LMM146 – Foundations of Law in International Business
Word Count: 3,542
The case study in question will be approached sequentially, taking into account all of the legal aspects stemming from the law of agency, together with UK Company law and the legal requirements of a contract (offer/acceptance, certainty, consideration, intent) in conjunction with considerations for repudiation or exit from the contract (frustration, repudiatory breach, enforceability, and/or recission from misinterpretation) and options for contractual conflict resolution. Indeed, the first issue to analyse is the legal role and responsibility of Richard and the extent to which the latter is legally allowed to commit the company, Brighton Bricks Ltd. Secondly, as no Managing Director has been appointed, it is necessary to highlight the current UK company law to establish what impact this may have upon the Board of Directors. Lastly, due to the fact that a contract has been stipulated between Brighton Bricks Ltd. and VietClay, a legal analysis of how such contract was stipulated will be undertaken which will draw upon the findings from the first two legal points of consideration as highlighted above.
LAW OF AGENCY
The first issue to highlight is that Richard, as a member of the Board of Directors of Brighton Bricks Ltd., is in law, an agent of the said company. Indeed, not only is Richard an agent, but within this specific case, the Board of Directors had been aware that Richard had been conducting negotiations with VietClay for 6 months in order to diversify the business. It is therefore reasonable to assume that the Board of Directors implicitly agreed with Richard’s actions. According to the judgment deriving from Freeman & Lockyer v Buckhusrt Park Properties Ltd. , Brighton Bricks Ltd., would be liable to honour the subsequent contract which Richard committed the company to with VietClay. Indeed, in this case,the company was composed of four directors with no nominated managing director, just like the structure of Brighton Bricks Ltd.
Additionally, just like Brighton Bricks Ltd., the defendant company allowed one of its directors to conduct business development and negotiation activities on behalf of the Board.The defendant company, however, put forward the defence that as there was no appointed managing director, the director could not legally bind the company and therefore the contract entered into was void. This is the same stance, which the Board of Directors of Brighton Bricks Ltd. are assuming. The judge in the case of Freeman & Lockyer v Buckhurst Park Properties Ltd. ruled that regardless of the absence of a nominated managing director, the director, acting as an agent for the company, held the necessary authority to bind the latter and thus an agency by estoppel had been created.
In the specific case of Brighton Bricks Ltd., the actions undertaken by Richard on behalf of the company and the Board of Directors consent to his activities up to the point of contract stipulation highlight that an agency of estoppel has been created in this instance. Richard had, in fact, both express actual authority and implied (also known as “apparent”) actual authority. This is also referred to ostensible authority which comes into being once one of more of the following conditions arise, as summarised by Lord Justice Diplock in Freeman & Locker v Buckhurst Park Properties Ltd.:
1. A representation is made (whether by a statement or conduct) that the agent had authority to enter into on behalf of a principal the kind of contract sought to be enforced;
2. A representation was made by a person who had actual authority to enter into contracts on behalf of the principal either generally or in respect of those matters to which the contract relates;
3. The third party was induced by the representation, and relied on it to enter into the contract;
4. The principal had power generally to enter into the sort of contract which is sought to be enforced (in the case of a company, the articles of association).
In the case of Brighton Bricks Ltd., it appears that all four of the conditions as laid out by LJ Diplock apply.
UK COMPANY LAW
Having identified the principle of agency by estoppel, it is now necessary to clearly delineate the legal position of Brighton Bricks Ltd., from a company standpoint thus identifying the relevant legislation as contained within the Companies Act of 2006 .
Indeed, according to Section 172 of the Companies Act 2006 , a company director has the duty and responsibility to act in such a way which he considers to be in good faith and likely to have a positive effect on the company and the members of the Board of Directors as a whole. In conjunction with the Companies Act of 2006, there is case law which further explains the authority held by a director within a UK company.
In LNOC Limited v Watford Association Football Club Limited , for instance, the judge ruled that within UK Company law, the board of directors have vested authority to manage the affairs of the company and that such authority is normally delegated on particular matters to specific individuals holding directorship positions. Furthermore, such delegation of authority may be expressed or indeed implied (e.g. implied within the title of the director). Consequently, there is no need in UK Company law for formal assignment to be created in order for a director to have authority. This, therefore, marries up with Section 172 of the Companies Act of 2006 as highlighted above.The judge, however, clarified that “a director cannot have actual authority to act in a way which he does not consider, in good faith, to be in the company’s interest”.
