England and Wales High Court (Technology and Construction Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
BIRMINGHAM DISTRICT REGISTRY
TECHNOLOGY AND CONSTRUCTION COURT

		BIRMINGHAM CIVIL JUSTICE CENTRE 33 BULL STREET BIRMINGHAM B4 6DS
		Date : 7 November 2006

 


1. I am obliged to Mr de Waal (counsel for the claimant) and Mr O'Brien (counsel for the defendants) for their assistance with this matter.
2. The court tried the following as a preliminary issue, namely :

"The issue of whether the first and second defendants are liable (subject to the set-off pleaded at paragraphs 3 and 4 of the defence) to pay the claimant the sum of £61,123.50."

This is the trial of that issue.

3. The claimant is a specialist joinery company based in Halesowen with a good reputation. The company was incorporated in April 2003. Prior to that, the business had operated for over 25 years through a partnership of Mr Philip Gameson and his wife.
4. It is common ground that a contract was entered into in August 2005 whereby the claimant agreed to supply merchandising units, desks and shop fittings for installation at a store in Stavanger, Norway, owned by O Olsen & Co. A price of £48,194 excluding VAT was agreed on 8 August 2005. Additional fittings were ordered on 19 August 2005, at an agreed price of £11,837 excluding VAT. Further items were ordered some time after 5 September 2005. It is not in dispute that these items were supplied, nor is there any dispute about the total price payable. Two payments, totalling £15,007.75 plus VAT, were made to the claimant on 18 and 30 August 2005. The claimant claims the balance, £61,123.50, including VAT. I express these matters neutrally because the dispute concerns the identity of the other contracting party.
5. The claimant's case is that it contracted in August 2005 with two individuals, Mr Lloyd and Mr Kenchington (the first and second defendants). The defendants deny liability on the ground that all negotiations were conducted and the contract concluded by the defendants on behalf of a company, namely Blue Steel International Ltd ("BSI Ltd"); the claimant contracted not with them personally, but with BSI Ltd. The defendants also allege that fittings were defective and that there were delays in supply. They allege that, if they are liable to the claimant, they are entitled to set off losses (incurred and estimated) totalling £38,250.

The relevant law.

6. There is no difference between Mr de Waal and Mr O'Brien as to the relevant law relating to the liability of agents.
7. In Stanley Yeung Kai Yung v Hong Kong and Shanghai Banking Corporation [1981] AC 787, P.C., Lord Scarman said:

"When, therefore, Mr Leggatt for the brokers opened the appeal by asking the question, "Is it I or my brokers, who should be liable?" he was either misconstruing the letters, or basing himself on an incorrect view of the law. It is not the law that, if a principal is liable, his agent cannot be. The true principal of the law is that a person is liable for his engagements (as for his torts) even though he is acting for another, unless he can show that by the law of agency he is to be held to have expressly or impliedly negatived his personal liability."

8. This passage from Lord Scarman's speech is acknowledged by the editors of both Chitty on Contracts (29th ed., 2003) and Bowstead and Reynolds on Agency (18th ed., 2006) as the authoritative statement of the applicable principle.
9. Donaldson J explained it thus, in Teheran-Europe Co Ltd v S T Belton (Tractors Ltd [1968] 2 QB at pages 59-60:

"An agent can conclude a contract on behalf of his principal in one of three ways:

(a) By creating privity of contract between the third party and his principal without himself becoming a party to the contract ...

(b) By creating privity of contract between the third party and his principal whilst also himself becoming a party to the contract ...

(c) By creating privity of contract between himself and the third party, but no such privity between the third party and his principal ..."

This passage is also cited in full in Bowstead at paragraph 9-001, p500.

10. The decision of Pearce J in Rusholme & Bolton v S G Read & Co [1955] 1 WLR 146 indicates that the fact that a defendant is an agent and known to be an agent by the claimant will not of itself enable that defendant to avoid liability:

"The fact that a person is agent and is known to be so does not of itself prevent his incurring personal liability. Whether he does so is to be determined by the nature and terms of the contract and the surrounding circumstances."

