Pharmed Medicare Private Ltd v Univar Ltd

A principal may be bound by an employee’s contract through ostensible authority where its conduct has represented that the employee is authorised to contract. A previous course of dealing does not necessarily represent that contracts may be made only on the principal’s standard form. Clearer wording is required before contractual conditions will qualify the apparent authority by prescribing a particular form of document.

A transaction’s unusual size does not, without more, put the third party on inquiry. The relevant question is whether there were facts comparable to genuinely suspicious circumstances which should have caused the third party to doubt the agent’s authority. Where the material facts disclose no plausible basis for such suspicion, the issue may be determined on summary judgment.

Pharmed supplied pharmaceutical products to Univar under a series of earlier transactions. An employee, Mr Somerville, later signed a pro forma invoice for a twelve-month contract involving 96 metric tons of product. Internally, the transaction exceeded his authority, although Univar had previously performed contracts made through him and another employee.

The Deputy High Court Judge held that a contract had been formed and that Somerville had ostensible authority, binding Univar. Univar appealed only on the authority issue. The central questions were whether the previous contractual documentation represented that Univar would contract only on its own purchase-contract form and whether the size of the transaction should have put Pharmed on inquiry.

1. Appeal dismissed. Univar was bound by the contract because Mr Somerville had ostensible authority to conclude it.
2. Univar’s previous conduct, including performance of earlier contracts made by its employees, represented in general terms that those employees were authorised to make further purchase contracts. The wording on Univar’s standard form required documents to quote a contract number and referred to an “official order”, but did not clearly require every contract to be made on the prescribed Purchase Contract form. A signed pro forma invoice could constitute an official order.
3. The apparent authority therefore remained unqualified. The previous dealings could at most represent that Univar would contract on its own terms, not that it would contract only through one particular form of document.
4. The larger quantity and total value of the later transaction did not, by themselves, put Pharmed on inquiry. No fact suggested that Pharmed knew, or ought reasonably to have suspected, that Somerville lacked authority. Earlier transactions had been honoured, no limitation had been communicated, and Univar’s objection arose only after the market price made the contract commercially unattractive.
5. A L Underwood Ltd v Bank of Liverpool [1924] 1 KB 775 and Houghton & Co v Nothard Lowe & Wills [1927] 1 KB 246 concerned objectively suspicious circumstances and were materially different. They did not assist Univar.
6. The Deputy Judge had also relied on First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] 2 Lloyds Rep. 194. The Court observed that it would be apposite where the third party knew of a limitation on the agent’s authority, but that issue did not arise on these facts and did not need to be decided.
7. Reliance was established because the contract was concluded and partly performed through the forwarding of shipping documents.

• Court of Appeal (Civil Division): appeal dismissed. The Court upheld the Deputy High Court Judge’s conclusion that Mr Somerville had ostensible authority and that Univar was bound.
• High Court of Justice, Queen’s Bench Division, Commercial Court: Michael Brindle QC, sitting as a Deputy High Court Judge, held that the contract existed and that Somerville had ostensible authority. Permission to appeal was granted.