Solicitor’s ostensible authority to contract on behalf of client

In Zhang v VP302 SPV [2009] NSWSC 73, a solicitor negotiated a contract for the purchase of property by his clients. The vendor’s solicitor sent a draft contract.  The purchasers’ solicitor went through it with his clients.  They specified changes they required.  The purchasers’ solicitor put the changes to the vendor’s solicitor.  The vendor’s solicitor substantially accepted the changes, but in purporting to document them fiddled around the edges so that what was sent back was in effect a counter-offer. The purchaser’s solicitor already had a signed contract from his clients.  They had signed the execution page.  The solicitor played around with the contents of the previous pages so as to accept the vendor’s counter-offer, and sent off to the vendor’s solicitor the part signed by his clients.  It is not suggested that he was not acting in what he considered to be his clients’ interests.  But he did not take his clients’ instructions before agreeing to the counter-offer by sending off the part signed by them, amended in accordance with the counter-offer.

The purchasers desired to get out of the contract.  They said that they had never agreed to some of its terms.  The vendor’s position, not surprisingly was —

Too bad! your solicitor agreed to the terms we proposed on your behalf, we had no reason to believe he did not do so with your authority, we were entitled to rely on his ostensible authority, and you’re stuck with it.  If you’ve got a problem go sue him.

Sounded like a lay down misere for the vendors to me, but this decision unearthed a panoply of authorities for the proposition that a solicitor has no ostensible authority to bind his client to an ordinary contract.  (I say ‘ordinary’ because some kinds of contracts lawyers clearly do have ostensible authority to bind their clients to, for example contracts for the out of court settlement of litigation.)  Justice White of the NSW Supreme Court found for the vendor on this question in the end, but had to get over a  lot of hurdles along the way.  This was his Honour’s review of the authorities, and analysis of this issue:Ostensible Authority

33 Did Ma & Co have ostensible authority to exchange contracts on behalf of the plaintiffs which included those terms? There is surprisingly little authority on that question. The relevant principle is stated in Bowstead & Reynolds on Agency, 16th ed, Article 74 as follows:

Where a person, by words or conduct, represents or permits it to be represented that another person has authority to act on his behalf, he is bound by the acts of that other person with respect to anyone dealing with him as an agent on the faith of any such representation, to the same extent as if such other person had the authority that he was represented to have, even though he had no such actual authority.

34 Such authority must be conveyed by the principal, but the representation of authority may be implied from a course of dealing, including by permitting the agent to conduct the principal’s business with other persons (Bowstead & Reynolds on Agency at [8-017]; Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 503). In this case the plaintiffs made it known to the vendor’s agent and the vendor that they had retained Ma & Co to act on their behalf on the exchange of contracts. They knew that the vendor’s solicitor had forwarded a draft contract to Ma & Co. In the presence of the vendor’s agent they discussed with Mr Ma changes to be made to the draft contract. They authorised Ma & Co to exchange contracts on their behalf. (It was not submitted that the vendor through its agent, Sydney Advance Realty, knew of any limitations on Ma & Co’s authority.) The plaintiffs must also have known that Ma & Co would communicate with the vendor’s solicitors for the incorporation into the contract of the amendment to the draft contract which the first plaintiff had initialled at their meeting. They impliedly authorised Ma & Co to negotiate such changes with the vendor and by permitting Ma & Co to do so, they held out that firm’s authority to negotiate such changes.

35 The trend of recent authority is that a solicitor does not have implied or ostensible authority to commit his or her client to a contract by negotiation or correspondence with the opposite party. That is different from the question whether a solicitor has ostensible authority to bind his or her client by an exchange of identical counterparts.

36 In Pianta v National Finance and Trustees Ltd, Barwick CJ said (at 152):

“So far as the solicitor is concerned, however, the terms of his retainer are clearly enough defined in the evidence. He was retained, in the capacity of a solicitor, to settle written terms of sale which he could advise his clients to accept and sign. For this purpose, he could negotiate and agree with the representatives of the respondent the terms which the respondent could be expected to accept or, if the representatives were so authorized, which they could accept on behalf of the respondent and which the solicitor could advise his clients as satisfactory in their interest. But this does not confer on the solicitor authority to contract on behalf of the clients to sell the land. If he is to have that authority it must be given expressly or by necessary implication.”

37 Menzies J said (at 154):

… unless Mr Ackland [the solicitor] had authority from the Piantas to sell the land on their behalf there was, apart from anything else, no contract of sale between the appellants and the respondent. No express authority was proved and, of course, none can be implied. A solicitor is not a salesman and a finding that a client had authorized a solicitor whom he consulted to sell his land would require clear and cogent evidence.