11. As Mr de Waal has helpfully explained, the authority for this principle can be traced back to the 19th century case of Calder v Dobell (1871) L.R. 6 C.P. 486, cited and approved by the Privy Council (Lord Reid) in Basma v Weekes [1950] AC 441 at 452 and 454 - "an agent who contracts in his own name does not cease to be contractually bound because it is proved that the other party knew when the contract was made that he was acting as agent." See also Davies v Sweet [1962] 2 QB 300, CA (estate agent's authority inferred from the circumstances of the case).
12. Whether a defendant agent has avoided personal liability is to be determined by the nature of the contract and the circumstances surrounding its formation: per Brandon J in "The Swan" [1968] 1 Lloyds L.R. 5.

Evidence

13. I have heard evidence from Mr Gameson (managing director of the claimant) and Mr Poole (the claimant's works manager). Mr Gameson and Mr Poole worked closely together on pricing and winning new work and in managing the manufacture, supply and delivery of the company's products. I also heard from Mr Lloyd and Mr Kenchington.
14. It is not surprising in any case that witnesses' recollection of events differs or that there are inconsistencies, even after only about a year. In this case I found Mr Gameson and Mr Poole to be very straightforward in their approach and have confidence in their evidence.
15. I have little confidence in the evidence given by Mr Lloyd and Mr Kenchington. The following are examples. There was no apparent reason why Mr Lloyd should not have been straightforward in his evidence about the advance commission payment he received. Mr Kenchington claimed not to have received a letter of 25 November 2005 on the ground that it was incorrectly addressed, yet the letter was faxed to the correct number. The defendants have failed to comply with their disclosure obligations. I am concerned that the production, by both Mr Lloyd and Mr Kenchington, during the course of the trial and part way through Mr Lloyd's evidence, of copies of an invoice dated 1 September 2005 may not have been spontaneous. In their defence the defendants claim losses incurred yet it became clear that some claims are for estimated sums in respect of losses which they might suffer. On the defendants' case, there must be a balance due to the claimant of some £23,000, yet that sum has not been paid. No good explanation has been given for that failure. Mr Kenchington finally accepted that there was no good reason why that sum had not been paid. That approach does the defendants no credit. At the end of the hearing, it was said on the defendants' behalf that payment would now be made (though Mr Kenchington said that, as at the time of the trial, BSI Ltd had only about £10,000 to its credit).
16. I make no findings on the evidence which touched upon the defendants' allegations as to defective products and delays in supply, as that evidence will need to be considered at a later date after all relevant evidence has been adduced.

