Brawn GP (now the new Formula One team Mercedes GP Petronas) managed to resolve a legal dispute with German consumer products group Henkel just in time for the start of the current Formula One season.

In an interesting case which created embarrassing headlines for both parties, Henkel filed legal proceedings against the F1 outfit on the basis that it was adamant that a three year sponsorship contract, reported to be worth £80 million, was void because the agreement was signed by a former employee without authorisation. The two companies eventually reached a settlement and legal proceedings were dropped.

Brawn and Henkel have confidentiality restrictions in place and therefore we do not know the detail of the arguments raised or the settlement reached. This situation does however highlight the need to ensure that the person signing the contract for the other contracting party does actually have authority to do so and also to ensure that companies have robust internal policies in place to make sure that they are not unwittingly bound to contracts where they do not wish to be.

If companies are unsure whether a proposed signatory has due authority, they might be wise to obtain written confirmation from a current director that the relevant signatory indeed has the proper delegated authority to bind the company. Companies should also ensure their employees have a clear understanding of who, internally, may and may not sign off on certain contracts and, at the earliest opportunity during any negotiation process, should ensure that this is communicated to the third party.