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

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

		Royal Courts of Justice Strand, London, WC2A 2LL
		19th April 2011

 


Mr Justice Akenhead:

1. This adjudication enforcement claim raises issues of natural justice and agency in the context of an agreement which undoubtedly contained an adjudication clause but which it is said was entered into by a particular person without authority, actual, implied or ostensible.

The History and the Facts

2. CRJ Services Ltd ("CRJ") was and is a company which hires recycling plant and equipment. Lanstar Ltd ("Lanstar") carried on the business of environmental waste management and recycling and had a site known as the "Pound Bottom site" at Redlynch, Salisbury, Wiltshire, amongst others, at which it did such work.
3. CRJ and Lanstar has been doing business since 2007 and the latter through their agent or representative Mr Barr let a number of contracts whereby it hired a shredder for short periods (of one day and three days) in 2007. Most and, possibly, all of these contracts were evidenced by a CRJ document entitled "Hire Contract Offer" with an "agreement" number which was signed by a representative of CRJ and also by Mr Barr of Lanstar. These early contracts relating to the hire of a plant at Lanstar's Cadishead site.
4. At some stage a Mr Richard Vaughan became involved at the Pound Bottom site on behalf or Lanstar at the request of Mr Richards the Managing Director of Lanstar's holding company. He was, on Mr Richards' evidence deployed in the later adjudication, given the job of running the site on the basis that the work to be involved was repairing and refurbishing the machinery currently held at the site to an operating state and then selling it; meanwhile new or other machinery could be hired, as Mr Richards says, "on a short term basis". Mr Vaughan was clearly given authority, at least, to enter into short term contracts of a few days or possibly a few weeks duration. He was, as Lanstar's solicitors accepted on instructions in a letter dated 14 October 2010 to CRJ's solicitors, required to 'run things by' the Finance and Managing Directors. Mr Vaughan did indeed let a number of short term hire contracts. An example is that made on 28 November 2008 for the hire of a "Doppstadt 2560 Slow Speed Shredder" at the rate of £70 plus VAT per hour from 1 to 15 December 2008.
5. The same shredder was then the subject matter of a further agreement signed by Mr Vaughan on 23 December 2008 (Agreement No 489/08) at the same rate from 15 December 2008 to 14 December 2009. It is accepted that CRJ's bills for this agreement were all paid by Lanstar.
6. On the same date another agreement was entered into between CRJ and Lanstar for the hire of a "Doppstadt AK 430" shredder at a rate of £70 plus VAT per hour with the period of hire being 1 January to 31 December 2009. Again all CRJ's bills were paid. Other plant was hired for shorter periods for the Pound Bottom site (Agreements 800/09, 859/09 and 871/10) for two weeks, eight weeks and one day respectively. Again, CRJ's bills were paid. These various agreements in 2008 and 2009 involved a mix of short-term and long-term hirings. Most of them were signed by Mr Vaughan, who described himself on several of the earlier contracts as a consultant and later as a manager or "Landfill and MRF Manager".
7. There were three other contracts between CRJ and Lanstar, signed by Mr Vaughan on 9 October 2009 (Agreement Nos. 743/09 and 743/10) and a third on 20 January 2010 (Agreement 890/10) for items of equipment for longer periods; the first two were for 3-year periods running from 9 November 2009 to 9 November 2012; the later one was to run for 2 years from 8 February 2010 to 8 February 2012. Each of these three contracts was signed by Mr Symons on behalf of CRJ. The two distinguishing features of these three contracts were that they were for much longer periods than the other hire contracts entered into and, secondly, they contained a provision that, if the machine in question was "off-hired" before the expiry of the hire term, "then the hire charge for the remainder of the period will be charged at 60% of" the agreed hire rates.
8. It seems clear that there was a falling out between Lanstar and Mr Vaughan, as a result, Mr Richards has said, of an incident in which Mr Vaughan was said to have intimidated a Lanstar employee at the Pound Bottom site. His engagement was terminated in late March 2010.
9. Mr Richards has stated in his statement for the adjudication that he received on 22 March 2010 the three long term hire agreements; there is an issue which I cannot resolve as to whether he had earlier notice personally of the three hire contracts. He said that he discussed this with Mr Vaughan who told him "that he had to sign these agreements to obtain the machinery, but the length of the agreements did not matter as Mr Symons would not hold CSG to them because he is "a good lad."" He says that he spoke to Mr Symons on 1 April 2010 and told them that Mr Vaughan had no authority to sign these agreements and that Lanstar regarded them as "null and void". However, Lanstar continued as it had done before to pay out the monthly or regular invoices under these agreements.
10. By May 2010, Lanstar was actively considering closing the Pound Bottom site and, it is said, Mr Richards told Mr Symons that on 21 May 2010. In September 2010 the site was closed and Lanstar terminated the hire of the three items of plant, the subject matter of the long-term agreements at that time, as from 23 September 2010. Notice of this was given by e-mail from Mr Richards to Mr Symons on 7 September 2010 referring to an earlier meeting on 23 August 2010 at which the possibility or the likelihood of this step was intimated.
11. Following the termination, correspondence was exchanged between the parties' solicitors and an important letter is that from Lanstar's solicitors of 14 October 2010, referred to above:

"We have now been able to take our client's instructions on your letter dated 23^rd of September 2010, and responds as follows…

We note the Hire Agreements relate to CSG Lanstar…

Mr Vaughan was a contractor working on behalf of…CSG through his own business, TR Vaughan. It is accepted that Mr Vaughan was the Landfill Materials and Recycling Facilities Manager for Pound Bottom Landfill…and was contracted on a contract services basis. He was not an employee of CSG. Mr Vaughan was at no material time given express authority to sign any long term hire agreement on behalf of CSG, as the only individuals who have such authority were the Finance Director and the Managing Director. Consequently, Mr Vaughan did not have express authority to bind CSG to the Hire Agreement.

Additionally, at no point was Mr Vaughan given implied authority to enter long term hire agreements on behalf of CSG. Mr Vaughan was told at all material times that he was required to converse with the Finance Director and Managing Director before such decisions were made. Mr Vaughan was required to 'run things by' the Finance and Managing Directors…

our client is the opinion that the hire of the plant was on a month by month basis, hence the one-month's notice is given for the termination of the hire agreement on 7^th September 2010…"

The Adjudication

12. CRJ instituted adjudication in relation to the Hire Contract 744/09 which related to a high speed shredder with the hire period running for three years from 9 November 2009. The adjudication related to the charges due at 60% of the agreed hire rates for the outstanding period of hire, that is 23 September 2009 to 9 November 2012. On 13 January 2011, CRJ served its Notice of Adjudication on Lanstar, both sides being represented by solicitors. Mr Martin Cannon was appointed as adjudicator. CRJ served its Referral Notice on 17 January 2011, Lanstar served its Response on 26 January 2011 and CRJ served its Reply on 1 February 2011.
13. Lanstar objected to the jurisdiction of the adjudicator on the grounds that there was, in effect, no contract between it and CRJ because Mr Vaughan had no authority, actual, implied or ostensible, to enter into this Hire Contract. It is accepted that this reservation to do with the adjudicator's jurisdiction was maintained and that the adjudicator was not given jurisdiction to decide his own jurisdiction. The Response, supported by several witness statements, including one from Mr Richards, went in some detail in to why Mr Vaughan did not have authority in terms of letting plant hire contracts beyond, at the outside, one month's worth of hire. It was said that Mr Vaughan was made well aware of the restrictions on his authority but that he had an exaggerated idea of his own importance. There was an internal policy document within Lanstar relating to authority to sign for financial matters (including hire contracts), albeit that this applied to employees. It was said that there were allegations in December 2009 that Mr Vaughan had personally received money and benefits from other companies or individuals to deposit material at the Pound Bottom site, albeit that it was not suggested that CRJ was in any way involved in this context, although it was said that Mr Richards contacted Mr Symons on 23 December 2009 alerting him to allegations about Mr Vaughan's integrity. It was accepted that, on 10 February 2010, Mr Symons forwarded copies of the three long-term hire contracts to Lanstar.
14. There was no suggestion in the evidence or argument before the adjudicator that Lanstar ever, orally or in writing, informed CRJ that there were limits on Mr Vaughan's authority. An issue was raised as to whether or not Mr Vaughan was the Landfill Materials and Recycling Facilities Manager, as he described himself on several of the hire contracts. There was no issue that all the hire charges under all the hire contracts between CRJ and Lanstar for the actual periods of hire were actually paid without demur by Lanstar.
15. On 3 February 2011, CRJ's solicitors served a further witness statement, from Mr Vaughan; it was sent by e-mail dated 3 February 2011 to the adjudicator as well as by letter. There is evidence before the Court that they also dispatched this statement by e-mail and by post to Lanstar's solicitors. However, there is a dispute, which I cannot resolve, as to whether either the e-mail or the letter, enclosing the statement, was ever received. Certain it is that the adjudicator received it. Mr Vaughan's statement was to the effect that he had express and clear authority from Lanstar to enter into the hire contracts which he signed.
16. The adjudicator issued his decision on 17 February 2011. He dealt first with the jurisdictional challenge relating to the authority of Mr Vaughan, at Paragraphs 13 to 41. He rightly accepted that he was entitled to "investigate any challenge to" his jurisdiction and that, if he decided that he had the necessary jurisdiction, he had to proceed with the adjudication. In this part of the decision he clearly refers to the witness statement of Mr Vaughan. He formed the view that Lanstar's internal policy relating to authority did not apply to non-employees such as Mr Vaughan and, on balance, Mr Vaughan had no actual authority. However, he found that Mr Vaughan had apparent authority to enter into the Hire Contract in question and therefore he did not need to consider the arguments of acceptance by conduct (or ratification). He was impressed by the fact that Mr Vaughan was allowed to use the title "Landfill Materials and Recycling Facilities Manager" and that Mr Vaughan had on behalf of Lanstar sold machinery and changed personnel and procedure on behalf of Lanstar.
17. He then went on to review the remainder of the dispute which included the primary issue as to whether or not, in effect, the 60% charge for the underused period of hire was a penalty and otherwise unenforceable. The adjudicator held that the 60% clause involved a genuine pre-estimate of loss and was enforceable. He decided that Lanstar had to pay the off-hire fee, interest and late payment compensation totalling £165,505.52 together with his fees totalling £8520 inclusive of VAT.