38 The High Court appears to have been of the view that the solicitor did not have ostensible authority to bind his client to a contract for the sale of land. But in Pianta v National Finance and Trustees Ltd, the question was whether the solicitor had made an oral agreement on behalf of his client to sell the land.

39 In Summit Properties Pty Ltd v Comserv (No. 784) Pty Ltd (1981) 2 BPR 9173, the Court of Appeal held that a firm of solicitors had no authority to commit their client to an agreement for lease in the course of correspondence with the lessee’s solicitor. Although put in terms of actual authority conferred expressly or by necessary implication, it necessarily follows from the Court’s reasoning that the solicitor did not have ostensible authority to bind their client to a contract for lease in that way.

40 The plaintiffs relied upon CTM Nominees Pty Ltd v Galba Pty Ltd (1982) 2 BPR 9588. The question there was whether the defendant had entered into a contract to grant to the plaintiff an option to purchase land. The defendant company had executed a draft contract and given it to its solicitor who forwarded it to the plaintiff’s solicitor. The plaintiff’s solicitor and the defendant’s solicitor then discussed amendments to the terms of the contract. The defendant’s solicitor agreed to certain changes as to the apportionment of consideration which was of no concern to his client, but to which he had no actual, or, as it was held, implied, authority to agree. On his agreeing to the amendment, the plaintiff’s solicitor made alterations to both copies of the agreement, had one executed by the plaintiff and returned it to the defendant’s solicitor. Needham J held that the defendant’s solicitor not only had no express or implied authority to agree to the change to the contract executed by his client but also had no ostensible authority to do so. On the claim that the defendant’s solicitor had ostensible authority, the plaintiff relied upon Magripilis v Baird [1926] St R Qd 89, and in particular the judgment of Isaacs J where his Honour said (at 91):

Where a principal holds out his solicitors as his medium of communication in business negotiations as to the settlement of a lease, their letters on the subject of that business may either absolutely bind him in carrying ostensible authority, or may, in the absence of satisfactory evidence to the contrary, be regarded by a jury as authorised by him.

41 Needham J held that this was not part of the ratio of the High Court’s decision. His Honour held that merely because the solicitor was held out by the defendant as the medium of communication in relation to the settlement and exchange of the option agreement did not confer ostensible authority on him to agree to and effect the requested alteration (at 9590-9591). That is consistent with the cases referred to above. However, it does not indicate that a solicitor does not have ostensible authority to exchange contracts on behalf of his or her client so as to bind the client to the terms of the contract exchanged.

42 The plaintiffs also relied upon Longpocket Investments Pty Ltd v Hoadley (1985) 3 BPR 9606. There, the principal question was whether the parties were bound where the counterparts exchanged were not identical. It was held that they were not. The purchaser’s solicitor had amended in material respects a clause in the draft contract which provided for completion to be subject to finance. The vendor’s solicitor had no actual authority to agree to the amendment. Applying Pianta v National Finance and Trustees Ltd, Hope JA held that the vendor’s solicitor had no implied authority as no such implication was necessary (at 9611). There is no discussion in the reported judgment of any issue concerning ostensible authority and it was not a case in which the solicitors exchanged identical counterparts.

43 There are other authorities which affirm that the appointment of a person as a solicitor confers no implied authority to make contracts on behalf of his or her client (Rymark Australia Development Consultants Pty Ltd v Draper [1977] Qd R 336; Nowrani Pty Ltd v Brown [1989] 2 Qd R 582). In the latter case, McPherson J said (at 586):

The mere fact that a person is a solicitor confers no implied authority to make contracts on behalf of one who happens to be his client: Pianta v. National Finance & Trustees Ltd (1964) 38 A.L.J.R. 232; Rymark Australia Development Consultants Pty Ltd v. Draper [1977] Qd.R. 336, 344. Nor, apart from express authority, does a solicitor have authority to agree to a variation of his client’s contract: see George v. Pottinger [1969] Qd.R. 101, 107.

44 In the passage cited from Rymark Australia Development Consultants Pty Ltd v Draper, W B Campbell J said (at 344):

Solicitors are not, in the absence of express authority, agents of their clients to conclude a contract for them: Lockett v. Norman-Wright [1925] Ch. 56, at p. 62; Eccles v. Bryant and Pollock [1948] 1 Ch 93 at 106.

45 In Lockett v Norman-Wright [1925] 1 Ch 56, Tomlin J said (at 62):

Solicitors are not, in the absence of specific authority, agents of their clients to conclude a contract for them …

That was said in the context of correspondence passing between solicitors for the negotiation of an agreement for lease where the parties contemplated the exchange of a formal contract. Likewise, in Eccles v Bryant [1948] 1 Ch 93, where the parties contemplated an exchange, Lord Greene MR (at 102-103) and Cohen LJ (at 106) said that a solicitor did not have authority to conclude a contract by correspondence without an exchange.

