the same Risk reference (ING 19H 2A#PA) as the binder. To anyone who had not seen the terms of the binder, however, I consider that on its face it confers a wider agency authority on Risk than that contained in the binder. ”

“a)

The Memo records the “Agreement of the Re-insurer to accept from Risk … reinsurance accounts as declared by Risk”. It appears to be a wide authority covering reinsurance of personal accident business as declared by Risk, with no clear limitations on Risk’s authority. Both the Binder and the Memo clearly indicate that there is an agency relationship between R&V and Risk, and the obvious reference from the reference number … was that Risk had been specifically authorised to enter into a personal accident reinsurance transaction with ING, provided it fell within the broad classes of business set out in the section headed “Type” in the Memo.”

Mr Hoare said in his report:

“a)

the Memorandum contains what appears to be a formal and authorised agreement by R&V through two signatures and a stamp. On the face of it, this is a very widely drafted authority. Subject to confirmation that the R&V signatories of the Memorandum were appropriately senior personnel …, had a reasonable and prudent underwriter seen a copy of the Memorandum alone, it is likely that he or she would have been satisfied from the Memorandum that Risk had a wide authority to bind R&V to reinsurance accounts as declared by Risk and falling within the described “Accidental Death and Dismemberment” classes.

b)

A reasonable and prudent underwriter would also likely have concluded from reading the “Period” clause of the Memorandum that the reinsurance accounts to be declared by Risk would attach within the period 1 September 2002 to 2 January 2004, i.e. declared accounts attaching on or after September 2002 to be bound prospectively from that date. Having reached that conclusion, and had that underwriter been offered reinsurance by Risk to cede an entire book of business (all of which had been underwritten between 1 January and 31 March 2002) retrospectively via an 85% quota share treaty with R&V, it is my opinion that he or she would not have been satisfied that the Memorandum provided the necessary authority to Risk.”

Mr Dumenil responded to this point in a supplemental report as follows:

“I do not believe that this period clause would have limited Risk’s ability to write the 2002 quota share treaty in January 2003. The position might have been different if, from a regulatory perspective, Risk had not been licensed to conduct business in 2002. But that was not the case. In my experience, and particularly in the reinsurance industry, underwriters can and quite often do commit their employers to risks that incepted prior to the point in time from which they are authorised to start underwriting (for example to bring with them a mature book of business which they believe to be profitable) provided that they only bind the risk following their appointment as an underwriter.”

In his oral evidence Mr Dumenil agreed with the proposition that the Memorandum of Authority was quite clearly a high-level summary of some more detailed agreement (day 3 pages 144-145). This was also agreed by Mr Bowers (day 2 page 18) and Mr Rasmussen (day 3 pages 47 and 53-54).

Mr Emerson took a different position. He agreed that the Memorandum of Authority appeared to be specific to ING because of the Risk reference, but he said that he did not realise that the document was a summary of a fuller agreement and he did not consider that this was how the document should be read (day 2 pages 113-118).

In agreement with both experts, I think that it would have been apparent to a reasonable underwriter that the Memorandum of Authority was a summary of a more detailed agreement. The Risk reference would have suggested that there was an underlying agreement relating specifically to ING and it was almost inconceivable that there would not have been some additional terms agreed. The key question is whether there was anything that ought to have put the claimant on notice that the quota share treaty was or might well be outside the terms of the underlying agreement. In my judgment there was.

I have related the circumstances in which Mr Emerson received a copy of the Memorandum of Authority. To recap, on 5 September 2002 that Mr Chalhoub gave Mr Bowers documents including the Memorandum. According to Mr Emerson’s witness statement (paragraph 14) Mr Bowers told him about the meeting and that Mr Chalhoub had handed him copy documents showing that the defendant had authorised the renewal of the claimant’s account with effect from January 2003. At their next meeting Mr Bowers gave Mr Emerson a copy of the Memorandum. The period specified in the Memorandum ran from 1 September 2002. Going ahead to the time after 8 November 2002 when Mr Bowers sent to ING Re a draft slip for the reinsurance of the 2002 account, Mr Emerson said in his witness statement (at paragraph 20):

“I was also aware that I had been given a copy of the Memorandum of Authority signed by R&V concerning the renewal of our account going forward as from January 2003 which was to be operated by Risk’s London operation.”

