FREEMAN & LOCKYER V. BUCKHURST PARK PROPERTIES (Mangal) Ltd. (1964)

INTRODUCTION 

The 1964 case titled Freeman & Lockyer V. Buckhurst Park Properties Ltd stands as a linchpin  decision in context of English Company law. It concerns with the concept of distinction of  actual authority and apparent authority and their impact on corporate contractual obligations.  The reason for emergence of this case was due to a dispute relating to engagement of an  architectural firm by a Shiv Kumar Kapoor, who acted as the director of the company without  any formal appointment. It deals with the question whether he had the authority to engage the  architectural firm on behalf of the company and is the contract enforceable. 

The court had to examine whether actual authority was possessed by Mr. Kapoor to enter into  contract with Freeman & Lockyer on behalf of Buckhurst Park Properties. The Court’s examination of Kapoor’s actions determined the crucial question regarding actual and apparent  authority and whether a 3^rd party reasonably believes that the agent had legitimate authority to  act on behalf of a principal based on their conduct. It is widely acknowledged that the case of  Freeman & Lockyer V. Buckhurst Part Properties Ltd established important precedents relating  to the company’s liability for actions of individuals acting on behalf of the company. 

Section 50 (1) of the companies Act, 1948 dealing with provisions relating to principles of  actual authority is touched upon in this case. Lord Diplock, in this case, emphasised that actual  authority and apparent authority are different from each other and cannot be treated as each  other’s substitutes. They co-exist with each other but may also exist without the other. Both  carry different scopes, apparent authority is not legally binding while actual authority is the  right to officially act on the principal’s behalf. 

FACTS 

This case is filed in regards with a dispute arising due to unpaid architectural fees for work  done on Buckhurst Park Estate in Sunning hill, Berkshire by an architectural firm. The construction company named Buckhurst Park Properties (Mangal) Ltd., appointed an  architectural firm named Freeman & Lockyer for a construction project. The firms was  represented by one Mr. Kapoor who acted as managing director of the company but he was not  officially appointed and did not have actual authority. 

Once the project was completed, Freeman and Lockyer sought payment for the services they  provided but the Buckhurst Part Properties Company denied it stating that they were not  obligated to compensate them because they had not given any formal authority to Mr. Kapoor  to form contract and acted on his own. 

The case was initially brought before Herbert LJ at Westminster County Court and he gave the  decision on May 2, 1963 in favour of the firm and ordered the defendant company to pay the  fees to the plaintiff because despite the fact that Mr Kapoor did not have actual authority and  was not appointed as a managing director by the company, he had acted within knowledge of  the directors. 

The defendants were not satisfied with this decision of the County Court Judge and appealed  before the Court of Appeal where it was heard by Lord Diplock.

ISSUE RAISED 

1. A major issue which was raised in this case was whether Mr Kapoor had actual authority  to from contracts with the firm and act on behalf of Buckhurst Park Properties Ltd. 2. Another important issues raised was whether Freeman & Lockyer had reasonably relied on  the representation which entering into the contract. This was important to determine  whether the company could deny liabilities for the contract based on Kapoor’s actions. 3. The 3^rd issue and the determining one was whether the board should pay the firm despite  Kapoor assuming duty of managing director without any authority. 

PLAINTIFF’S ARGUMENTS (Freeman & Lockyer) 

1. The Plaintiffs argued that Mr. Kapoor seemed to have authority to form contracts. They,  relying on doctrine of estoppel also pointed out that other directors of Buckhurst Park  Properties knew about the contract and allowed Kapoor to operate with powers of a  managing director. 

2. They also gave the argument that they relied on Kapoor’s representations from his conduct  of a managing director. They had claimed that Kapoor’s actions, accompanied by a lack of objections from the directors, were enough justification for them to believe that he was authorized to work on behalf of Buckhurst Park Properties, and the company should be liable for the fees owed to them, and it is unfair for the company to deny the payments. 

DEFENDANTS’ ARGUMENTS (Buckhurst Park Properties Ltd.) 

1. The main argument presented by the defendants was that they did not provide any actual  authority to Mr Kapoor to enter into contracts of behalf of the company and that they should  not be held responsible for his unauthorized actions. 

2. They also stressed that they were not aware of the actions of Mr Kapoor and that Freeman  & Lockyer could not justifiably reply on his actions as they should have known about the  internal governance rules of the company. They argued that there was no representation of  the authority from their side and they should not be held accountable for his unauthorized  acts. 

JUDGEMENT 

The primary judgement was given by Diplock LJ of the Court of Appeal. He held that in the  case of Freeman and Lockyer v. Buckhurst Park Properties Ltd, the decision of the County  Court Judge was correct and the respondent company is liable to pay the appellant firm the due  payment for their architectural services. Diplock LJ highlighted that even if Mr Kapoor did not  have actual authority to engage in contract on behalf of the company as he was not formally  appointed, he still possessed apparent authority. This is because his actions were consistent as  of someone who had managerial powers and other directors of the company were aware of this  fact and allowed him to operate in the same manner. 

The court found that due to actions of Mr. Kapoor and the company, Freeman & Lockyer had  reasonable belief to be induced to enter into contract with Buckhurst Park Properties Ltd. It  emphasized that relying of 3^rd party on actions of agents needs to have reasonable grounds and  in this case, there were enough reasons to believe it. 

The court came to the conclusion that Mr. Kapoor possessed apparent authority and it was  enough to engage the architects on behalf of the company. The company also did not took  reasonable steps to inform the third party that Mr. Kapoor was not authorized to hire them and  this lead to Freeman & Lockyer believing, reasonably, that they were dealing with someone  who had authority to bind them into the contract and was officially appointed by the company.  This made it clear that the company is bound by actions of its directors if those are conducted  in such a manner that suggests they have authority and the company does not disallows those  acts. As a result, Buckhurst Park Properties were required to pay Freeman & Lockyr for the  services provided by them. 

The court held that liability of Buckhurst Park Properties is legitimate and they cannot escape  it. As a result, the company had the obligation to pay Freeman and Lockyer for their  architectural services.

CONCLUSION 

The case of Freeman & Lockyer v. Buckhurst Park Properties Ltd. has had a significant impact  on company law and provisions related to apparent and actual authority. It highlights the  difference between apparent and actual authority and how companies can be held accountable  for actions of individuals acting on behalf of the company without any formal authority. The  judgement in this case has had significant influence in rights of parties in commercial  transactions and governance of companies in corporate sector. 

The court, in this case, clarified that actual authority is one which is formally received or  delegated to an individual to act in a certain way and in this case, Shiv Kumar Kapoor lacked  it and acted on his own.  

The Court, however, found that Kapoor did possess apparent authority because of his conduct  and lack of directors in stopping him from acting that way as if he were authorized to do it.  This is crucial because it provides that third parties can rely on an agent’s apparent authority  while entering into a contract if they reasonably believed him to have actual authority. The  court’s recognition that it will be unjust to penalize Freeman & Lockyer for relying on Kapoor’s  apparent authority, given that they were induced to believe that he had actual authority,  highlights that it is important to respect the contractual obligations and prevent unwanted harm  to any party. The Court also reminds the companies to maintain their internal governance  system to make sure there is no miscommunication.  

In conclusion, the case of Freeman & Lockyer v. Buckhurst Park Properties Ltd. established  important precedents regarding actual and apparent authority, internal governance of  companies and on corporate practices. It remains a vital reference point for legal professionals  as it reinforces principles of fairness, dealings in commercial dealings and importance of  clearness communication in corporate governance.