These Proceedings

18. CRJ issued these proceedings on 15 March 2011 to enforce the adjudicator's decision. Its summary judgement application is supported by two witness statements from Mr Ashton and a further one from Ms Crawshaw dealing with the service of Mr Vaughan's statement. Lanstar's solicitor, Mr Lee, has lodged one witness statement. Mr Lee does not indicate, as such, that he has based his statement on instructions and information provided by the Directors of Lanstar and does not himself exhibit his client's witness statements in the adjudication (this being left to Mr Ashton in his second witness statement). He does exhibit his client's Response in the adjudication. Mr Lee does not obviously suggest any fraud or even questionable conduct on the part of CRJ although he does say that given "the previous association between CRJ and Mr Vaughan, Lanstar is deeply suspicious of the Contract which the Claimant asserts it made through Mr Vaughan". He goes on to say:

"This agreement was never brought to the attention of Lanstar's management until shortly before the dispute occurred and was not picked up on by Lanstar as it assumed that the hire charges which it was paying to CRJ were due under the daily or weekly hire agreements which are usually made with CRJ."

He unequivocally makes it clear that he and his firm did not receive Mr Vaughan's witness statement.

19. Essentially, Lanstar through its Counsel put forward two related grounds for challenging the enforcement of the adjudicator's decision. The first was that Mr Vaughan had no authority, of any sort, to enter into the Hire Contract in question and in those circumstances there was no contract in law, let alone any agreement to adjudicate, between the parties; the adjudicator therefore had no jurisdiction. The second ground is that there has been a breach of the rules of natural justice because the adjudicator decided the jurisdictional issue on the basis of a witness statement from Mr Vaughan which had not been served on Lanstar's solicitors and in respect of which Lanstar have had no opportunity to seek to respond. That is challenged by CRJ through its Counsel on the basis that there is, on the evidence put before the Court, no realistic prospect of it being established that there was no agency and, in relation to the second ground (natural justice), this is not a material breach, let alone a deliberate one on the part of the adjudicator.

The Law

20. In Cantillon Ltd v Urvasco Ltd [2008] BLR 250, reference was made to the Court of Appeal case in Carillion Construction Ltd v Devonport Royal Dockyard Ltd [2006] BLR 15 and the judgement went on:

"53. Whilst that case is, obviously, not authority for the proposition that a "good" challenge to a decision on jurisdiction or natural justice grounds will be excluded on some statistical basis, a challenge on these grounds must be plain, clear and relatively comprehensible. In a case such as the present, the Adjudicator, albeit experienced, had a mass of conflicting evidence and argument to take on board. The Court should not take an over-analytical approach to questions of jurisdiction and natural justice arising in adjudications under the HGCRA 1996."

