[2002] EWCA Civ 1569

Case No: 2002 0907 A3

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION (COMMERCIAL COURT)
MICHAEL BRINDLE Esq QC
(sitting as a Deputy High Court Judge)
Royal Courts of Justice
Strand, London, WC2A 2LL
Date: 5th November 2002
Before :
LORD JUSTICE CHADWICK
and
LORD JUSTICE LONGMORE
--------------------Between :
PHARMED MEDICARE PRIVATE Ltd
- and UNIVAR Ltd
----------------------------------------ANDREW FLETCHER Esq
(instructed by Morgan Cole, London EC4A 2JB) for the Claimant/Respondent
DAVID WAKSMAN Esq QC
(instructed by Pinsent Curtis Biddle, Leeds LS1 5AB) for the Defendant/Appellant
Hearing date : 21st October 2002
---------------------

Claimant/
Respondent
Defendant/
Appellant

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 Univars employee, Mr
Alan Somerville, to make. As a matter of Univars 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
Pharmeds 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 Univars 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 Somervilles authority. The following day, 15th August, Miss Katy King generated
a purchase contact on Univars 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 Univars 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 Univars 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 Waksmans 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 Univars
case on authority goes anywhere. That is because, internally, Univars 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 Waksmans submissions were :(1)

(A) that Univars only representation was that employees were

authorised to do business on Univars own Purchase Contract
forms and (B) that any reasonable seller in Pharmeds 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 Somervilles 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 Univars Purchase Contract;

(3)

that, since Pharmed were never informed of any limit to Mr

Somervilles or Ms Kings authority, they had no reason to
appreciate or suspect that the particular deal of 14th August was
unauthorised.

Univars 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 Waksmans 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 Univars 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 Univars 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 Somervilles 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 Somervilles 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
Univars authority to contract. In the event, it is unnecessary to consider that aspect of the Deputy
Judges 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 agents authority. That, however, is
not this case.

16. Lastly Mr Waksman endeavoured to suggest that Pharmed had not relied on Univars 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 Judges becoming modesty in granting permission
to appeal, the appeal must be dismissed.
18.
Lord Justice Chadwick:

19. I agree.