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Bank's relationship manager had no authority to write off borrower debts

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The High Court has held in the case of Stavrinides and others v Bank of Cyprus Plc [2019] EWHC 1328 (Ch) (24 May 2019) that a bank's local relationship manager (the agent) had no actual or ostensible authority to write off its borrowers' substantial debts. As a consequence, the bank (the principal) was not bound by the letter purporting to do so, which had been initialled by the agent. In turn, the borrower was not entitled to rely on the terms of the letter.

In this case the principal had not made any representation that the agent had authority to write off debts in any amount. Moreover, the Bank had clearly represented by its actions during its decade long dealings with the borrowers that the authority of the bank's employees was restricted. The High Court found that the Bank’s actions had clearly demonstrated that any important decisions about the borrowers' facilities would require referral up to the Bank's general manager.

The High Court also found that in the event that the Bank had made the requisite representation, it was unreasonable for the borrowers to rely on it. The borrowers’ frequent dealings with the Bank meant they were familiar with the Bank’s approval processes. They also admitted they had not had any prior dealings with the Bank’s local relationship manager regarding changes to or issues with their loan facilities. The Court considered the nature and terms of the letter purporting to write off the debt was also extraordinary in that the local relationship manager was purporting to have the authority to write off £3 million of secured debts. In the High Court’s opinion the extraordinary terms of the letter should have been sufficient to put the borrowers on notice of the agent's lack of authority and worthy of verification.

The decision in Stavrinides and others v Bank of Cyprus Plc underlines the need for a third party, who has suspicions about an agent's authority, to request proof of authority from the principal before relying on the agent’s purported authority.

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