21. The judgement went on to review the law relating to natural justice in the context of adjudication and certain conclusions were identified:

"57. From this and other cases, I conclude as follows in relation to breaches of natural justice in adjudication cases:

(a) It must first be established that the Adjudicator failed to apply the rules of natural justice;

(b) Any breach of the rules must be more than peripheral; they must be material breaches;

(c) Breaches of the rules will be material in cases where the adjudicator has failed to bring to the attention of the parties a point or issue which they ought to be given the opportunity to comment upon if it is one which is either decisive or of considerable potential importance to the outcome of the resolution of the dispute and is not peripheral or irrelevant.

(d) Whether the issue is decisive or of considerable potential importance or is peripheral or irrelevant obviously involves a question of degree which must be assessed by any judge in a case such as this.

(e) It is only if the adjudicator goes off on a frolic of his own, that is wishing to decide a case upon a factual or legal basis which has not been argued or put forward by either side, without giving the parties an opportunity to comment or, where relevant put in further evidence, that the type of breach of the rules of natural justice with which the case of Balfour Beatty Construction Company Ltd -v- The Camden Borough of Lambeth was concerned comes into play. It follows that, if either party has argued a particular point and the other party does not come back on the point, there is no breach of the rules of natural justice in relation thereto."

22. So far as agency is concerned, there are, so far as is material to this case, three types of agency, namely express, implied or ostensible. Express authority arises where an agent has been expressly, orally, in writing, or sometimes by conduct, been given authority to do a certain act, including entering into a contract on behalf of his or her principal. The editors of Bowstead and Reynolds on Agency (19^th Ed) address implied authority at Paragraph 3-024:

"An agent who is authorised to conduct a particular trade or business or generally to act as his principal in matters of a particular nature, or to do a particular class of acts, has implied authority to do whatever is incidental to the ordinary conduct of such trade or business, or of matters of that nature, or is within the scope of that class of acts, and whatever is necessary for the proper and objective performance of his duties; but not to do anything that is outside the ordinary scope of his employment and duties."

23. Ostensible authority, or as it is sometimes called apparent authority, is addressed in Bowstead at Paragraph 8-040:

"…there must, as before, be a holding out by the company. This may be by appointing a person to an office carrying a usual authority…or representing that it has done so. In such a case all acts within the authority will bind the company, but not acts outside. The holding out may also, as in apparent authority generally, be by more specific conduct, as by… regularly accepting the act of the agent in question. But pursuant to the general doctrine, 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 enquiry by the facts of the transaction."

24. In Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2B 480, Diplock LJ stated:

"An "apparent" or "ostensible" authority…is a legal relationship between the principal and the contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the "apparent" authority, so as to render the principal liable to perform any obligations imposed upon him by such contract…. (Page 503)

The representation which creates "apparent" authority may take a variety of forms of which the commonest is representation by conduct,, that is by permitting the agent to act in some way in the conduct of the principal's business with other persons. By so doing the principal represents to anyone who becomes aware that the agent is so acting that the agent has authority to enter on behalf of the principal into contracts with other persons of the kind which an agent so acting in the conduct of his principal business has usually "actual" authority to enter into." (Pages 503-4)

25. An example of a reasonably robust approach of the Court to a summary judgement application raising agency points is to be found in the Court of Appeal decision in Pharmed Medicare Private Limited v Univar Ltd [2002] EWCA Civ 1569. An issue was raised that contracts entered into by the defendant by an "Industry Manager" and an "Inside Sales Manager" were not so entered as the two individuals had no authority and because the contracts were for substantial quantities of the goods in question. Lord Justice Longmore stated:

"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."