The proposed reinsurance was of a book of business written significantly before the period specified in the Memorandum of Authority. I accept Mr Dumenil’s point that an underwriter can give authority to an agent to accept reinsurance of a risk which incepted prior to the commencement of the agent’s authority, but the difference between the period covered by the quota share reinsurance slip and the period covered by the Memorandum of Authority gave cause for questions to be asked, particularly in the context of the history to which I have referred. It is relevant to note that on this point Mr Rasmussen candidly accepted in cross-examination that it was not clear from the period clause in the Memorandum of Authority whether they could “go back retroactive to 1 January” and that for this purpose it would be necessary to see the underlying agency agreement (day 3 pages 53-54). Examination of the binder would have shown that the quota reinsurance treaty was outside its scope.

I do not accept Mr Edelman’s argument that the claimant should be treated as having knowledge of the actual terms of the binder just because after Mr Bowers was privately given by Mr Chalhoub copies of the binder and the Memorandum of Authority (when Mr Chalhoub was trying to persuade Mr Bowers to join Risk) Mr Bowers gave a copy of the Memorandum of Authority (without the binder) to Mr Emerson. But I do accept, for the reasons given, that the claimant was not reasonably entitled to conclude from the Memorandum of Authority that it extended to the quota share treaty.

I accept that as a matter of fact the September fax confirmed in the minds of Mr Emerson and his colleagues that Risk had authority to enter into the quota share treaty. There are, however, two legal obstacles in the way of the claimant’s attempt to rely on the document against the defendant.

First, Mr Emerson conceded with candour that he did not think that this was a document which he was meant to have seen. Since the doctrine of ostensible authority is founded on estoppel, I do not see in principle how a successful plea can be based on a document which the recipient believes that the supposed representor did not want the recipient to see. It is like listening to an eavesdropped conversation. The eavesdropper would not be entitled to treat what he heard, unintended by the speaker, as though it were a representation made to him by the speaker.

The point was made in the defendant’s opening written submissions that where a third party purports to rely on a representation made by the principal in circumstances where he knows or believes that the representation is not intended for him (or the world at large), such a representation cannot be said to be a representation by the principal to the third party.

Mr Hirst argued in response that Risk had ostensible authority to pass on the September fax to the claimant, arising out of the fact that the defendant had previously permitted Risk to pass on other documents such as the “To whom it may concern” letter and the Memorandum of Authority. He also relied on the evidence of Mr Bowers that if the September fax had come directly to him, he would have sent a copy to the claimant.

If independently of the September fax Risk had been held out by the defendant to the claimant as having authority sufficiently wide to include the quota share treaty, this issue would not arise. But on the footing that this was not so, there would have to be most unusual circumstances for the defendant nevertheless to have held out Risk as having authority to say that it had such authority. It is true that the possibility of such a finding was not excluded as a matter of law by the House of Lords in Armagas Limited v Mandogas SA [1986] 1 AC 717, as was recognised by Steyn LJ in First Energy (UK) Limited v. Hungarian International Bank Limited [1993] 2 Lloyd’s Rep. 194, 203-204, but in the present case I cannot see a foundation for it. The claimant is not assisted by Mr Bowers’s evidence about what he would have done with the September fax. That is hypothetical, and in any case it does not meet the point that Mr Emerson did not believe that Risk had authority to disclose the September fax to the claimant.

The second obstacle is that since Mr Gebauer had no actual authority to write to Mr Chalhoub in the terms of the September fax, the claimant has to show that the defendant represented to the claimant that Mr Gebauer had such authority and that the claimant acted in reliance on that representation. But neither Mr Emerson nor any of his colleagues knew who the author of the fax was or what position he occupied. Mr Emerson guessed (rightly) that whoever had issued the fax held a senior position with the defendant, and he guessed (wrongly) that he had authority to issue the fax. But these were his guesses; there was no representation to that effect by the defendant.