In the case of Brighton Bricks Ltd., according to UK Company law, Richard possessed actual authority to commit Brighton Bricks Ltd. into a contract with VietClay as he conducted such an action with the a positive intent (i.e. to diversify Brighton Bricks Ltd.’s business line) and for the benefit of both the company and the Board of Directors.
The only way the Board of Directors of Brighton Bricks Ltd. would be able to void the action of Richard and therefore the contract with VietClay, claiming that the individual involved had no authority to negotiate on behalf of the company would be to prove that Richard was acting in a dishonest and/or irrational manned in line with the ruling in Thanakharn Kasikorn Thai Chamkat (Mahachon) v Akai Holdings Ltd.
On the facts relating to Brighton Bricks Ltd., there appear to be no such circumstances, all the more so seen that the Board of Directors never interjected with Richard’s negotiation process with VietClay lasting over 6 months. Had such an action been deemed irrational or dishonest, it would be reasonable to assume that the Board of Directors would have intervened.
Having identified Richard’s authority firstly as an agent (agency by estoppel) and secondly, his role, responsibility, and authority as a director of a UK company as per the Companies Act of 2006, it is now necessary to proceed and analyse how the contract between the two parties came into being in order to assess if there are any elements which may void the contract.
Offer & Acceptance
The process of offer and acceptance, which constitutes the legal notion of a contract between parties, was initiated by Brighton Bricks Ltd. (through Richard making a verbal request during negotiations to purchase 50,500 bricks from VietClay in May 2015). According to the brief it is unclear whether VietClay continued the process for the establishment of a contract by sending an email or other form of written confirmation with an offer for the goods requested by Brighton Bricks Ltd.. The first point to be established is whether VietClay’s reply contains the intention necessary for it to be considered an offer to supply. This is evidenced inHarvey v Facey in which it was held that the offeror was merely replying to a request for information instead of providing an offer as the reply to the offeree was generic in nature and thus did not contain sufficient intent to constitute an offer:
“…their Lordships concur in the judgment of Mr. Justice Curran that there was no concluded contract between the appellants and L. M. Facey to be collected from the aforesaid telegrams…Their Lordships cannot treat the telegram from L. M. Facey as binding him in any respect, except to the extent it does by its terms, viz., the lowest price. Everything else is left open, and the reply telegram from the appellants cannot be treated as an acceptance of an offer to sell to them; it is an offer that required to be accepted by L. M. Facey. The contract could only be completed if L. M. Facey had accepted the appellant’s last…Their Lordships are of opinion that…there is no implied contract to sell at that price to the persons making the inquiry.”
The brief provided is, therefore, too generic to make such assumptions. The only certain facts provided are that the delivery of the 50,500 bricks is to be made on the 1st July 2015 to Brighton, England and that payment is to be made on delivery.
Indeed, as with Harvey v Facey, the only answers inferred to by VietClay’s agreement with Brighton Bricks Ltd.’s following negotiations with Richard is the ability to supply the numbers of goods requested, and the willingness of VietClay to sell to Brighton Bricks Ltd.. As specific terms and conditions, other than payment on delivery, are not specified but rather implied, it remains in doubt (until and more in-depth brief is provided) whether a formal legally binding offer is in existence.
Having highlighted the problem posed by the “offer” aspect of the initial interaction between the parties, it is now necessary to analyse the second part of the contract also referred to as “acceptance”.
The ruling emanating from the contract law case Powell v Lee stipulated that the acceptance of an offer must be communicated to the offeror (VietClay) by the offeree (Brighton Bricks Ltd.) and that this may not be undertaken by Silent Clause (with the exception of unilateral contracts as was evidenced by Carlill v Carbolic Smoke Ball Co. ). The facts of the case do not support either the presence or the absence of a unilateral offer, and a more in-depth brief is required to ascertain this also. Here it must be remembered that acceptance is the process which validates a contract and which gives it life encapsulated in the latin legal term “consensus ad idem” (meeting of minds). In order for acceptance to be valid it must be communicated clearly and unequivocably to the offeror. It is not clear if Richard clearly made such communication to VietClay.
Furthermore, the acceptance must adhere to the “mirror image rule” entailing that the offeree must accept the offer exactly as highlighted by the offeror. Any modifications to the offer provided by the offeror would otherwise constitute a counter-offer which immediately eliminates the original offer made and thus invalidating the original offer which can then no longer be utilised for future dealings unless expressedly communicated by the offeror.
