Facts

Morgan Utilities Limited ("MUL") carried out works for Scottish Water Solutions Limited ("SWS"). MUL contended an oral agreement had been reached between the parties, at a meeting in September 2003, in connection with the works. MUL sued SWS for payment of about £3.5 million, which MUL asserted was the difference between what MUL had been paid and what it was entitled to be paid under the parties' oral agreement. SWS defended the action and disputed liability to make payment.

Arguments

The Commercial Court of the Court of Session had to consider what agreement, if any, had been reached between the parties in September 2003. Matters were further complicated as SWS argued the representative who attended the September 2003 meeting on their behalf had no authority to enter into a binding contract. MUL accepted that the individual in question had no actual authority, but argued representations had been made to MUL by SWS which suggested their representative did have authority and on that basis, there was apparent authority. The Court reiterated that apparent or ostensible authority can arise where representations are made by an apparent principal to their opposite number that their agent has authority to enter into a contract of a kind within the scope of that authority.

So, in addition to the usual considerations of whether parties had intended to create legal relations, and whether there was agreement on the essential terms, the Court had to consider whether SWS's representative had the necessary authority to contract.

Decision

The Court found that there had been no intention to create legal relations at the September 2003 meeting. In its reasoning, it pointed to the lack of minutes prepared or exchanged and the informality of the meeting (for example, during evidence the meeting was characterised by one as a "chat"). The evidence also pointed towards the meeting being more akin to discussions to achieve an understanding, rather than a contractual negotiation.

Turning to apparent authority, the Court was not persuaded that SWS's representative had such authority. While there had been exchanges between the parties in advance of the September 2003 meeting, the Court ruled that none of the statements made by SWS amounted to conveying apparent authority on their representative.

Having found in favour of SWS on the first two points, whether agreement had been reached on the essentials was irrelevant. In any event, the Court was prepared to say that it was not satisfied the essentials had been agreed.

Comment

The case serves as a reminder to those negotiating and agreeing contracts. It goes without saying that it is safer to document your contracts in writing; likewise important meetings. Just as importantly, you should be aware of the extent (or limit) of your opposite number's authority.