In a recent case a property developer who owed over £4.5m to his lender tried to argue that a local manager had agreed to accept sale proceeds of just £1.5m in settlement of the whole debt.  The bank claimed that the manager had no authority to write off £3m and alleged that there had been collusion and fraud between the borrower and a bank employee.

The bank had advanced monies to facilitate the development of two north London properties and took security over the properties.  In March 2013 the sums due to the bank were just over £4.5m.  There were in the bank’s files a number of letters that, if genuine, meant that he bank had agreed to write off the remaining £3 million of secured debt in return for receiving £1.65 million from the sale of one of the properties due to complete later that year.

The bank argued that the letters and the two counter-signatories on them were not genuine and the higher level of authority within the bank, the General Manager and also the Head of the Business Centre, had not agreed to waive the debts.  A later memo in July 2013 that contradicted the suggestion of any write off was relied on in support.

A forged letter

The borrower then sought to rely on the apparent authority of the relationship manager at local branch level and argued that the validity of counter-signatories was not the be all and end all.  The July memo was said to be the forgery.

With allegations of fraud flying both ways the judge needed to assess the reliability of the witnesses carefully.  Describing the junior bank employee as ‘taciturn’ and ‘sullen’ when giving evidence, where others were ‘credible’ and ‘straightforward’, gave a clue as to conclusions he was reaching.  The letter was a forgery it was decided.

On apparent authority the borrower needed to show that the principal had authorised the agent (ie a senior person in the bank had authorised the local manager to write off such substantial sums) and that reliance by the borrower on the apparent authority was reasonable and honest.

The judge found that the bank had never done anything that could have given the local relationship manager any status to write off loans. Nor was there anything in the history of the banking arrangements with this borrower, or typical procedures within the bank, that could have led the borrower to believe that the relationship manager had any sort of authority of this type.


In summary, the judge was “satisfied that the letters of 7 March and 15 March constituted a dishonest try-on by two men who had their own separate grievances against [the bank] which as far as they could see in March was about to collapse. As such, even if Mr S. had been able to persuade me that it was objectively reasonable for him to have believed that Mr A. had authority to agree to what is recorded in the 15 March Letter or the more limited authority to communicate the decision of the Bank, I find that he did not have any honest belief that Mr A. had either form of authority.”

For the borrower perhaps the potential upside was thought worth the risk of trial. And for the bank they perhaps had no option but to defend the claim. Both may feel somewhat unhappy that the matter went to trial (or different reasons), but at least for impartial observers we can take from the case a helpful summary of the law on apparent authority in a practical context.  

[Further reading - Stavrinides v Bank of Cyprus (2019) EWHC 1328 (Ch)] 

About the author

Susan Hopcraft Partner

Susan advises on all aspects dispute resolution particularly in the financial services sector. She has extensive insurance, professional negligence and restrictive covenants experience. She deals with claims against solicitors, valuers, surveyors, brokers and accountants, fraud issues, recoveries for lenders and bank mis-selling.