Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd

The order form on which the acceptance is alleged to have been given bore the printed number 795. It was filled in and signed after the word "per" by Peter McWilliam. The figure "0" was placed before the number 795. It contained the following written matter above the signature:

1 Otepka Drier Model WPE 600 as per Item B. of your quotation 20801

1 Full Set Trolley Rails as per sub. item B of your quotation 20801

1 Double parrallel [sic] folding attachment as per sub-item D. of your quotation 20801

The order included further ancillary equipment and this brought the total price to $214,915. The order bore no date but was in fact signed and handed to one Bates, the sales manager of the appellant, on 11th January 1971. It may be remarked that there had on 23rd December 1970 been an oral acceptance by Peter McWilliam. This oral acceptance was confirmed by the appellant by letter dated 4th January 1971.

The managing director of the respondent was at all material times Bruce McWilliam junior. His father, also named Bruce McWilliam, was chairman of directors and had been, and possibly still was, governing director. Peter McWilliam had been a director but resigned when he became bankrupt in May 1969. The other directors were the wives of Bruce McWilliam senior and Bruce McWilliam junior.

Bruce McWilliam senior, Bruce McWilliam junior and Peter McWilliam were engaged, the first part-time and the other two full-time, in the business of the respondent. They each had an office at the respondent's business premises. The name of each appeared on a notice board at those premises. The two Bruce McWilliams were described as director and managing director respectively, but Peter McWilliam was given no designation. It may be noted that he was in fact employed and paid by an associated company, Paramac Promotions Pty. Ltd., but that was a matter of internal organization in the group of companies. There was a third member of the group, Paramac Printing Co. Pty. Ltd., to whom in fact the offer in writing of 13th November 1970 was addressed. This company was in financial difficulties and had ceased trading.

The appellant's offer of 13th November 1970 provided for payment of a deposit of twenty per cent. This amount was not paid on acceptance of the offer or thereafter. Consequently on 16th April 1971 notice of termination of the contract was given. The appellant sued for damages which at the trial were agreed in the sum of approximately $45,000. The substantial defences were (first) a denial of the contract; (second) that the terms of the agreement (if any) were that in order to reserve a place in the overseas manufacturer's production line to ensure delivery in approximately July 1971 if the respondent decided to purchase, the respondent was requested to and did place a formal order in writing for the goods but that it did not decide to purchase the goods. The third defence was that the respondent was induced to enter into the agreement by the false and fraudulent misrepresentation by the appellant that in order to reserve a place in the production line as abovementioned the respondent should place a formal order in writing for the goods and that the appellant would not treat the order as formally binding and that the respondent could cancel it at any time.

Lush J. was faced with quite conflicting accounts of the course of events surrounding the dealings between the appellant and Peter McWilliam. He found also that, despite the form of pleadings, he had to determine whether Peter McWilliam had authority, either actual or ostensible, to enter into the contract. He refers to these circumstances in his reasons for judgment and we can do no more than reiterate his expressions of dissatisfaction that an issue which turned out to be such an important one was not properly raised by the pleadings.

It would appear that the defence of fradulent misrepresentation was not pursued. If it had been, the conclusion of the learned trial judge upon the second defence would conclude this third defence against the respondent. He found that at no time, neither on 23rd December 1970 when the oral acceptance was conveyed by Peter McWilliam to Bates, the sales manager of the appellant, nor on 11th January 1971 when the written order was handed over to Bates, was anything said which detracted from the contractual force of Order No. 0795. This was a conclusion reached very largely on the view taken by the trial judge on the credibility of the witnesses and it would be impossible in the circumstances to interfere with this finding.

Upon the first defence Lush J. reached a conclusion that Peter McWilliam had no actual or ostensible authority to enter into the agreement that the respondent would purchase the printing machine and ancillary equipment. He found that ostensibly the two full-time executives of the respondent were Bruce McWilliam junior and Peter McWilliam with Bruce as managing director and Peter as full-time executive on the sales and technical side of the business. The duties which he performed for the respondent had not changed or diminished since his resignation of his directorship. Peter McWilliam formed the opinion that the respondent could obtain a larger share in the printing of certain magazines than it already had. In order to do so it had to add to its equipment a web offset machine capable of production in both colour and monochrome. Peter McWilliam was authorized or expected to gather information, including quotations relevant to the purchase of such a press. He obtained quotations from at least four suppliers as well as the appellant, ranging in price from $230,000 to $500,000. Peter McWilliam saw Bates and the appellant's Sydney representative Davis at the respondent's premises on 1st October 1970 and Bates alone about a week later. Lush J. found that on the second of these occasions Bates spoke to Bruce McWilliam and in the latter's presence Peter McWilliam said, "Bruce won't be in these discussions because he is non-technical. I am handling the machinery negotiations."

