Paul Dunbar comments on lessons for Proprietors of Businesses.
Celebrity chef Gordon Ramsay has recently failed in his High Court action where he claimed that he was not required to personally guarantee the £640,000 annual rent for a pub in London owned by film director and actor Gary Love. Mr Ramsay alleged that he had not known that his signature had been added to the lease of the pub confirming that he would personally guarantee the rent.
The York and Albany, near Regent's Park, was let to Mr Ramsay's company Gordon Ramsay Holdings International Ltd ("GRHI"). The terms of the lease provided for the obligations of the lessee to be guaranteed by Mr Gordon Ramsay. Mr Ramsay's signature was placed on the counterpart lease by Mr Ramsay's father in law, Mr Hutcheson, who at the time was chief executive officer of one of Mr Ramsay's companies. The signature was added by a ghost-writing machine, frequently used by authors to sign books. Mr Justice Morgan, when considering whether a ghost-writing machine could be used to validly sign a document, stated that "it was not necessary that the guarantor should sign the document with a pen in his own hand. It was accepted that if Mr Ramsay had himself operated the signature writing machine to place his signature on the deed, then the deed would have been effectively signed by him. Similarly it was accepted that if Mr Ramsay had expressly authorised another person to operate the signature writing machine to place Mr Ramsay's signature on the deed."
The question then arose as to whether Mr Hutcheson had authority to place Mr Ramsay's signature on documents. Mr Ramsay contested that Mr Hutchinson did not have authority. However, the court found that Mr Hutcheson had been given a wide general authority to act on Mr Ramsay's behalf. Even if Mr Ramsay did not know the precise details of the guarantee, Mr Ramsay trusted Mr Hutcheson explicitly to enter into business transactions on his behalf, and there were no limitations placed on his authority. Mr Justice Morgan refused to make the declaration that Mr Ramsay had sought.
In the light of this case, it is important for businesses to understand the concept of agency.
An overview of agency:
A principal will be bound by a contract entered into by the agent if the agent had authority to enter into the transaction. The agent can be given authority in a number of ways:
Actual authority: Derives from an agreement between the agent and principal
Express actual: Where the principal gives the agent express instruction to do something
Implied actual: Where the principal impliedly accepts that the agent has authority to represent the principal in a particular way.
Apparent/ostensible: Viewed from the position of the third party and depends on whether they were entitled to assume that the agent had authority. Whether the principal is bound will depend on:
i. Whether the principal held the agent out as having authority (e.g. if principal puts agent's details on website or business cards)
ii. Whether the third party relied on this :
- If principal is bound to third party where the agent should not have entered into the contract: claim against agent for exceeding authority
- If principal is not bound: third party may claim against agent for breach of warranty of authority
In the Gordon Ramsay case Mr Justice Morgan found that Mr Hutcheson, as agent for Mr Ramsay, was given apparent/ostensible authority to enter into contracts on his behalf. For this reason, Mr Ramsay could not escape liability.
Paul Dunbar says that there are some important lessons for Proprietors of Businesses.
Practical advice for businesses:
- Ensure you know what is in important documents and read carefully before signing or asking others to sign on your behalf.
- Ensure agents i.e. managers/employees are aware of the extent of their authority so that it is not exceeded e.g. can only enter into certain types of transactions.
- Ensure that others dealing with your business are aware of the extent of the agent's authority, particularly if the agent's name is on your website, business cards etc.