The claimant’s pleaded case on this issue (set out in voluntary further information served during the course of the trial) was as follows:

“(1)

those at ING Re who read the September fax, acting in good faith, took the fax, which apparently came from the Front Office of R&V, to have been signed by a senior officer who had authority to sign such a document.

(2)

they did not consider it necessary to make further enquiries as to the specific post held by the signatory.

(3)

the September fax was in fact signed by Mr Daniel Gebauer.

(4)

Mr Gebauer was senior underwriter and Head of Non-Life Reinsurance Underwriting at R&V, that is a very senior officer, from July 2000 to 29 November 2002.

(5)

it was within the usual authority or someone in Mr Gebauer’s post to sign a document such as the September fax. R&V admitted as much in their opening at day 1 pp 77-78.

(6)

Mr Gebauer was also the signatory of “To Whom It May Concern Letter” and the ING Memo, copies of which were also provided to ING Re.

(7)

in the premises, Mr Gebauer had ostensible authority to execute the September fax.”

In summary, the essential points of the argument are that:

The fact that an agent occupies a position which usually carries with it a certain level of authority may be relevant in two quite different ways. It may support a case that the agent had implied actual authority to do some act, or it may support a case that he had ostensible authority to do so. In the present case Mr Gebauer did not have actual authority to issue the September fax. As to his having ostensible authority, it is true that many cases of ostensible authority arise “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” (per Lord Keith in Armagas Limited v Mundogas SA [1986] AC 717, 777), but the party seeking to hold the principal responsible for the agent’s conduct must show that he relied on the principal’s implicit holding out of the particular individual as having the requisite authority.

As Mr Hirst rightly recognised in his closing submissions, it is necessary to distinguish between what Mr Gebauer represented and what the defendant represented. Mr Hirst founded the claimant’s case on a representation by conduct by the defendant appointing Mr Gebauer to his post as Head of Non-Life Reinsurance Underwriting. That may be loosely described as a representation to the world at large. More accurately, it was a representation to anyone who might have dealings (as he thought) with the defendant because of the authority which he had reasonably been led by the defendant to believe that Mr Gebauer had. But although Mr Gebauer was in fact the defendant’s Head of Non-Life Reinsurance Underwriting until 29 November 2002, neither Mr Emerson nor his colleagues were led by the defendant to entertain any belief about who Mr Gebauer was or what position he occupied. If they had made enquiry of the defendant before relying on the September fax, they would have learnt that he was no longer employed by the company and never had authority to issue the fax.

Mr Hirst submitted that if the September fax had been signed “D Gebauer, Chief Underwriting Officer Non-Life” there would have been ostensible authority (since the description by Mr Gebauer of his position would have been a truthful representation which he was impliedly authorised to make); that it would be anomalous that the claim should fail because of Mr Gebauer’s failure to state his position in circumstances where the claimant correctly supposed that he occupied a senior position; and that it was not necessary for Mr Emerson to know his precise position.

I accept that there may be cases where a principal would be bound by ostensible authority in circumstances where the other party did not know the precise position of the agent, but where the principal had organised its affairs in such a way as to make it appear to any reasonable person in the position of the other party that the agent had the necessary authority. The customer who orders goods on the telephone is most unlikely to know the name or job description of the person who they are dealing with, and in the case of an ordinary consumer transaction they would hardly be expected to enquire. The holding out by the company of the employee as having authority to deal with such transactions would arise from the way in which the company organised its business. In such cases the other party is dealing directly with an agent placed by the principal in a position where the other party would reasonably suppose that the agent had the required authority. But such cases are far removed from the present case. In this case the claimant dealt with Risk in reliance on a document on the defendant’s paper of unknown authorship. I do not see that there can be inferred any representation by the defendant about who the author was or what authority he had. The fact that the claimant might have been entitled to rely on the document if it had identified the author and his position does not advance the claimant’s case.

In summary, the claimant cannot in my judgment hold the defendant responsible for Mr Emerson’s decision to rely as verification of Risk’s authority on a document issued by someone of whose identity and status he was unaware and which he believed was not intended for his eyes.