46 But that is not to say that a solicitor does not have ostensible authority, whatever his actual instructions, to conclude a contract on behalf of his client by exchanging identical counterparts. In Eccles v Bryant, Lord Greene MR said (at 102):

… the principals in this case, in instructing their solicitors, must, in my opinion, be assumed to have given them authority to carry the business through in the ordinary way recognized as the customary way for dealing with conveyancing matters of this kind, in the absence of any evidence to the contrary. It would be quite impossible to carry through business unless one made some such assumption when a principal puts a matter into the hands of a solicitor.

47 His Lordship had earlier explained that the customary method of exchange of counterparts provide certainty. His Lordship said (at 99-100):

It was argued that exchange is a mere matter of machinery, having in itself no particular importance and no particular significance. So far as significance is concerned, it appears to me that not only is it not right to say of exchange that it has no significance, but it is the crucial and vital fact which brings the contract into existence. As for importance, it is of the greatest importance, and that is why in past ages this procedure came to be recognized by everybody to be the proper procedure and was adopted. When you are dealing with contracts for the sale of land, it is of the greatest importance to the vendor that he should have a document signed by the purchaser, and to the purchaser that he should have a document signed by the vendor. It is of the greatest importance that there should be no dispute whether a contract had or had not been made and that there should be no dispute as to the terms of it. This particular procedure of exchange ensures that none of those difficulties will arise.”

48 Such certainty can only exist if a solicitor has ostensible authority as well as implied actual authority to conclude a contract on behalf of his or her client through the usual method of exchange.

49 In Domb v Isoz [1980] 1 Ch 548, one of the questions was whether a solicitor had implied or ostensible authority to conclude a contract on behalf of his client by agreeing by telephone that contracts should be treated as immediately exchanged at that moment. Buckley LJ said (at 557-558) that:

In my judgment, the essential characteristic of exchange of contracts is that each party shall have such a document signed by the other party in his possession or control so that, at his own need, he can have the document available for his own use. Exchange of a written contract for sale is in my judgment effected so soon as each part of the contract, signed by the vendor or the purchaser as the case may be, is in the actual or constructive possession of the other party or of his solicitor. Such possession need not be actual or physical possession; possession by an agent of the party or of his solicitor, in such circumstances that the party or solicitor in question has control over the document and can at any time procure its actual physical possession will, in my opinion, suffice. In such a case the possession of the agent is the possession of the principal. A party’s solicitor employed to act in respect of such a contract has, subject to express instructions, implied authority to effect exchange of contracts and so to make the bargain binding upon his client. This he can, in my judgment, do by any method which is effectual to constitute exchange.

In the present case, in my judgment, Mr Bond on February 9 constituted himself Mr Redstone’s agent to hold the defendant’s part of the contract to Mr Redstone’s order from the moment of the telephonic agreement, and to despatch it to Mr Redstone forthwith, or upon Mr Redstone’s demand. At the same time Mr Bond became the holder of the plaintiffs’ part of the contract to the order of his own client, the defendant, and was discharged from any continuing obligation to hold it to Mr Redstone’s order as he had theretofore been bound to do in pursuance of the letter of December 22.

It is, I think, erroneous to suggest that any special authority from the defendant would have been necessary to enable Mr Bond to take this course. He had authority to effect exchange, and he had ostensible authority to effect exchange at any time, and he did effect exchange of the defendant’s part of the contract for the plaintiffs’ part of the contract.

50 Bridge and Templemann LJJ agreed with these reasons. Bridge LJ also said (at 560) that:

A solicitor acting for a vendor or a purchaser who holds his client’s signed part of the contract has his client’s ostensible authority to effect exchange of contracts; so much is common ground.

51 So far as I am aware, it is not usual conveyancing practice in this State to require a solicitor who has been nominated by the vendor or purchaser to act on the vendor’s or purchaser’s behalf to produce evidence of his actual authority to exchange contracts on behalf of his or her client. In my view, the vendor’s solicitors were entitled to assume that Ma & Co had authority to forward by way of exchange the contract which had been signed by the purchasers on the execution page. They were entitled to assume that the purchasers assented to all of the terms in the document so forwarded. By holding out Ma & Co as the solicitors who would act for them in effecting an exchange of contracts, the plaintiffs are bound by the conduct of their agent in effecting the exchange. For these reasons, I conclude that a binding contract came into existence between the parties.’

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