Celebrity Chef and the law of agency
In January, celebrity chef Gordon Ramsay brought a case in the High Court, where he claimed that he was not personally liable as guarantor for the £640,000 annual rent of a pub in London which was owned by film director Gary Love. Mr Ramsay claimed that he did not know that his signature had been electronically added to the lease of the pub confirming that he was the guarantor under the lease.
Mr Ramsay's signature was placed electronically (via a ghost writing machine) on the counterpart lease by Mr Ramsay's father in law, Mr Hutcheson, who was the then CEO of one of Mr Ramsay's companies. On considering whether a ghost writing machine could be used to validly sign a document, the Judge presiding over the case, Mr Justice Morgan 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, then the deed would have been effectively signed by Mr Ramsay."
The High Court further noted that 42 other legal documents had been signed using this ghost writing machine. The question was then whether Mr Hutcheson had authority to place Mr Ramsay's signature on such documents. Mr Ramsay argued that Mr Hutcheson did not have such authority. However, with Mr Ramsay and Mr Hutcheson being in business for over 20 years, the High Court found that Mr Hutcheson had been given a far reaching general authority to act on Mr Ramsay's behalf and there were no limitations placed on his authority. The High Court refused to grant the declaration that Mr Ramsay sought even though Mr Ramsay did not know the precise details of the guarantee. Mr Ramsay subsequently faced legal costs totalling over £1m.
There are a number of important principles of agency that businesses should be aware of following this case. 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: An express agreement (e.g. signed agreement) between the agent and principal.
- Express actual: Where the principal gives the agent express instruction to do something (e.g. via a written email).
- Implied actual: Where the principal impliedly accepts that the agent has authority to represent the principal in a particular way (e.g. through a previous course of dealings).
- Apparent/ostensible: an objective test which depends on whether a third party was entitled to assume that the agent had authority. This will depend on whether the principal held the agent out as having authority (e.g. the agent's details are on the business' website) and whether the third party relied on this, as Mr Love did in this case.
Mr Justice Morgan found that Mr Hutcheson, as agent for Mr Ramsay, had been given apparent/ostensible authority to enter into contracts on his behalf and therefore Mr Ramsay was liable to pay the annual rent as guarantor of the lease.
Practical advice for businesses:
- Seek legal advice before signing important documents or before asking others to sign on your behalf, particularly if you are to be a guarantor of such a document.
- Ensure agents (for example employees) are aware of the extent of their authority so that it is not exceeded, particularly if ghost signatures are to be used.
- Request agents to report back to you periodically to ensure that they are acting within their authorities.