I have dealt separately with the “To whom it may concern” letter, the Memorandum of Authority and the September fax. Mr Hirst submitted that it was necessary to consider the circumstances of the case as a whole. He relied, in particular, on the Raffaela [1985] 2 Lloyd’s rep 36, 41, where Browne-Wilkinson LJ said:

“It is important to bear in mind that the adoption of holding out is a form of estoppel. As such, the starting point is that the principal must be shown to have made a representation, which the third party could and did reasonably rely on, that the agent had the necessary authority. The relevant enquiry, therefore, in all cases is whether the acts of the principal constitute a representation that the agent had a particular authority and were reasonably so understood by the third party. This requires the court to consider the principal’s conduct as a whole.”

and

“… where, as in the present case, the holding out is alleged to consist of a course of conduct wider than merely describing the agent as holding a particular office, although the authority normally found in the holder of such an office is very material, it must be looked at as part and parcel of the whole course of the principal’s conduct in order to decide whether the totality of the principal’s actions constitute a holding out of the agent as possessing the necessary authority.”

Although relevant in the circumstances to which Browne-Wilkinson LJ was referring, I do not find that guidance particularly instructive in this case. Although Mr Hirst referred to other matters to provide colour and context, the case on ostensible authority depends on the three documents to which I have referred. For the reasons given, I do not accept that the defendant is estopped by any of those documents from denying that Risk had authority to enter into the quota share treaty. Sometimes documents can only be properly evaluated in the aggregate as, for example, in a series of correspondence. But in this case the critical documents (the Memorandum of Authority and the September fax) were produced at different times and in different circumstances and the issues in relation to them involve different points.

The case on ratification was raised by an amendment to the claimant’s pleadings two months before the trial. The amendment was allowed on restricted terms. The following facts were pleaded by the claimant and admitted by the defendant:

The claimant further pleaded that at the relevant time the defendant knew of all material matters relevant for the purposes of ratification. In particular it knew

In response to that pleading the defendant admitted knowledge of those matters but denied that they were sufficient to support a plea of ratification.

On the hearing of the application for leave to introduce the issue of ratification the defendant had made plain its position that it did not follow, just because the quota share treaty was outside the terms of the binder, that Risk had not been authorised to enter into it, for it might have been authorised in some other way. The claimant’s counsel disclaimed any intention that there should be an inquiry as to the extent of the defendant’s knowledge about authorisation (recognising that if that were to be the case the trial would have had to be adjourned).

It does not follow as a matter of logic that because the quota share treaty was outside the terms of the binder it was therefore unauthorised. As Mr Edelman pointed out, in the earlier trial Risk relied for its authority to enter into the quota share treaty not on the binder but on the September fax. So the defendant’s admitted knowledge that the quota share treaty was outside the terms of the binder does not prove that the defendant knew that the quota share treaty was unauthorised.

There remain two questions: (1) whether it is sufficient for the purposes of ratification that the defendant knew what its agent had purported to do, i.e. had entered into the quota share treaty, or whether it is necessary for the claimant to establish also that the defendant knew, or was on notice that, in so doing Risk had acted without authority; and (2) whether the defendant’s conduct was ratificatory conduct.

The question regarding the degree of knowledge required is not directly answered by any authority cited.

As a general statement of the law, both parties accept the following proposition which has appeared in successive editions of Bowstead and Reynolds (17^th Edition, 2001, para 2-067):

“In order that a person may be heard to have ratified an act done without his authority, it is necessary that, at the time of the ratification, he should have full knowledge of all the material circumstances in which the act was done, unless he intended to ratify the act and take the risk whatever the circumstances may have been. But knowledge of the legal effect may be imputed to him, and it is not necessary that he should have notice of collateral circumstances affecting the nature of the act.”

Waller J adopted the first part of this proposition in Suncorp Insurance and Finance v. Milano Assicurazioni SPA [1993] 2 Lloyd’s Rep. 225, 234.

Adopting the same terminology, the question is whether the fact that Risk had not been authorised to enter into the quota share treaty was material or collateral for the purposes of ratification of the treaty.

