Key takeaways
Apparent authority requires principal’s representation
Fraud alone cannot create binding contractual authority.
Cyber fraud risks in high-value transactions
Sophisticated scams can derail deals despite due diligence.
Strengthen controls and insurance against cybercrime
Robust systems and coverage are vital for global operators.
Logix Aero Ireland Ltd -v- Siam Aero Repair Company [2025] EWHC 1283 (KB)
This was a dispute related to the sale and purchase of aircraft engines. As a result of an intervening fraud by an (apparently) unrelated third party, the buyer paid the purchase funds to the fraudster’s, rather than the seller’s, account. The buyer subsequently sought to argue that the fraudster had ostensible or apparent authority to act on the seller’s behalf. The Court dismissed this argument and, in doing so, usefully summarised the principles of apparent authority.
The background facts
The parties are companies engaged in the purchase, repair, sale and lease of aircraft engines. By a letter of intent (LOI), the claimant (an Irish company) agreed to buy, and the defendant (a Thai company) agreed to sell two aircraft engines.
The defendant seller signed the LOI on 4 July 2024 and the claimant buyer signed it on 9 July 2024. However, the LOI was, in part, subject to the signature of sale and purchase agreements (SPAs).
The parties primarily negotiated the terms of the SPAs in email correspondence. From 29 July 2024, however, a fraudster inserted himself into this email correspondence in a way that led the parties to believe they were still dealing with each other when, in fact, both were communicating with the fraudster, who was doctoring a party’s message before sending it on to the other.
This led to the claimant paying the purchase monies for the engines into the fraudster’s bank account. The fraud was only discovered when the defendant informed the claimant by telephone and WhatsApp that the funds had not been received. By then, the money had disappeared from the fraudster’s bank account.
The defendant declined to release the engines to the claimant as it had not received payment. There was no evidence that the defendant had been involved in (or had facilitated) the fraud, nor that it had been engaged in any wrongdoing.
Among other things, the claimant sought declarations that the two engines were its property because it had paid the contract price for them. It also sought delivery up of the engines and/or damages.
Authority and agency
The claimant argued that the defendant had allegedly placed the fraudster in a position which carried with it usual authority to negotiate and execute the SPAs on the defendant’s behalf and that, as a result, the defendant had apparent, even if not actual, authority to do so.
The claimant, therefore, submitted that a binding agreement had been reached between the claimant and the defendant in the form of the SPAs that the claimant signed and returned on 13 August 2024, as the fraudster had been acting with the apparent authority of the defendant. Accordingly, the defendant was in breach of the agreement in not supplying the engines after the agreed payment had been made.
The defendant contended that the “apparent authority” argument was predicated on there being a valid execution of the SPAs, when in fact there were no executed SPAs as a result of the fraud. The defendant had signed a different document to the one signed by the claimant.
Further, the defendant submitted that it had never in any way represented to the claimant that the fraudster was acting on its behalf. Any representation had come from the fraudster himself, rather than the defendant, who had also been deceived by the fraudster. The fraud had occurred without fault on the part of the defendant.
More fundamentally, there was no relationship between claimant, defendant and fraudster that fitted within the “apparent agency” concept. Neither the claimant nor the defendant knew of the fraudster’s existence; they both thought that they were dealing with each other, rather than the claimant believing it was dealing with an agent who was acting on the defendant’s behalf.
The High Court decision
The Court summarised the principles of apparent (or ostensible) authority. In essence:
This covers a situation where a person, P, by words or conduct, represents or permits it to be represented that another person, A, has authority to act on P’s behalf.
P is then bound by the acts of A with respect to anyone dealing with A as an agent on the faith of any such representation, to the same extent as if A had the authority that A was represented to have, even though A had no such actual authority.
The representation in question creates an estoppel, preventing the principal from asserting that they are not bound by the obligations which the contract imposes on them.
The representation can be express (written or oral), implied from a course of dealing, or by permitting the agent to act in some way in the conduct of the principal’s business with another person.
The expression “usual authority” refers to the authority of a person, the agent, to enter into transactions of a type that are ordinarily undertaken by a person appointed to a particular position.
However, the appearance of authority must emanate from the principal; an agent cannot ordinarily authorise itself.
The mere fact that the principal enables the agent to commit fraud by putting the agent in a position where the agent can do so is not, without more, decisive. The common law has so far avoided recognising a concept of estoppel by negligence.
The Court stated that the claimant’s contention that a binding agreement had been reached for sale and purchase of the engines (which the defendant subsequently reneged on) was dependent on the contention that the fraudster acted with the defendant’s apparent authority.
In the Court’s view, this contention had no reasonable prospect of success. No representation had been made by the defendant, by words or by conduct, that the fraudster had been authorised to act on the defendant’s behalf in the negotiations with the claimant. The fraudster had set up fake email accounts pretending to be the claimant and pretending to be the defendant. It was evident that at all material times the claimant believed it was communicating with the defendant. There was no suggestion of third-party involvement, either permitted by the defendant or understood by the claimant to exist.
Enabling an agent to commit fraud did not of itself found an instance of apparent authority, even if negligence was involved (and negligence was not even alleged here). Similarly, it was also quite clear that an alleged agent could not authorise itself.
The Court concluded that the concept of apparent authority had no application to the present circumstances where both parties thought they were dealing with each other, rather than either party believing that an agent was involved on the defendant’s behalf.
The Court also dismissed the claimant’s argument that the defendant was in breach of the confidentiality clause in the LOI. Alternatively, even if the clause had been breached, it was not the cause of the claimant’s loss. The Court proceeded to strike out the claim.
Comment
The case illustrates the increasing incidence of cyber fraud and cyber-crime impacting commercial transactions despite the involvement of sophisticated parties. In a situation where neither contractual party is guilty of wrongdoing, then only one party (the one having been deceived) may have to bear the risk (which, one can only hope, has been insured against).
Shipping has seen (and continues to see) its fair share of cyber fraud which is on the rise with multiple instances being reported, involving at times serious threats to crew/vessel/cargo safety. This in itself highlights the need for a clearer legislative framework and specialised insurance cover dealing with the multitude of scenarios that can unfold, as well as for the main stakeholders (the ship owners and managers) to ensure that their vessels and company networks are robust enough to withstand sophisticated cyber-attacks.
