England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION (COMMERCIAL COURT)
MICHAEL BRINDLE Esq QC
(sitting as a Deputy High Court Judge)

		Royal Courts of Justice Strand, London, WC2A 2LL
		5th November 2002

Lord Justice Longmore:

1. This is an appeal by Univar Ltd, buyers pursuant to a contract of sale said to have been made by one of their employees without authority. Two points arose in proceedings for summary judgment brought by the sellers Pharmed Medicare Private Ltd (“Pharmed”) before Michael Brindle QC sitting as a Deputy Judge of the High Court in the Commercial Court. The first point was whether any contract had been made at all. The Deputy Judge held that it had been; there is no appeal from that decision. The second point was that the contract was a contract which it was beyond the authority of Univar’s employee, Mr Alan Somerville, to make. As a matter of Univar’s internal hierarchy of employees that was correct; the Deputy Judge held, however, that Mr Somerville had ostensible authority to make the contract and that Univar was, therefore, bound by it. He accordingly gave judgment on those two points in Pharmed’s favour; other points, relating to breach of contract and damages will go to trial in any event.
2. The facts can be shortly stated. The product with which this appeal is concerned is known as Glucosamine Sulphate Potassium (“GSP”). GSP is a product made in India and China from crushed crustacean shells and is used to alleviate the symptoms of arthritis. Univar imported and distributed GSP and other pharmaceutical products into the UK and Ireland. Pharmed who supplied the GSP is an Indian corporation based in Bangalore. Between January 1999 and July 2000, Univar placed with Pharmed various orders for small quantities of GSP (3 metric tons or less per order). Those contracts were on the form of Univar’s Purchase Contract and were signed by (among others) Mr Somerville, a Univar employee whose title was (and was known by Pharmed to be) “Industry Manager, Dietary Health & Nutrition” or by Miss Katy King whose title was (and was known to be) “Inside Sales Manager”. She was junior to Mr Somerville and neither of them was a Director of the company. The front of the Purchase Contract contained a proviso in capital letters:

“ALL DOCUMENTS MUST QUOTE OUR CONTRACT NUMBER”.

The reverse contained Condition 2 requiring any variations to the terms of the contract to be made by a director of the company and Condition 9 which provided:-

“The Purchase Order Number shall be shown on the invoice, delivery note, correspondence and the outside of each parcel and container and the Company shall not accept responsibility for any goods supplied without an official order.”

3. On 9th August 2000, after a certain amount of e-mail negotiation between Mr Sundeep Aurora, the President and a Director of Pharmed, on the one hand and Mr Somerville on the other, Mr Aurora sent to Univar a “Proforma Invoice” for the sale of 8 metric tons per month for 12 months at a price of $18.00 per kilo. Although the monthly quantity was not significantly greater than the quantities supplied under previous contracts, the total quantity of 96 metric tons was considerably greater than the quantity supplied under any previous contract. Mr Somerville signed the Proforma Invoice and returned it by fax to Mr Aurora on 14th August. At that time, as is now accepted by Univar, a contract purportedly came into existence between Univar and Pharmed on the terms of the invoice, subject to the question of Mr Somerville’s authority. The following day, 15th August, Miss Katy King generated a purchase contact on Univar’s form for the first instalment of 8 metric tons at a total price of $144,000, wrote in manuscript on the front of the document “For 1st Delivery on Contract Order”, signed the document and sent it to Pharmed.
4. On 10th October Mr Somerville sent an e-mail to Mr Aurora, in which he said that the price of GSP had stabilised in the UK at £11 per kilo (equivalent to $16.00) and that as a result Univar faced an impossible task to sell GSP bought at $18.00 per kilo. He said he found himself in a very awkward situation.
5. On 27th October Mr Mathias of Pharmed sent the shipping documents for the first instalment. No payment was forthcoming. He pressed for payment. Eventually on 17th November Mr Aurora spoke on the telephone to both Mr Somerville and Univar’s Pharmaceutical Business Manager Mr Drummond. In the course of that conversation Mr Drummond claimed that Mr Somerville had not been authorised to sign the Proforma Invoice. That stance has been maintained.

