Vodafone Ltd v GNT Holdings (UK) Ltd & Anor

A guarantee is construed objectively, by reference to the document read in its relevant commercial background. Where that background makes clear that the parties used an obviously mistaken description, the court may give the document its intended meaning rather than enforce a commercially nonsensical literal construction.

Actual authority may arise from a managing director’s authority to conduct the company’s day-to-day affairs, including urgent transactions within its scope. An express limitation on an ordinary director’s authority cannot be contradicted by implication. Ostensible authority requires a representation emanating from the principal; the agent’s own assertion of authority is insufficient. A person signing as an agent ordinarily warrants that he has authority, and liability follows where the other party relied on that warranty.

Vodafone Limited claimed £495,419.61 from GNT Holdings (UK) Limited under a parent-company guarantee relating to telephone connections supplied to GNT UK Limited. The guarantee referred to Vodafone Connect, Vodafone UK Limited and an agreement said to be made on the same date, although the relevant dealings and customer agreements were with Vodafone Limited.

Vodafone also claimed damages from Nicholas Barter for breach of warranty of authority if he lacked authority to bind Holdings. The principal issues were the proper construction and effectiveness of the guarantee, whether Mr Barter had actual or ostensible authority, and whether he was liable on his warranty of authority.

1. Construction of the guarantee. Applying the objective approach in Mannai Limited v Eagle Star Assurance Company Limited [1997] AC 749 and Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 896, the court considered the document together with the background reasonably available to the parties. That background showed that all relevant dealings were with Vodafone Limited, that Vodafone Connect was its trading name, and that the guarantee was required for the 56 connections ordered on 2 November 2001.
2. The references to other Vodafone companies and to an agreement of the same date were drafting mistakes. A literal construction would be commercially nonsensical. The guarantee therefore operated as a guarantee by Holdings of GNT UK’s liabilities to Vodafone Limited, given in consideration of Vodafone Limited agreeing to supply the connections.
3. Authority. The board resolution gave each director authority to enter contracts below £100,000, but did not give Mr Barter express authority to sign the unlimited guarantee. It separately gave any two directors unlimited authority to enter written contracts. The appointment of Mr Malkus as CEO carried the usual executive authority necessary for the company’s day-to-day business. In the urgent circumstances, he had actual authority to approve Mr Barter signing for Holdings where the guarantee had been approved and two signatures could not otherwise be obtained. Holdings was therefore bound.
4. There was no need to imply authority inconsistent with the express limitation on Mr Barter’s powers. Nor was there ostensible authority: under Freeman & Lockyer v Buckhurst Park Properties (Magnal) Limited [1964] 2 QB 480, the representation must emanate from the principal, and Mr Barter’s own representation was insufficient. The factual circumstances in First Energy (UK) Limited v Hungarian International Bank [1993] 2 Lloyds Rep 194 were materially different.
5. Mr Barter nevertheless warranted that he had authority by signing as a director. Vodafone was induced to accept the guarantee because it would not have proceeded without a valid guarantee from Holdings. Judgment was therefore entered for Vodafone against Holdings for £495,419.61 with interest under the Supreme Court Act 1981; the claim against Mr Barter was dismissed because Holdings was bound.