Background

17. The parties agree that they began their trading relationship in the autumn of 2004, when the defendants approached the claimant with a view to the claimant's supplying fittings for two Timberland stores. Mr Lloyd and Mr Kenchington visited the claimant's premises and met Mr Gameson and Mr Poole. Mr Lloyd handed Mr Poole a business card showing the logo "Anchor" and a company name: APM Limited. That was the only card which Mr Lloyd had at the time. There was nothing on that card to explain Mr Lloyd's position or role in APM. At some point, Ms Fensom, of the claimant's accounts department, had been handed a business card for Mr Kenchington showing the business name "Kenchington Design Contracts" (KDC). Mr Kenchington says that he made it clear that KDC was a limited company, but I have little confidence in that evidence. The claimant supplied some goods, addressing its delivery note to APM and its invoice to KDC. Payment was made by Kenchington Design Contracts Limited. Some orders were placed by either Mr Lloyd or Mr Kenchington, apparently on behalf of KDC. The claimant, as asked, addressed invoices to KDC. Payment was made by Kenchington Design Contracts Limited. Supplies to KDC continued during August and September.
18. By April 2005, it became known that there may be the possibility of a contract with Olsen for the supply of fittings for their Stavanger store. There may have been a meeting in early May 2005, to discuss the possibility that the claimant might supply fittings for that project. Mr Gameson and Mr Poole say they met both Mr Lloyd and Mr Kenchington in early May. Mr Lloyd and Mr Kenchington say there was no such meeting. It is not clear to me that there was such a meeting.
19. On 13 May 2005 BSI Ltd was incorporated in Tortola, British Virgin Islands. Mr Kenchington says he is one of four directors and shareholders, but there is no evidence of that.
20. On 13 and 17 May Mr Lloyd sent emails to the claimant attaching drawings concerning the Olsen project. Mr Poole was unable to download these.
21. A meeting was held at the claimant's premises during week beginning 23 May 2005. There are issues as to the purpose of that meeting, who attended and what was said. Mr Gameson and Mr Poole say that both Mr Kenchington and Mr Lloyd attended. Mr Kenchington denies that he was present on that occasion. Mr Lloyd says that he told Mr Gameson and Mr Poole at that meeting that Mr Lloyd represented BSI Ltd as agents, that BSI Ltd was a limited company, based in the BVI, and that the company banked in Gibraltar. I return to those matters later.
22. On 26 May 2005 Mr Poole sent Mr Lloyd by email a quotation for the supply of fittings. Mr Lloyd spoke to Mr Poole by telephone at about the end of May.
23. On 22 June 2005 BSI Ltd sent Olsen a quotation and asked for payment of a deposit of 110,000 euros, being 40% of the intended contract price. Olsen paid that sum into BSI Ltd's bank account on 1 July 2005. On 4 July BSI Ltd paid Mr Lloyd 14,910 euros, (about £10,000) which Mr Lloyd eventually described as advance commission on the sale to Olsen. (Initially and, it seems to me, incredibly, Mr Lloyd said he could not recall why that payment had been made, conjecturing at one stage that it might have been repayment of a loan from Mr Kenchington).
24. On 19 July Mr Kenchington and Mr Lloyd decided to split the work between three suppliers: the claimant, S Korres & Co in Greece and Birmingham Joinery Ltd. It was arranged that the claimant and defendants meet to discuss the work which was to be let to the claimant.
25. On either 8 or 11 August 2005 a meeting was held at the claimant's offices. The precise date is of little significance. It is common ground that Mr Gameson, Mr Poole, Mr Lloyd and Mr Kenchington attended that meeting. Terms were agreed for the claimant to provide joinery for a price of £48,194 excluding VAT. There are issues as to what was said at that meeting, and I return to that.
26. On 12 August 2005 the claimant prepared a proforma invoice addressed to "Messrs Blue Steel". Mr Lloyd asked for the invoice to be re-addressed to Olsen. The claimant complied with that request.
27. On 19 August 2005 the claimant began work. On that day a request was made for additional items. The claimant raised a proforma invoice addressed to "Messrs Blue Steel" for these. Again, the claimant acceded to the request made to prepare an amended proforma invoice addressed to Olsen.
28. As instructed by BSI Ltd, Barclays transferred to the claimant's bank account the sum of £12,048.70 (representing 25% of the initial invoice value) on 18 August 2005. A second transfer of £2,959.25 was made on 30 August (representing 25% of the invoice value for the additional items ordered on 19 August 2005). The entry on the bank statement for that second transfer reads:

"AFTS receipt from Blue Steel Int L 604426 25 Per Cen"

Barclays have confirmed that they would not have notified the claimant of those transfers.

29. At the end of August 2005 loading began of items to be shipped to Olsen. The claimant addressed its delivery schedule to BSI (no BSI Ltd).
30. The claimant issued proceedings in March 2006.

Issues

31. The claimant's case is that it contracted with the defendants personally. The first time they heard of BSI Ltd was on 8 December 2005 when they received an email from Mr Kenchington (in reply to a letter of demand for payment) in which Mr Kenchington said that the claimant had carried out work "on behalf of Blue Steel International for O Olsen & Co in Stavanger, Norway. I would like to point out that Kenchington Design Contracts Ltd are not involved in this project apart from supplying light fittings direct to O Olsen & Co and have not been involved in the procurement of shopfitting joinery. Blue Steel International['s] ….full details are:

Blue Steel International. BVI registered company 656587, registered office: …Tortola, BVI".

32. The defendants' case is that they contracted on behalf of BSI Ltd. They say that Mr Lloyd expressly informed Mr Gameson and Mr Poole in May 2005 that he and Mr Kenchington represented BSI Ltd as agents. The claimant was content to contract with that company and never indicated that it still considered the defendants to be personally liable under the contract. The contract existed between the claimant and the company. The defendants contracted as agents only and are not liable personally.