The arguments

6. Before the Deputy Judge Mr Waksman QC argued that, before any contract could be made, there had to be a signed document on the Univar form of Purchase Contract and relied for that purpose on the fact that there had been a previous course of dealing between the parties whereby contracts had been on that form which contained the clauses I have set out, particularly clause 9. The judge rejected this argument saying:-

“The fact that the Purchase Order Number should be shown on all invoices does not make a contract concluded by the signatures of both parties on an unnumbered invoice a non-contract. The reference to the company not accepting responsibility for any goods supplied “without an official order” also gets Univar nowhere. It does not say that the company shall not accept responsibility for any goods supplied unless they are fully described in a Purchase Contract. Why is the Proforma Invoice not an “official order”? This simply means that there has to be an official document constituting an order, which there was in this case on any basis.”

Mr Waksman now accepts that the judge was right to conclude that there was no requirement that, before any contract came into existence, there had to be a Purchase Contract on Univar’s form. But he transposes the argument he used below in relation to the existence of a contract into an argument that any holding out by Univar of their employees being entitled to conclude contracts was merely a representation that Univar was only prepared to do business on their Purchase Contract form; it is not sufficient for Mr Waksman’s purposes that the representation was that Univar would only be prepared to do business on the terms of the Purchase Contract because there is no dispute that any concluded business was on those terms; it is only by reference to the form of the Purchase Contract that Univar’s case on authority goes anywhere. That is because, internally, Univar’s employees had various levels of authority and it was only possible for a particular employee to generate on his own computer a Purchase Contract form which was within his level of authority. As recorded by the Deputy Judge, Mr Somerville had level 3 authority up to £30,000 for any one contract and Miss Katy King had level 2 authority. In fact special authority had to be obtained from the Company Secretary Mr Humphreys (who had level 5 authority) even to generate the Purchase Contract for the first instalment of 8 metric tons costing $144,000.

7. So, as refined in oral argument, Mr Waksman’s submissions were :-

(1) (A) that Univar’s only representation was that employees were authorised to do business on Univar’s own Purchase Contract forms and (B) that any reasonable seller in Pharmed’s position would have realised that;

(2) that the quantity of GSP sold (96 metric tons at a total price of $1,728,000) was so different from the quantities previously bought (3 metric tons at a time and 13.6 metric tons in all at a total price of $179,320) that Pharmed ought to have appreciated that the deal of 14th August was beyond Mr Somerville’s authority. For this purpose Mr Waksman relied on para. 8-041 in the 17th edition of Bowstead and Reynolds, Agency

“. . . The holding out may . . . be by . . . regularly accepting the acts of the agent in question. But . . . there is no protection, even in such a case, for a third party who has notice of the lack of authority or is put on inquiry by the facts of the transaction”

citing A L Underwood Ltd v Bank of Liverpool [1924] 1 KB 775 and Houghton & Co v Nothard Lowe & Wills [1927] 1 KB 246.

8. Mr Fletcher for Pharmed submitted:

(1) that Univar had held out both Mr Somerville and Ms King as being employees authorised to make purchase contracts since Univar had performed all the previous contracts made with them;

(2) that no reasonable seller would have understood the previous course of dealings as requiring that no contract could be made except on the form of Univar’s Purchase Contract;

(3) that, since Pharmed were never informed of any limit to Mr Somerville’s or Ms King’s authority, they had no reason to appreciate or suspect that the particular deal of 14th August was unauthorised.