Two nineteenth century cases were cited, but I do not find great assistance from them.

In Hunter v. Parker (1840) 7 M&W 322 the plaintiff sued in trover for a ship. The vessel had belonged to the plaintiff when she was damaged during a heavy gale off the coast off New Brunswick. Following a survey report that she was unseaworthy, the master sold her by auction to Mr Cunard. At considerable expense Mr Cunard had the vessel repaired and brought her back to England, where he offered her to the plaintiff for the money which he had spent on her. The plaintiff refused the offer saying that she was not worth so much, that she had been fairly sold and bought, and that he was sorry that Mr Cunard had made a bad bargain. Mr Cunard entered into negotiations to sell her to a Mr Briggs with the knowledge of the plaintiff, who told Mr Briggs that he would not interfere in the sale. Mr Briggs bought her and resold her at a profit to the defendants. The plaintiff then demanded the vessel back from the defendants. Unsurprisingly this claim failed.

The plaintiff’s first argument was that the master only had authority to sell the vessel if she had become a wreck, which she had not. The court’s answer was that he had ratified the sale by expressing his approval of it and had received the purchase money. But the plaintiff then argued that if the master had a power of sale he could not delegate it to an auctioneer; and that the sale by the auctioneer was void under the Ships’ Registry Act 1833 because it was not in proper form; and that he did not know at the time of approving the sale that it had been made by a delegate without authority to do so and in invalid form. As to that argument Parke B said:

“But then it is said, that the Plaintiff did not know the mode of sale; neither that it was effected by the Captain’s substitute, the auctioneer, nor that it was made by an irregular instrument. The jury found that the sale was ratified with knowledge, but perhaps there was not sufficient proof of knowledge of all the particulars of the sale. In our opinion, however, this is not material; for as the Plaintiff received the balance of the purchase money from the vendee’s agent without objection, and thereby induced him to suppose the sale to have been regularly made with his consent, and to part with the price, he must be taken either to have known and approved of the mode of sale, or to have waived all objection to it; the conduct of the Plaintiff amounted therefore to a ratification of everything that could be ratified by parol; and therefore sanctioned the delegation of authority to the auctioneer, and the sale by him; and put the vendee in the same situation as if the Plaintiff had expressly directed the sale to be made in the form in which it was made.”

In summary, the details about who conducted the sale, whether he was authorised and how he did it were regarded as inessential on the facts of the case. Knowing that the vessel had been sold, the plaintiff accepted the purchase money without objection and that was that.

In De Bussche v. Alt (1878) 8 Ch D 286 the plaintiff engaged Gilman & Co. as agents for the sale of a steam ship called the Columbine. Gilman & Co. with the plaintiff’s consent appointed a sub-agent the defendant, a partner in a firm of merchants in Japan. The defendant offered to purchase the vessel as a principal for $90,000 with a view to reselling her. The transaction was completed with the plaintiff’s consent and the plaintiff received the purchase money. The plaintiff later discovered that before the defendant concluded the agreement to purchase the Columbine he had negotiated a re-sale to a Japanese prince for $160,000. He sued the defendant for an account of profits and won.

The court was satisfied that Gilman never assented on the plaintiff’s behalf to the termination of the defendant’s employment as agent for the sale of the Columbine or to his taking the vessel himself until after the agreement for her re-sale to the Japanese prince had been completed. It therefore held that when that agreement was concluded the defendant was still the plaintiff’s agent, and the plaintiff was therefore entitled to an account of the profits from it unless he had in some way by his conduct deprived himself of that right.

The defendant argued that he was not entitled to the profits from the sale to the Japanese prince because he had acquiesced in the sale to the defendant as a principal with the intention of reselling her for profit.

