Management

Richard Hildrick's Case notes: July/August 2011

6 July 2011

CRJ Services v Lanstar

Technology and Construction Court, 19 April 2011

Lanstar was the operator of a waste management and recycling facility near Salisbury in Wiltshire. Since 2007 Lanstar had hired specialist plant from CRJ, often for short or intermittent periods. The plant was often substantial equipment and hire rates of £70 an hour were quite common.

Between 2008 and 2010, the recycling facility was managed on Lanstar’s behalf by a Mr V, who was employed through his own limited company, and was not a Lanstar employee. During this period, Lanstar and CRJ entered into agreements for the hire of various specialist plant for periods varying from a few weeks to 12 months. The hire agreements were signed by Mr V, who described himself as “consultant” or “landfill and MRF manager”. CRJ raised invoices for this plant at the agreed £70/hour rate, and these were paid by Lanstar.

In late 2009 and early 2010, three other hire agreements were made with CRJ by Mr V, acting on Lanstar’s behalf. These further hire agreements were, however, for fixed terms of three years and two years respectively. In addition, these agreements included a provision whereby CRJ would be entitled to charge 60% of the agreed hire rate for the remaining period of the fixed-term agreement, should Lanstar off-hire the plant prior to the end of the hire term.

In March 2010, Mr V and Lanstar parted company. In September 2010, Lanstar decided to close the Salisbury facility, and the CRJ plant was off-hired. When Lanstar refused to pay the “agreed” 60% of the hire rate for the remaining hire term for one of the items of plant — from September 2009 to November 2012 — CRJ instigated an adjudication.

Lanstar’s primary defence was that Mr V did not have the requisite authority to enter into the fixed-term hire agreements on its behalf. Accordingly, it argued that it was not bound by the term requiring it to pay the 60% rate after early off-hire of the plant, and further, that there was no binding contract and therefore CRJ had no right to refer the matter to adjudication.

In the ensuing proceedings, in which CRJ applied for summary judgement of the adjudicator’s decision in its favour in the sum of £165,500, the court had to consider the question of whether or not Mr V did in fact have the requisite authority to enter into the binding hire agreements on Lanstar’s behalf. This involved a review of the law of agency.

The court considered that Lanstar’s payment of the previous CRJ invoices raised against the earlier short-term hire agreements entered into by Mr V, coupled with Mr V’s position as “landfill manager”, pointed strongly towards him having the necessary authority to enter into the long-term contracts on Lanstar’s behalf, in the eyes of the outside world. The court therefore gave summary judgement of the adjudicator’s decision in CRJ’s favour.

Richard Hildrick’s analysis

Agents can enter into contracts on behalf of companies, as long as they have the necessary authority, which can be express, implied or ostensible. This case highlights the fact that the agent of a company does not have to be an employee, and the associated risk that non-employees may enter into binding contractual agreements without a company’s knowledge.

Express authority arises where the individual has the necessary authority formally conferred upon them, usually involving a written definition. However, implied and ostensible (or apparent) authority can occur in much less clearly defined circumstances. Implied authority can arise when it is inferred from the conduct and appointed position of the individual as was the case with Mr V.

In this case, Lanstar paying for the plant hired on its behalf by Mr V under the initial short-term agreements also gave rise to ostensible authority — or authority as it appears to others.

By allowing an individual to enter into plant hire or similar agreements on its behalf, a company might well later find itself bound by much more financially substantial agreements and any onerous terms contained within those agreements. The only safeguard in such circumstances is for the company to clearly notify its suppliers of the limits of the manager’s (or agent’s) authority.

Richard Hildrick MCIOB is a quantity surveyor, contracts consultant and adjudicator. Tel: 01347 811155; richard@rjhconsulting.co.uk

 

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