The High Court has found in favour of a guarantor in its claim against a private equity fund for sums due under a promissory note or a corporate counter-guarantee, finding that the fund's agent had apparent/ostensible authority to bind it: Sanlam General Insurance Ghana Ltd v Sustainable Growth Fund II SCSP SICAV-SIF [2025] EWHC 559 (Comm).
This decision will be of interest to financial institutions as it illustrates the enforceability of financial contracts executed by agents who may not have actual authority. It reaffirms the principle in Armagas Ltd v Mundogas (The Ocean Frost) [1985] UKHL 11 that an agent will be deemed to be acting with ostensible authority (which can be binding) if there is a representation by the agent's principal to a third party that the agent has the relevant authority to conduct the principal's business.
Interestingly, the court noted that the guarantor might have struggled to make good its case on ostensible authority, if the court had looked exclusively at the terms of the agreement relied upon. However, in the court's view, it was legitimate to look at the whole of the correspondence that followed the signature of the counter-guarantee, as well as the lack of any assertion by the fund that its agent did not have the relevant authority to sign on its behalf (up until the defence was filed). The court observed that it was "very difficult" for the fund to argue that its agent lacked ostensible authority, particularly since the agent had signed not only the key contractual documents at the heart of this dispute, but also all related correspondence and the defence documents on behalf of the fund during the proceedings.
The decision highlights that when an agent's authority to sign a contract is questioned, the court may take post-contractual communications into consideration. This appears to be because such conduct can serve as an indication that there was no genuine issue about the agent's authority. While this approach may seem counterintuitive, a similar principle applies to contract formation generally, where conduct which post-dates the conclusion of the contract can be taken into account (see our blog post). The present decision therefore reinforces the importance of consistent and proactive post-contract conduct by the principal.
We consider the decision in more detail below.
Background
The defendant private equity fund (the Fund) promised to pay USD 1 million to a third-party borrower under a promissory note. The claimant (the Guarantor) guaranteed the Fund's obligations, and in turn the Fund provided a corporate counter-guarantee to the Guarantor. Both the promissory note and counter-guarantee were subject to English law/jurisdiction and were signed on behalf of the defendant Fund by an individual, Ms Wick, who was described as being the Fund's manager.
Claims were subsequently made against the guarantee, referencing the obligations under the promissory note, resulting in the Guarantor paying USD 1 million. The Guarantor then sought to recover this amount under the counter-guarantee from the Fund. However, the Fund failed to repay the USD 1 million.
The Guarantor commenced proceedings and applied for default or summary judgment. The Fund did not appear at the hearing and was not represented, but submitted a defence denying the claim and arguing that the Fund was incapable of being sued in the proceedings. It said that under Luxembourg law: (i) the Fund lacked a separate legal personality as an unincorporated entity; and (ii) it could only act through its general partner, which required two authorised signatories. In particular, the Fund highlighted that the promissory note and counter-guarantee were signed by one individual (Ms Wick), who did not have authority to act on behalf of the general partner alone.
The court noted that summary judgment was likely to be more beneficial to the Guarantor because it would result in a reasoned judgment which was likely to be easier to enforce in some foreign jurisdictions compared to a default judgment. The Guarantor, accordingly, premised its submissions on the assumption that the primary application was one for summary judgment.
Decision
The High Court granted summary judgment in favour of the Guarantor. The key issues which will be of interest to financial institutions are set out below.
Legal personality
The court said that there was no realistically arguable defence on the legal personality issue. This view was based on a law firm's opinion, obtained by the Guarantor, confirming that despite the Fund lacking a separate legal personality from its partners it could sue and be sued in its own name.
Authority
As its starting point, the court examined whether the Fund could only act through its general partner (as submitted by the Fund).
It acknowledged that the corporate records of the general partner specified that its corporate purpose was to act as the managing general partner of the Fund; and the statutory signature regime required the joint signatures of two managers if there is more than one manager (which was the case here). However, the court noted that Ms Wick signed the promissory note as the Fund's "manager" and the counter-guarantee "for and on behalf" of the Fund. In both cases, she did not sign on behalf of the general partner. While the court accepted it may be an unduly literalist approach, it viewed Ms Wick's signatures as representations that she was authorised to sign on behalf of the Fund.
Next, the court considered whether, based on all the evidence, the Fund adequately held out Ms Wick as authorised to act on its behalf, thus giving her ostensible authority to sign the promissory note and counter-guarantee.
Legal principles on ostensible authority
The court noted that whether an agent has ostensible authority typically depends on the law of the principal's country of incorporation. However, it was prepared to proceed on the basis that, even if the question was one of Luxembourg law, it would treat Luxembourg law as being the same as English law (in the absence of any evidence or assertion this was not the case).
The court referred to the decision in Armagas, summarising the principles applicable to establishing ostensible authority. In brief, ostensible authority is "created by a representation by the principals of the third party that the agent has the relevant authority and that the representation, when acted upon by the third party, operates as an estoppel, precluding the principal from asserting that [they are] not bound".Ostensible authority can commonly occur through representation by conduct, ie by permitting an agent to act in some way in the conduct of the principal's business with other persons. This is a representation that the agent has authority which an agent so acting in the conduct of the principal's business usually has.
The court also referred to the decision in Vegesentials Limited & Ors v Shanghai Commercial & Savings Bank Limited [2024] EWHC 7 (Ch) (see our blog post), which confirmed that a claimant must prove that the principal intended to hold out its agent as having authority to do what they did.
The present case
Applying Armargas to the present case, the key question was whether there was an adequate holding out of Ms Wick's authority to sign documents on behalf of the defendant Fund.
The court emphasised that no attempt had been made to explain how it was that Ms Wick was able to sign the promissory note, the counter-guarantee and numerous written communications, often copied to others within the general partner, without her authority to do so ever being challenged on behalf of the Fund at any stage prior to the service of the defence. In the court's view, it was a very difficult proposition to advance on behalf of the Fund that Ms Wick had no ostensible authority, when she also signed all the correspondence and the defence documents on behalf of the Fund in the proceedings.
The court highlighted that there was no evidence that Ms Wick lacked authority to execute the promissory note or counter-guarantee on behalf of the Fund. It acknowledged that the Fund was entitled to assert a technical defence without going further on an application of this sort. However, simply lodging a document which said that the Fund may only be represented by its general partner acting through two validly authorised signatories without providing evidence in relation to factual matters was not sufficient. This ignored the possibility that someone may be permitted by the Fund to hold him or herself out as having authority to execute agreements on its behalf, and that Ms Wick may have been authorised either expressly or impliedly by the general partner to act on the Fund's behalf.
The court underlined that if it had looked exclusively at the terms of the agreement, the ostensible authority case might have been difficult. However, in its view it was legitimate to look at the whole of the correspondence that followed the signature of the counter-guarantee and the lack of any assertion by the Fund that Ms Wick did not have the relevant authority to sign on its behalf (up until the defence was filed).
The court concluded that the Fund had failed to demonstrate that Ms Wick lacked ostensible authority to sign the promissory note or counter-guarantee. Accordingly, it found in favour of the Guarantor and held that it was entitled to summary judgment.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