Conclusions

33. Mr Lloyd says that, at material times, he was self employed. He described his role as being an independent sales agent, earning a commission on sales and says that he acted in that capacity for BSI Ltd and Kenchington Design Contracts Ltd. He has never been a director or employee of Kenchington Design Contracts Ltd or BSI Ltd. I have no reason to doubt that he was not a director or employee of either company. The defendants say that they have never been in partnership together. No documents have been disclosed which suggest that the defendants were in partnership.
34. The crucial evidence is that of Mr Lloyd who says that he arranged a meeting at the claimant's premises on 23 May 2005. His account is as follows. The purpose of the meeting was to introduce BSI Ltd. He introduced himself as acting on behalf of BSI Ltd. BSI Ltd would be handling the business. He said he was "very specific" about the company, explaining that it was a limited company based in the BVI and that its bankers were Barclays in Gibraltar. All payments would be made through that bank. Cover for the payment could be offered because Olsen had confirmed that, after the initial deposit had been paid, the balance would be covered by an irrevocable letter of credit issued to BSI Ltd. Part of that payment would automatically and immediately be transferred to the claimant and BSI Ltd would have no control over that part of the funds. He offered to arrange a transfer of a sum equivalent to 25% of the total price as a deposit immediately the claimant accepted an order for the goods. His evidence is that Mr Gameson and Mr Poole said they would be happy to proceed. Mr Lloyd was therefore clear in his mind that the contracting party on whose behalf he was acting was BSI Ltd. Mr Lloyd claims to have handed over a business card on that occasion, showing the name "Blue Steel International" and his own name.
35. Mr Poole's evidence is that he, Mr Gameson, Mr Lloyd and Mr Kenchington met early during week commencing 23 May 2005. Mr Lloyd and Mr Kenchington brought with them drawings and specifications for the Olsen project. Mr Lloyd wanted prices urgently. At no stage was BSI Ltd mentioned. No business card was handed over during that meeting. After the meeting Mr Poole prepared some calculations and sent these to Mr Lloyd by email on 26 May 2005. A few days later Mr Lloyd telephoned to say that some prices were acceptable and some too high. In August Mr Lloyd told him that he would visit to place an order with the claimant for some of the work, though some work would be placed with a competitor. Before that August meeting Mr Poole had prepared a schedule of items and prices to enable him to know competitors' prices at the meeting. At the meeting, Mr Lloyd, Mr Kenchington, Mr Gameson and Mr Poole discussed scope and prices. Mr Poole made notes on the back of his comparison schedule. They agreed a price. Mr Poole asked whom he was to invoice: Anchor or KDC? Mr Lloyd replied that it would be Blue Steel International for VAT reasons. Mr Lloyd asked the claimant to prepare a proforma invoice. Mr Poole asked how it should be done. Mr Lloyd said it should be addressed to "Messrs Blue Steel". Mr Poole wrote those details on the back of his comparison schedule. Mr Lloyd asked for the claimant's bank details. The parties agreed a price. Mr Lloyd told Mr Poole not to charge VAT as the goods were for export to Norway.
36. Mr Lloyd then handed Mr Poole a business card showing the name "Blue Steel International" and Mr Lloyd's name. Mr Lloyd wrote on that card his home telephone number (because Mr Poole had found him difficult to contact) and Mr Poole added the word "home" in his own handwriting.
37. Mr Poole subsequently prepared a proforma invoice as Mr Lloyd had instructed. It was addressed to "Messrs Blue Steel". The address was that shown on the business card which Mr Lloyd had given to Mr Poole. Mr Lloyd later emailed Mr Poole asking him to invoice Olsen instead, which Mr Poole did.
38. There is no suggestion by Mr Kenchington that he ever mentioned the existence of BSI Ltd, let alone that he said anything by which he sought negative personal liability.
39. I have no hesitation in preferring the evidence of Mr Gameson and Mr Poole to that of Mr Lloyd and Mr Kenchington. I am not persuaded that Mr Kenchington attended the May meeting. That apart, I do not accept Mr Lloyd's account of the meeting in May. Mr Lloyd had sent Olsen project drawings to Mr Poole as an attachment to e mails dated 13 and 17 May. I accept Mr Poole's evidence that he could not open the attachments. Mr Lloyd's account simply does not ring true. It is in my judgment likely that Mr Lloyd visited the claimant's premises during week beginning 23 May in order to drop in the hard copy drawings and specifications, and that was the purpose of Mr Lloyd's visit at the time. I reject his evidence that the purpose of the visit was to tell the claimant about BSI Ltd. First, I do not believe Mr Lloyd's evidence on that point and, secondly, it seems to me unlikely that he would have made a special journey to deliver a message which could easily have been given by e mail or over the telephone. Had Mr Lloyd mentioned that a contract was to be entered into with a BVI company, one would expect that Mr Gameson and Mr Poole would have remembered that. I accept Mr Gameson's evidence that it was the claimant's practice to carry out credit checks on companies before doing business with them. Had Mr Lloyd said that the contract was to be with BSI Ltd, Mr Gameson would have arranged for such a check to be carried out. The fact that he did not take such steps suggests that no mention was made of BSI Ltd at the May meeting.