Giving the judgment of the Court of Appeal, Thesiger LJ said at 312-313:

“It is competent no doubt to a principal to ratify or adopt the act of his agent in purchasing that which such agent has been employed to sell, and to give up the right which he would otherwise be entitled to exercise of either setting aside the transaction or recovering from the agent the profits derived by him from it; … but before the principal can properly be said to have ratified or adopted the act of his agent or waived his right of complaint in respect of such acts, it should be shown that he has had full knowledge of its nature and circumstances, in other words, that he has had presented to his mind proper materials on which to exercise his power of election, and it by no means follows that, because in a case like the present he does not repudiate the whole transaction after it has been completed, he has lost a right actually vested in him to the profits derived by his agent from it…

In the present case, so far from the Plaintiff having had full knowledge of the nature and circumstances of the transaction relating to the sale of the Columbine, or the evidence of ratification or adoption being clear and cogent, it is apparent that he was kept in entire ignorance of the amount of the purchase-money payable by, and the terms of the credit given to, the Prince of Geyshien, and of the important fact that the Defendant had abstained from binding himself as a purchaser of the vessel until he had obtained the contract for her re-sale… We are of the opinion, therefore, that there is no such evidence of ratification or adoption on the part of the Plaintiff of the acts of the Defendant as is sufficient to show that he waived the protection given by law, and dealt with the agent quoad those acts, as a person discharged of his agency.”

When Thesiger LJ referred to the competence of a principal to give up a right of either setting aside a transaction or recovering from the agent the profits derived by him from it, he was dealing with two distinct alternatives. In that case the plaintiff was not seeking to challenge the legal validity of the sale of the vessel to the Japanese prince, but he was pursuing a claim against the defendant for the profits. It was suggested in argument in the present case that the same test applies in determining whether a transaction has been ratified vis-à-vis the third party and whether the agent has been exonerated for acting in excess of authority. I do not agree that this need be so, because there are different sets of contractual relations to consider and different matters may be relevant to them. This point was made by Waller J in Suncorp Insurance and Finance v. Milano Assicurazioni SPA [1993] 2 Lloyd’s Rep. 225, 223, where he said:

“A principal may wish to ratify a transaction for commercial reasons so as to preserve his commercial reputation. It is in such circumstances that it seems to me that it should be possible for the principal to ratify as against the third party but not waive any breach of duty as against the agent. There seems no reason to me why the principal should not be able to make his position clear in this regard, in that there are two distinct but connected contractual relations. There is the contract which the agent has purported to make for the principal, and the contract between the agent and the principal.”

Waller J went on to observe that ratification is normally presumed to include relieving the agent from personal liability to his principal, but it must ultimately depend on the circumstances of the case and the nature of the liability. If a principal ratifies an unauthorised act by an agent, it may or may not in all the circumstances be reasonable to regard any resulting loss to the principal as caused by the principal’s subsequent ratificatory conduct rather than the agent’s earlier breach of duty.

The relevance of this discussion to the present case is that if the same degree of knowledge is required (a) for the purposes of ratification of the agent’s conduct as between the principal and the third party and (b) for the purposes of relieving the agent from liability to the principal for his breach of duty, that would be a strong reason for holding that ratification would require knowledge of all the circumstances material to the agent’s breach of duty. But I do not accept the premise that ratification vis-à-vis the third party and relief of the agent from personal liability necessarily go together.

If a principal knows the essentials of what happened as between the agent and the third party (in this case, that the agent entered into a quota share treaty on behalf of the principal with the third party), I find it difficult to see as a matter of justice and principle why that should not be sufficient knowledge for the purposes of ratification of the agent’s conduct vis-à-vis the third party. In most cases the principal will know or be in a position to find out very quickly whether the agent acted without authority, and that may account for the absence of direct authority on the issue.

During the argument I invited counsel’s suggestions about the sorts of case where the situation might be likely to arise that the principal knows what the agent has done but does not know that the agent lacked authority to do it. Mr Edelman suggested (day 5 pages 80-81) that it was most likely to arise in corporate life where the company was not small. Aside from fraud, he suggested that the situation might arise where the person who dealt with the agent had left the company without leaving an adequate documentary record of what happened; or where the files had gone missing; or where the principal could not immediately work out who in the organisation had dealt with the contract.

