Everton Football Club Company Ltd v Sail Group Ltd & Anor

Where negotiations are expressly or impliedly conducted subject to contract, no binding agreement arises until the agreed formalities are completed, unless the parties mutually agree to remove that qualification. The issue is one of fact, assessed by the parties’ communications and surrounding circumstances. Courts should take care not to impose a contract the parties have not reached. A warranty of authority requires proof both of a representation that the agent had authority to bind the supposed principal and of reliance causing loss. Damages are measured by comparing the claimant’s actual position with the position it would have occupied if the representation had been true.

Everton sought a declaration that it had concluded an agreement with Sail to participate in a South African football tournament. It also claimed damages from Alexander Ross Ltd for breach of warranty of authority, alleging that the company had represented that it could bind Sail.

The parties had negotiated through intermediaries and solicitors. Their correspondence contemplated formal agreements being signed and exchanged, but no agreement was executed by Sail. The issues were whether a contract had nevertheless been concluded orally, whether Alexander Ross had warranted authority to bind Sail, and whether the losses claimed were caused by reliance on any such representation.

1. The claim against Sail was dismissed. The negotiations had proceeded on a mutual subject-to-contract basis. The parties understood that no agreement would bind them until formal agreements had been signed by authorised signatories and exchanged.
2. The court applied the principles in Winn v. Bull (1877) 7 Ch.D 29, Whitehead Mann Ltd v. Cheverny Consulting Ltd [2006] EWCA Civ 1303 and RTS Ltd v. Molkerei Alois Muller GmbH & Co AG [2010] UKSC 14. An express subject-to-contract stipulation is unnecessary if that is the parties’ mutual understanding. The qualification may later be removed, but that too must be established as a matter of fact.
3. The evidence did not show any agreed change on 15 May 2007. The communications remained consistent with the need for signed and exchanged contracts. The relevant draft was also incomplete and contained inconsistent dates.
4. The claim against Alexander Ross was dismissed. A warranty of authority required Everton to prove a representation that Alexander Ross had authority both to act for Sail and to commit Sail to a binding agreement. No such representation was proved. The contractual documents made clear that Sail’s authorised signatory was Mr De Villiers.
5. Even if a representation of agency had been established, Everton had neither pleaded nor proved reliance. Its claimed tournament fee and United States tour costs resulted from the absence of a concluded agreement, rather than reliance on any warranty. The court also rejected the proposed disgorgement claim by reference to AG v. Blake [2001] 1 AC 268, since no exceptional circumstances justified that remedy.
6. The contractual measure of damages for breach of warranty of authority, reflected in Firbank’s Executors v. Humphreys (1886) 18 QBD 54, did not assist Everton because the necessary causal reliance and loss were absent.