Univar’s representation

9. There can be no doubt that, in general terms, if a buyer puts forward his employees as being persons with whom a seller can contract and the buyer subsequently performs the contracts so made, those employees will be regarded as ostensibly authorised to make further contracts, see the passage of Bowstead already cited. In the light of this, Univar needs Mr Waksman’s specific arguments in order to have an arguable defence of lack of authority. It seems to me, however, that the previous conduct of the parties cannot be interpreted as a representation that Univar would only do business on their own Purchase Contract form. The front of the form says only “All documents must quote our contract number” and gets Univar nowhere on its own. The first part of condition 9 says the same thing in greater detail. It was on the latter part of the condition that Mr Waksman had to rely but it does not have the construction he sought to put on it. As the Deputy Judge observed, albeit in the context of the “no contract” argument, the words “official order” are in terms different from the words “Purchase Contract form”. There is no reason why a signed proforma invoice cannot be an official order as much as any other document. It may be that the words “official order” require some formal document but there is no reason to go further and say that such formal document can only be in one particular form viz. that of Univar’s Purchase Contract. Much clearer words than those used would be required. Mr Fletcher for Pharmed made the further point that the words “shall not accept responsibility for goods supplied without an official order” in any event look to the goods themselves and not to the contractual documentation at all. That point is well made.
10. The true question, however, is whether Pharmed ought to have appreciated from the conditions on the reverse of previous contracts that Univar were only prepared to do business on the Purchase Contract form itself. To that there can only be one answer. The most that a reasonable seller could have thought from reading those conditions is that Univar were only prepared to do business on their own terms. For the reasons given that does not take Univar far enough. It is not, in my view, arguable that Pharmed should have appreciated that Univar were only prepared to contract on their own Purchase Contract form. That cannot be extracted from the wording relied on and the representation of authority in relation to Mr Somerville, therefore, remains unqualified.

Unusual Nature of Transaction

11. Here all Mr Waksman could rely on was the fact that the contract for 8 metric tons per month for a year (96 tons in all) was considerably greater than any previous contract. This is undoubtedly true but no suggestion is or can be made that Pharmed knew that Mr Somerville did not have authority to make such an agreement. The most that can be said is that they ought to have suspected he might not have such authority. But why? Previous transactions, albeit for smaller amounts, had been performed. Mr Waksman says that if Pharmed had only insisted on a Purchase Contract form for the full amount, the lack of authority would have become apparent. But if, as the Deputy Judge held (and this is not now challenged), there was no positive requirement derived from previous transactions that the contract be on Univar’s Purchase Contract form, there was nothing to suggest to Mr Aurora that the transaction might not be authorised. If there were a plausible assertion that Mr Aurora did in fact suspect that the transaction was beyond Mr Somerville’s authority, there might then have to be a trial. But no ground exists to support the existence of any such suspicion on his part.
12. The question whether such suspicion ought to have existed is a matter that can be decided without the need for oral evidence since Mr Aurora (and still less Mr Somerville) could give no relevant admissible evidence on that question. That is for the court and the Deputy Judge correctly decided he could determine the matter on the material before him.
13. For my part I cannot see why any grounds for suspicion should have existed. Previous transactions had been honoured. No one in Univar had made any suggestion that Mr Somerville’s authority was, in any way, limited. There was no reason to think that Univar would not want to acquire or be unable to distribute 8 metric tons per month, if the price was right. No complaint was, in fact, made about the transaction until Univar realised the price had not risen as far as they had expected. The authorities cited by Mr Waksman were entirely different from the facts of the present case. In Houghton the fact that should have put the third party on inquiry was the fact that the money of one company was being used to pay the debts of another; in Underwood it was the fact that the agent was paying into his own account a cheque made out to his principal. These were, on any view, surprising facts which truly rendered the transactions suspicious. There is nothing remotely comparable in the present case.
14. In these circumstances, despite the caution which a court must exercise before giving summary judgment, it seems to me that the Deputy Judge was right to conclude that it was clear that Mr Somerville had ostensible authority to conclude the contract of 14th August and that Univar was bound by it.
15. The Deputy Judge also relied on the decision of this court in First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] 2 Lloyds Rep. 194 to hold that both Mr Somerville and Ms King were, in any event, authorised to communicate to Pharmed the approval of those who did, in fact, have Univar’s authority to contract. In the event, it is unnecessary to consider that aspect of the Deputy Judge’s judgment. I would only say that the First Energy decision will plainly be apposite in cases where, as in that case, the third party knew of a limitation on the agent’s authority. That, however, is not this case.
16. Lastly Mr Waksman endeavoured to suggest that Pharmed had not relied on Univar’s conduct in holding out Mr Somerville to make the purchase contract. But the evidence is clear that not only was the contract itself concluded; it was partly performed by the forwarding of shipping documents for the first instalment. Reliance is clearly made out.
17. In truth, this is a plain case and, despite the Deputy Judge’s becoming modesty in granting permission to appeal, the appeal must be dismissed.

Lord Justice Chadwick:

18. I agree.