If the principal knows what the agent has done, but does not know that the agent lacked authority to do it because of a lack of adequate records or internal organisation, I do not see why in justice that should operate to the detriment of the third party. As Steyn LJ observed in First Energy (UK) Limited v. Hungarian International Bank Limited [1993] 2 Lloyd’s Rep. 194, 196 in the context of a question of ostensible authority:

“A theme that runs through our law of contract is that the reasonable expectations of honest men must be protected. It is not a rule or a principle of law. It is the objective which has been and still is the principal moulding force of our law of contract. It affords no licence to a judge to depart from binding precedent. On the other hand, if the prima facie solution to a problem runs counter to the reasonable expectations of honest men, this criterion sometimes requires a rigorous re-examination of the problem to ascertain whether the law does indeed compel demonstrable unfairness.”

Dealing with an agent carries risks, because the agent may not have the authority which he claims, but where a party deals honestly with an agent whose principal goes ahead with the transaction with knowledge of what the agent has ostensibly done on the principal’s behalf, his reasonable expectation would surely be that the principal would be bound by the transaction. Entirely different considerations would apply if the party dealing with the agent was not acting honestly but was involved in fraudulent conduct by the agent.

I conclude that the defendant’s knowledge that Risk had entered into the quota share treaty purportedly on its behalf was sufficient knowledge of the transaction for the purposes of ratification.

In Suncorp Insurance and Finance v. Milano Assicurazioni SPA [1993] 2 Lloyd’s Rep. 225, 234 Waller J stated the following general principle (taken from Bowstead & Reynolds):

“Ratification may be express or implied, and will be implied whenever the conduct of the person in whose name a transaction has been entered into is such as to show that he adopts the transaction in whole or in part; mere acquiescence or inactivity may be sufficient.”

In this case the claimant relies on the defendant’s inactivity in not notifying the claimant that it had reason to question whether its apparent participation in the treaty was binding on it until 8 May 2003 (in response to the claimant’s specific enquiry whether Risk was still authorised to accept payment under the treaty following the advertisement placed by the defendant in Insurance Day on 30 April 2003 announcing that it had withdrawn any underwriting authority from Risk), although the defendant had been aware from Mr Bowers’s report to Mr Hoff dated 12 March 2003 of the existence of the treaty and of the fact that payment of premium was expected by 31 March 2003.

In the course of submissions Mr Hirst made reference to the defendant’s conduct in applying for and obtaining a world-wide freezing order against Risk on 14 April 2003, but he rightly did not seek to build a positive case on that conduct because it was not part of the claimant’s pleaded case on ratification.

The question whether an intention to adopt a contract as binding should be inferred from the principal’s silence must depend on whether it is the only reasonable conclusion to draw in all the circumstances.

In this case, it seems to me that the defendant’s silence between 12 March and 8 May 2003 is sensibly capable of being attributed to uncertainty on its part as to its position. That explanation would be consistent with the defendant’s letter dated 8 May 2003, in which it gave a holding response to the claimant’s enquiry whether Risk was authorised to accept payments under the treaty. Moreover, given the complexity of the relationship between Mr Gebauer and Risk, investigated by Moore-Bick J in the trial between the defendant and Risk, it would not be surprising if the defendant was unsure of its position in relation to the quota share treaty during the period in question. If in such state of unsureness it had done any positive act by way of performance of the treaty without expressly reserving its position, it would have ratified the treaty, but it did nothing.

Mr Hirst commented critically on the defendant’s failure to call any evidence to provide an account of its investigations and state of knowledge concerning Mr Gebauer and the quota share treaty, and its silence towards the claimant, during the period between 13 March and 8 May 2003. The fact that the defendant did not call such evidence is not surprising in view of the late raising of this issue. In any case, it is for the claimant to show that in the absence of such evidence the only reasonable conclusion to draw from the Defendant’s silence during that period was that it was content to treat the contract as binding. I am not persuaded that this is so.

It is unfortunate for the claimant that it entered into the quota share treaty in the belief in good faith that Risk had the defendant’s authority to act on its behalf, but I do not accept that the defendant represented to the claimant that Risk had such authority or that the defendant ratified the contract.