40. The notes which Mr Poole made during the August meeting clearly corroborate his account of the discussion at that meeting. These support his account of Mr Lloyd having mentioned "Blue Steel International" and that this was the first mention, so far as Mr Poole was concerned, of an entity of that name. Further, the note tends to support Mr Poole's evidence that Mr Lloyd handed the Blue Steel International business card to him at the August and not the May meeting.
41. The claimant made no credit check against BSI Ltd after the August meeting. Again, this supports the claimant's case that BSI Ltd was not mentioned at that meeting.
42. The fact that the claimant issued its proforma invoices initially to "Blue Steel International" (not BSI Ltd) tends to support their case.
43. It is entirely understandable that Mr Gameson and Mr Poole believed they were dealing with the defendants personally and not with a limited company. The defendants took a muddled approach. They sent e mails and faxes from their respective homes and from addresses which gave no indication as to the true legal personality of the person by whom it had been sent. Mr Kenchington's business card shows the name "Kenchington Design Contracts"; there is no mention of a limited company. The claimant invoiced Anchor Projects Ltd and "Kenchington Design Contracts". Mr Gameson explained that it was not uncommon for the claimant to be asked to address invoices to a particular body. Prior to August 2005 Mr Lloyd and Mr Kenchington had, apparently (so far as the claimant was concerned) represented Kenchington Design Contracts. It is in my judgment understandable that Mr Gameson and Mr Poole should have considered that Blue Steel International was the trading name under which Mr Lloyd and Mr Kenchington were operating so far as the Olsen project was concerned. Although Mr Lloyd had never given out a business card in his name and that of KDC, he had (apparently so far as the claimant was concerned) represented KDC. The claimant keeps a visitors' book in reception. Visitors are supposed to sign when they enter and leave. However, it was possible for visitors to enter without signing the book. Indeed, the defendants accepted that, on many occasions, they entered the claimant's premises without signing in. Accordingly, the lack of an entry in the visitors' book on any particular day does not indicate that a visitor did not visit the claimant that day. There are, however, significant entries in the visitors' book. When Mr Kenchington and Mr Lloyd visited the claimant on 15 November and 1 December 2004, Mr Kenchington signed them both in using the name "KDC" in the column marked "Company". On 24 November 2005 Mr Kenchington signed them both in putting BS (not BSI Ltd) in that column.
44. Had Mr Gameson paid heed to the details shown on the claimant's bank account in respect of the payment made on 30 August 2005 he would probably have become apparent that payment had been made by a limited company, because it looks as though the "L" on the statement is Ltd or Limited but cropped. However, that, in my judgment, is of little assistance to the defendants. All it shows is that payment had probably been made by a limited company.
45. The defendants rely on the fact that Olsen contracted with BSI Ltd and that other suppliers invoiced BSI Ltd in respect of the Olsen contract. In my judgment the fact that other suppliers considered they should invoice BSI Ltd is of little relevance. The defendants may have made the position clear so far as others were concerned. However, they did not do so here.
46. In summary, I conclude that Mr Lloyd did not represent himself to the claimant as an agent of BSI Ltd. At no stage did Mr Kenchington so represent himself. Neither Mr Lloyd nor Mr Kenchington at any stage made it clear that he had expressly or impliedly negatived his personal liability. Neither said or otherwise indicated that the claimant would be contracting with BSI Ltd and not with themselves personally. It is clear from the factual findings I have made and from the relevant law that the claimant did not contract with BSI Ltd.
47. Accordingly, the answer to the preliminary issue is : The first and second defendants are liable (subject to the set-off pleaded at paragraphs 3 and 4 of the defence) to pay the claimant the sum of £61,123.50.
48. As I have found in favour of the claimant on this issue, the question of what loss (if any) the defendants have suffered must now be determined. I invite suggestions for directions to be made to prepare for a trial of outstanding matters and for any application for an interim payment, including any outstanding issues as to the payment of VAT.

7 November 2006