Fraudster who intercepted transaction did not have apparent authority of seller

In Logix Aero Ireland Limited v Siam Aero Repair Company Limited [2025] EWHC 1283 (KB), the Court considered whether a fraudster had ‘apparent authority’ on behalf of the actual contracting party, thus rendering that party liable for damages. company

Background

The Claimant (“Logix”) and the Defendant (“Siam”) agreed a Letter of Intent in July 2024 for the sale and purchase of two aircraft engines. The parties’ intentions were to formally set out the agreement in a sale and purchase agreement (“SPA”).

Logix and Siam, for the most part, negotiated the terms of the SPA by email, but during those negotiations, a third-party fraudster inserted himself into the email correspondence and whilst the parties believed they were communicating with each other, they were, in fact, both communicating with the fraudster. The fraudster inserted his own bank details in Logix’s countersigned copy of the SPA and on the invoices sent out to Logix which resulted in them paying circa $825,000 to the fraudster.

The fraud was only uncovered when Siam contacted Logix by whatsapp and telephone to inform them that the funds had not been received. As a result of not receiving the funds, Siam refused to release the aircraft engines which prompted Logix to pursue a claim in the High Court seeking declarations, damages and/or delivery up of the aircraft engines on that basis that it suffered loss due to (i) Siam breaching a confidentiality clause in the letter of intent by providing certain confidential information to the fraudster or in the alternative, (ii) that Siam had placed the fraudster in a position of apparent authority and, as a result, Siam was in breach of contract for not supplying the aircraft engines despite payment having been made. Siam applied for strike out/summary judgment on the claim.

What is apparent authority?

Apparent (or ostensible) authority is where a person (“Party A”) represents or allows it to be represented (either through words or conduct) that another (“the Agent”) has authority to act on Party A’s behalf. Simply put, it relates to situations where a third party reasonably understands the Agent to have authority to act and so Party A would be bound by the Agent’s actions even if the Agent did not have actual authority.

Application to the Logix claim

Logix argued that as the fraudster was in possession of information entrusted to Siam, it appeared to Logix that the fraudster had been entrusted by Siam to conduct the negotiations and that they believed that they were dealing with an authorised agent when they were communicating with the fraudster.

Referencing Logix’s own pleaded case where they referred to the fraudster “pretending to be the claimant” and “pretending to be the defendant”, Mrs Justice Heather Williams, in her Judgment, stated that it was “..evident that at all material times [Logix] believed it was communicating with [Siam]. There [was] no suggestion of third party involvement, either permitted by [Siam], or understood to be present by [Logix].” She went on to state that “…there was nothing in the messages to suggest a change of circumstances, with a further person becoming involved who was acting on behalf [Siam].” As a result, the Judge 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 [Siam’s] behalf” and the fraudster therefore did not have apparent authority on behalf of Siam.

Breach of confidentiality Clause

After reaching a decision in relation to the fraudster’s apparent authority, the Judge considered the position in relation to the purported breach of the confidentiality clause in the letter of intent and ultimately this cause of action failed due to lack of causation with the Judge stating that this was “a situation in which it is not alleged that [Siam] let the fraudster into the email communications, or that [Siam] was at fault or that [Siam] otherwise created the conditions in which the fraud operated.” As such, even if there was a breach of the confidentiality clause, this did not cause Logix any loss; it was the fraudster’s actions that had caused the loss.

As a result the Judge found that Logix had no reasonable prospect of success in its claim and proceeded to strike out the claim.

Lessons to be learnt

Cyber-crime is rife and fraudsters are becoming bolder and more sophisticated in their operations. Parties should be alert in order to avoid falling victim to these scams. Using the current case as an example, there were various red flags that, if identified, could have prevented the fraud from occurring in the first instance, including the parties’ email addresses having changed from “.com” to “.co.” and Logix being asked to pay sums to an account based in Vietnam that did not appear to have any links to the places of business of both Logix or Siam or where the goods were actually located.

It is imperative that parties ensure that they have basic processes in place (such as calling a known number to verify bank details) when entering into transactions with third parties otherwise the consequences can be costly.