Discussion

26. There is no doubt on the evidence put before the court that Lanstar engaged Mr Vaughan at the very least to provide services for Lanstar at and for its Pound Bottom site. It is also as good as incontrovertible (on the evidence before the court) that Mr Vaughan was appointed as the "Landfill Materials and Re-cycling Facilities Manager" for that site, as expressly "accepted" by Lanstar's solicitors on their client's instructions. Counsel for Lanstar, honestly but unconvincingly, attempted to suggest that the solicitors' concession might be wrong; it was unconvincing because the solicitors had expressly taken instructions and made the concession on instructions and there was no evidence as such before the Court that the concession was wrongly made or made without instructions. There is also no doubt that on any account Mr Vaughan had authority to hire plant and there is also no doubt that the weekly or monthly charges under all the Hire Contracts with CRJ which he signed were actually paid regularly by Lanstar. Lanstar's management and directors must have been aware, by necessary inference on the evidence before the Court, that he had arranged for a significant quantity of plant to be hired and used at the Pound Bottom site. From the rates of hire at the end of 2009, these were running, arithmetically, at over £7250 a week; that translates into a yearly rate of over £375,000. It would be surprising if a senior manager or director was not aware that substantial weekly hire rates were payable and being paid.
27. There is no evidence that generally or specifically Lanstar told, or made it clear to, CRJ that Mr Vaughan's authority was limited to contracts for short hire periods of a few days, a week or a month. There was some evidence that, after the longer term contracts were entered into, Mr Richards voiced to Mr Symons some unrelated concerns about Mr Vaughan. However, that does not assist Lanstar because (a) it was after the Contract in question was entered into and (b) it did not relate to Mr Vaughan's authority. I cannot see on the evidence before the Court that there was anything material which would have alerted CRJ to Mr Vaughan not having authority prior to the signing of that Contract or, indeed, for quite a few months thereafter.
28. There really is no evidence which has been put before the Court which gives rise to any arguable inference that CRJ was in some dishonest way in cahoots with Mr Vaughan to procure dishonestly pecuniary advantages for CRJ through plant hiring arrangements which CRJ must have known Mr Vaughan had no authority to enter into. Mr Lee does not go anywhere near far enough to suggest any realistic possibility of such conduct on the part of CRJ. All that he says is that Lanstar "is deeply suspicious of the Contract". The explanation given by CRJ as to why it wanted longer term contracts is not obviously or even demonstrably dishonest, on the evidence before this Court; that explanation was that CRJ purchased the plant new at a cost of £4,400 per month (with 36 monthly payments) and therefore needed to be certain that its purchase and funding costs were covered by the Hire Contract.
29. There is certainly some conflicting evidence that Mr Vaughan, internally, did or did not have authority to enter into these long-term contracts. However, he was appointed as the Landfill (etc) Manager of the site and the fact that the weekly or monthly hire charges under all the Hire Contracts entered into by Mr Vaughan were regularly paid out by Lanstar points strongly to him being given implied authority so far as the outside world was concerned or ostensible or apparent authority from the job and job description to which he was appointed.
30. On the evidence put before this Court, I do not consider, for the reasons given above, that there is any reasonable prospect of it being established that Mr Vaughan did not have appropriate authority to enter into the Hire Contract in question. This, of course, does not amount to some permanent "res judicata" factual finding which binds any future Court or adjudication proceedings and it is, of course, open to Lanstar to address the issue about Mr Vaughan's authority in other proceedings. It simply has not adduced any or enough evidence before this Court to avoid summary judgment.
31. I next turn to the issue of natural justice. This is not a case in which any personal criticism can be levelled at the adjudicator because he would have had no reason to believe that Mr Vaughan's statement had not been served on Lanstar's solicitors because the e-mail and letter indicated that it had been copied to them. It is also, properly, accepted by both Counsel that the adjudicator did not have jurisdiction to decide his own jurisdiction so that, although his issued decision addresses the question of jurisdiction, his decision, so far as it is enforceable, was limited to dealing with the merits of the claim for off-hire charges. It is also the case that he did not really accept or need to accept what Mr Vaughan said. He found that Mr Vaughan had no actual authority (Paragraph 29). What he actually found was that Mr Vaughan had apparent authority based on the facts that Mr Vaughan was the Landfill (etc) Manager, that he had sold machinery and changed personnel and procedures on the behalf of Lanstar, that Mr Vaughan was allowed to use a Lanstar email address and that Lanstar had acted on, or accepted previously, two 12 month hire contracts, signed by Mr Vaughan.
32. In my view, even assuming in Lanstar's favour that its solicitors did not receive Mr Vaughan's statement, the wholly innocent receipt by the adjudicator of that statement and references to it in the decision did not amount to any material breach of the rules of natural justice on his part. My reasons for saying this are, firstly, that he had no reason to believe that it had not been copied to and received by Lanstar's solicitors. Secondly, the adjudicator had only a limited regard to what Mr Vaughan had to say in that statement, preferring to base his view on jurisdiction on independently supported facts which did not emanate from the statement. Thirdly, the adjudicator in expressing his view on the agency issue was simply, openly, identifying what the result of his investigation into his own jurisdiction was and the view, although physically and verbally contained within his overall decision, does not substantively form part of the decision on the dispute referred to him for decision. There might be cases in which an adjudicator's conduct in investigating his or her jurisdiction displays such a lack of regard for the rules of natural justice that it will undermine any confidence which the Court might have in his or her ability to conduct an adjudication fairly; however that is not this case.

Decision

33. It follows from the above that there should be judgement for CRJ and that the decision of the adjudicator should be enforced.