The rule of mirror imaging resulted from the ruling emanating from Hyde v Wrench .In the present case, there does not seem to have been clear unequivocal agreements between Brighton Bricks Ltd.’ and VietClay aside from what was verbally discussed during the negotiations. Consequently, the interaction between the two parties does not strictly conform to the mirror imaging rule as the exact terms of the offer where not included in the acceptance reply and it is not clear if an acceptance reply was even sent. However, the precedent encapsulated in Brogden v Metropolitan Railway upholds the notion that acceptance may occur in virtue of the contract being performed without objection to the terms. Consequently, the fact that VietClay proceeded to deliver the goods to Brighton Bricks Ltd. highlights that both parties tacitly but implicitly agreed to the terms and conditions verbally agreed to during the negotiations between Richard and VietClay and thereby acceptance was inferred by conduct of both parties.
At this point, the contract isin force, albeit with the legal reservations as highlighted above. Indeed, the legal reservations arise from the question of whether such a contract is objectively or subjectively in force. Arguments may be made to support both arguments. However, sinceVietClay sent the goods, it would be logical to assume that in the minds of both parties, the contract was objectively in place and thus a meeting of minds had taken place.
With this in mind, the request via email by Richard to cancel the order of bricks must be viewed assuming a legally binding contract was in place. As established in Tenax Steampship Co v Owners of the Motor Vessel Brimnes the withdrawal notice sent by telex becomes effective when it could be read rather than when it is read by the party involved (the fact that an email rather than a telex was sent is inconsequential to the established ruling as Brinkibon Ltd v Stahag Stahl expanded forms of communication to cover fax communication also). It follows that the fact that VietClay did not read the email sent by Brighton Bricks Ltd. on the 20th June (over a month after contract stipulation in May 2015) does not legally exonerate VietClay as the cancellation of the order became effective when it could be read by VietClay which occurred upon successful delivery of the latter. VietClay had several days of opportunity to read the email to the delivery on the 1st July 2015.
The ambiguities deriving from both the offer and acceptance portions of the contract between VietClay and Brighton Bricks Ltd. have repercussions also with regards to enforceability of the said contract. Indeed, it is necessary to point out that it is debatable whether the essential terms of the contract, essentialia negotii, are present in the contract. Such essential terms include, for instance, price and quantity, terms and conditions of payment, and terms of cancellation of the goods offered and accepted. Indeed, Brighton Bricks Ltd. and VietClay appear to have formulated a contract verbally during the negotiation phase leaving out a number of essential terms. The precedent for this particular lack of essentialia negotii derives from Baird Textile Holdings Ltd. v M&S Plc. Indeed, the ruling of this case by the Court of Appeal upheld the fact that because the price and quantity to purchase the goods was, in part, uncertain, the defendant (in this case M&S Plc) was devoid of terms and conditions applicable to the notice of termination of the order placed.
Lord Justice Mance ruled:
– “A sufficiently certain agreement may be reached, but there may be either expressly or impliedly no intention to create legal relations…If there is no sufficient agreement on essentials, that is on any view fundamental, and it may well also reflect an absence of intention to create legal relation.”
-“I agree with the judges conclusion that there was never any agreement on essentials….in addition, I consider that the fact that there was never any agreement to reach or even to set out the essential principles which might govern any legally binding long-term relationship indicates that neither party can objectively be taken to have intended to make any legally binding commitment.”
Therefore, based on the aforementioned ruling, there is no enforceability aspect to the contract between Brighton Bricks Ltd.and VietClay therefore, the cancellation of the order may also be possibly considered to be irrelevant and it would be necessary to investigate in greater depth of a legally binding commitment was in existence at all.
Due to the various legal issues deriving from both Brighton Bricks Ltd. and VietClay as described above, it is necessary to identify the relevant jurisdiction of applicability of the contract between the parties as well as offering advice and consideration of resolution of the legal conflict between the former.
In relation to applicability, according to the ruling of Entores v Miles Far East Co. ,the jurisdiction of the contract is the place in which the acceptance of the offer is received. In this case, the acceptance of the offer was sent by Brighton Bricks Ltd. to VietClay in England in May 2015 and therefore the laws of England and Wales apply.