Lush J. found that from November the attitude expressed by Peter McWilliam was that the ordering of the machine was urgent and that on 15th December 1970 he informed Bates that the Board had decided to purchase the Solna machine, that is to say, the brand of which the appellant was importer. He found also that Bruce McWilliam senior and Bruce McWilliam junior knew of and approved Peter McWilliam's proposal to inquire into the possible purchase of a web offset machine; that they knew that it was at least highly desirable that it should be functioning by mid-1971; and that they accepted, during December 1970, Peter McWilliam's opinion that the Solna press was the one which, if it purchased any, the respondent should purchase. He accepted that the appellant knew that the respondent was on a cash trading basis in Sydney and that the respondent would have to obtain finance for the purchase but he also accepted Bates' evidence that up to and including 11th January 1971 Peter McWilliam told him that finance could be obtained and generally indicated that this was not a matter of concern.

The learned trial judge found that Peter McWilliam had no actual authority to make the contract of purchase. He was not satisfied that the actual authority was conferred ad hoc and that is a finding which cannot be challenged. There was no direct evidence that it had been and he concluded, particularly as a result of the evidence of Bruce McWilliam senior and his impression of that witness, that the decision to purchase the machine rested with the Board of Directors, or at least with the three men of the family, the father and the two sons, and that no one had the power to make this decision without the concurrence of Bruce McWilliam senior. In relation to Bruce McWilliam senior in this connexion he said:

I do not think that he had abandoned the decision to the two sons. I do not think that he knew that steps were being taken to purchase. I do not think that anything which he had done authorised a purchase without further reference to him. I think that his evidence that he did not know was not inconsistent with his knowledge of the urgency of the situation and the desirability of the selected machine and was consistent with the fact that it would be impossible to make financial arrangements until February at the earliest. I am unable to draw the inference that he was informed from day to day of the moves made or that he, after the selection of a machine, either expressly or by implication authorised Peter to take any steps necessary to secure it, even if that involved the risk of buying before finance was arranged.

I therefore find that the plaintiff cannot succeed upon the ground of actual authority.

He also found it "impossible to suppose that a director, not being a chairman or managing director, or an assistant manager or sales manager or a person holding no designated appointment, but acting as one of the three principal executives of the company, could have inherent authority to purchase a press costing over $200,000".

At the hearing of this appeal the finding that there was no express authority was not challenged. The only matter argued on actual authority was that Peter McWilliam, having authority to obtain quotations, had implied authority to communicate to those who gave quotes whether their quotes were accepted or not accepted. It was submitted that it was not necessary to show that Peter McWilliam had authority to decide whether or not a quote would be accepted but only that he had authority to communicate decisions. This argument, so far as it relates to actual authority, is self-contradictory. Such a person may impliedly have such actual authority when the decision to purchase has been properly made but he can have no actual authority to inform an offeror that the offer has been accepted when no decision has been made by the principal to accept that offer. At the most, such a person might have ostensible authority and the submission should be considered under that question.

Lush J. found that Peter McWilliam had no ostensible or apparent authority to enter into the contract to purchase the machine. In this connexion his findings of fact which we have already related are significant but there is no need to repeat them. The question of ostensible authority fell to be determined by the application to the facts as so found of the appropriate principles of law. These principles have been compendiously stated in the judgments in Freeman & Lockyer v. Buckhurst Park Properties (Mangal) Ltd. [1] , and the significant passages therefrom are set out in the reasons of the learned trial judge. There is no need to repeat them here. He implicitly found that the appellant believed that Peter McWilliam had actual authority to enter into the contract and there can be no doubt that that was so. He also found that in the circumstances the representation or holding out that Peter McWilliam had actual authority could not be made merely by Peter McWilliam himself. This conclusion cannot be challenged. There are circumstances where the actual representation of authority may be made by the agent but in such cases it will be found that the relevant representation is made by the principal (or by the person to whom the principal has given actual authority) either by a previous course of dealing or by putting the agent in a position or by allowing him to act in a position from which it can be inferred that his actual representation of authority in himself is in fact correct. It is therefore always necessary to look at the conduct of the principal (or the person to whom he has actually delegated authority).

Lush J. approached the question of ostensible authority in this way. He concluded from the judgments in Freeman & Lockyer v. Buckhurst Park Properties (Mangal) Ltd. that the representation of authority in an agent of a company may be made by a person who did not himself have authority to do the act concerned, provided that that person had actual authority to manage the business of the company either generally or in respect of those matters to which the contract related or had actual authority to make the representation. He concluded that Bruce McWilliam junior was such a person even though he did not have actual authority to conclude the contract. Having determined that the representation as to Peter McWilliam's authority must be found outside the evidence of Peter McWilliam's own statements, his Honour proceeded:

The relevance of these two observations in the present case is that the representation as to Peter's authority must be found outside the evidence of Peter's own statements to Bates and others. If, however, it were made to appear that Bruce, the managing director, was aware of what was being done, a finding that the company held Peter out as having authority would be open on the basis that Bruce had the right to control the making of such representations by agents of the company. At this point, therefore, the question of Bruce's knowledge of the events of 23rd December and 11th January assumes importance. He then concluded that he was not satisfied that Bruce McWilliam junior knew what was being done by Peter McWilliam between 23rd December 1970 and 11th January 1971. He therefore found no ostensible authority in Peter.