The jurisdiction is of key importance as it informs the parties of the best way to reach a resolution. In fact, within England & Wales there is a strong legal motivation from Civil Courts for parties to enter into Alternative Dispute Resolution (ADR) rather than via means of traditional adversarial civil court proceedings. This will entail lower legal costs for both parties as well as a more efficient and swift resolution. Additionally, in the UK, the findings from ADR are enforceable (unlike a number of other countries) via s.44 of the Senior Courts Act 1981 : “The English court has the power under s44 of the Act to make orders in support of arbitral proceedings. That power is not limited to arbitrations whose seat is in England and Wales. However, where the seat is outside England and Wales, the court may refuse to exercise its powers if it is inappropriate to do so (s2(3) of the Act).”
There are a number of ADR schemes which VietClay and Brighton Bricks Ltd. may access:
– Arbitration (legally binding, precludes court proceedings)
– Adjudication (do not bind complainant but bind the the other side)
– Mediation (non-binding, may proceed to court)
– Conciliation (non-binding, may proceed to court)
– Negotiation (non-binding, may proceed to court)
– Ombudsmen services (do not bind complainant but bind the other side)
Depending on the ADR scheme utilised (as above listed) the parties may or may not be allowed to undertake court proceedings. Conversely, if a court proceeding is already in being, there are a number of court cases which set a precedent to encourage parties to consider and indeed undertake ADR not only prior but during the litigation also. This falls in line with the 1998 Civil Procedures Rule reforms which stipulate as the overriding objective that of cutting costs of court proceedings. CPR r. 26.4 states: “A party may when filing the complete allocation questionnaire make a written request for the proceedings to be stayed while the parties try to settle the case by alternative dispute resolution or other means.” In essence the provision allows for the court case to be “frozen” for a period of up to one month to allow for ADR to be undertaken.
Richard possessed both actual and implied authority, as has been previously highlighted, to act on behalf of the company, Brighton Bricks Ltd., to negotiate and commit the company to a purchase with a third party, in this instance VietClay. His authority derives from three legal concepts: agency by estoppel, S.172 of the Companies Act 2006, and case law. Consequently, the Board of Directors of Brighton Bricks Ltd. have the responsibility of fulfilling the contractual requirements which Richard has committed the company to. Samantha, therefore, cannot reject VietClay’s order and void the contract justifying such action on the basis that Richard has no authority as he is not a Managing Director. However, Brighton Bricks Ltd. may reject the order on the basis that there appears to be no legally binding commitment between the two parties deriving from a weak offer and acceptance stipulation process.
Both parties have entered into a contract omitting to complete all of the necessary steps, as identified above, which are necessary for it to be clear. Though the concept of mirror imaging may be waived as per Brogden v Metropolitan Railway , the lack of a clear offer by VietClay in conjunction with a lack of a clear confirmatory order by Brighton Bricks Ltd., implied indeed an acceptance of terms by tacit consent, but also resulted in ambiguous terms and conditions of essential terms.
Subsequent legal issues deriving from communications, as analysed above, are dependant on the initial establishment of a contract to which both parties share some portion of responsibility. Case law, however, sets a clear precedent on communications, and in this instance VietClay’s negligence in not reading the email of cancellation of order from Bright Bricks Ltd. would suggest that the latter party is not liable to pay for the goods.
Due to the ambiguous and unclear nature of the offer and acceptance process, and in line with UK judicial system directives contained in the 1998 Civil Procedures Rule, it is advisable for both parties to enter into an ADR scheme.
Table of Cases
– Adams v Lindsell 106 ER 250
– Baird Textile Holdings Ltd. v M&S Plc EWCA Civ 274
– Brinkibon Ltd v Stahag Stahl 2 AC 34
– Brogden v Metropolitan Railway 2 App. Cas. 666
– Carlill v Carbolic Smoke Ball Co EWCA Civ 1
– Entores v Miles Far East Co. EWCA Civ 3
– Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd 2 QB 480
– Harvey v Facey UKPC 1,  AC 552
– Henthorn v Fraser 2 Ch 27
– Hyde v Wrench EWHC Ch J90
– LNOC Ltd v Watford Association Football Club Ltd
– Powell v Lee 99 LT 284
– Tenax Steampship Co v Owners of the Motor Vessel Brimnes EWCA Civ 15
– Thanakharn Kasikorn Thai Chamkat (Mahachon) v Akai Holdings Ltd 
Table of Legislation: UK
– Civil Procedures Rules 1998
– Senior Courts Act 1981 s.44