Although we are of the opinion that in the light of the findings of fact this conclusion must stand, we respectfully differ from the learned judge in the approach which he made. We do not think that the distinction which he drew between actual authority in Bruce McWilliam junior to make the contract and actual authority to manage the affairs of the respondent company and to make the representation that Peter McWilliam had authority is a distinction proper to be made or one which flows from the reasons expressed, particularly by Diplock L.J., in Freeman & Lockyer v. Buckhurst Park Properties (Mangal) Ltd. [2] . The finding of fact that only the board of directors or at least the three McWilliam men could make the decision to purchase the machine meant that Bruce McWilliam junior in this respect did not have actual authority to manage the business of the respondent either generally (because of this exception to his powers as managing director) or in respect of the matter to which the contract relates. He did not have actual authority to make the representation that Peter McWilliam had authority to do that act. To find that he did would involve the finding that neither Bruce McWilliam junior nor Peter McWilliam had authority to make the contract but that Bruce McWilliam junior had actual authority to represent that Peter McWilliam had authority to make the contract. In the absence of a finding of some ulterior purpose in the company such a finding could not be made.

Bruce McWilliam junior being the managing director upon whom under the articles all powers of management could be conferred had, undoubtedly in our opinion, ostensible authority to make the contract. If with this ostensible authority he actually authorized Peter McWilliam to make the contract, there would have been an exercise by him of ostensible authority, provided the appellant believed that the authority was being exercised by Bruce through Peter. Therefore, if with the managing director's actual authority, Peter McWilliam placed the order No. 0795, there was weighty evidence upon which the appellant could conclude that Bruce McWilliam junior was exercising his ostensible authority as managing director. The signature of the order is itself very strong evidence. It was signed in the name of Bruce McWilliam junior. However, the finding that Bruce McWilliam junior did not give actual authority to Peter to sign the order in his name prevents a finding that the contract was made on the ostensible authority of the managing director.

On the other hand, if the managing director had had actual authority to make the contract then in that position he had authority to hold out Peter McWilliam as having authority to make the contract. He would have had actual authority to manage the business of the company in the relevant respect and actual authority in such a position as managing director to represent that another officer of the company had authority to make the contract. The position of a managing director is not one where persons dealing with the company would regard his power to delegate as limited in respect of a contract to purchase machinery. But the finding of fact is that this particular managing director did not have power to manage the affairs of the respondent generally (because of the limitation on his power) or in respect of the purchase of this machinery. He therefore had no authority to make the representation which would give Peter McWilliam ostensible authority. In other words, a person with no actual, but only ostensible, authority to do an act or to make a representation cannot make a representation which may be relied on as giving a further agent an ostensible authority. Hence the stress by Diplock L.J. on the need that the person or persons making the representation must have actual authority to make the representation.

Once it was found as a fact that Bruce McWilliam junior had no authority to make the representation that anyone other than the board of directors or the three men in the company had authority to make the contract, the only question was whether the Board or those three represented that Peter McWilliam had authority. One of those three was Peter McWilliam himself. He undoubtedly made the representation. The second was Bruce McWilliam junior and there was strong evidence to support a finding that he made the representation. We need refer only to the conversation with Bates and to the supply to Peter McWilliam of a blank order form, thus arming him with a document which, when he signed it, would bear the hallmark of authenticity. But where the appellant fails is in respect of any representation by Bruce McWilliam senior. He did not hold out his two sons as having full executive power, and he made no representation that Peter McWilliam had authority to enter into such a contract or to convey in writing to the appellant a decision of the respondent that it accepted the offer of the appellant or would make an offer capable of acceptance by the appellant.

The grounds of appeal relating to ratification and estoppel were not pressed as separate grounds. There was no challenge on this appeal to the finding of fact that neither Bruce McWilliam senior nor Bruce McWilliam junior knew of the purported contract or of subsequent correspondence until 16th March 1971. There was nothing thereafter which could be described as a ratification of Peter McWilliam's unauthorized act in making the contract. The appeal therefore fails. It has been submitted that such a conclusion could substantially impair confidence in common business procedures between companies. We do not think that this is so or that the case should be so regarded. The result turns on particular findings of fact. First there was a finding that the managing director did not have full powers of management and secondly there is the finding that the contract was not made by him or with his actual assent and knowledge. The question then became whether Peter McWilliam, not being the managing director, or being one who could be regarded as having the general management of the company, had been held out by the company as having authority to make a contract of such magnitude and the conclusion upon this was adverse to the vendor. No previous course of dealing either with or known to the appellant support any apparent authority in Peter McWilliam and the size of the contract in relation to the known size and financial condition of the respondent required at least that the appellant deal with the general management of the company. Nevertheless that this should have happened in a company run in effect by a father and his two sons and that the word of one of the sons should be set at naught without it apparently affecting his place in the business - he was still in his same employment at the time of trial as he had been at the time of these unhappy events almost four years previously - says little for the business ethics of those concerned.