The Issue Of Compusolutions Ltd Law Commercial Essay

Published Date: 02 Nov 2017

The first issue is whether Compusolutions Ltd will have to pay the introductory fee to Computer Services Ltd and this will be based on what kind of authority Mr Swift had while entering into contracts. When acting on the principal’s behalf, an agent can have either actual express or actual implied authority. In Freeman & Lockyer v Buckhurst Park Properties Ltd [1] , Diplock J stated that "An actual authority is a legal relationship between principal and agent created by a consensual agreement to which they alone are parties." [2] According to Joseph Valvof, Es.q- ‘Anatomy of An Agency Relationship’- "The usual method of creating an agency relationship is by express authorisation, that is, a person is appointed to act for and on behalf of another. No particular form of language is necessary for the appointment of an agent. It is sufficient that the words used indicate that one person wishes another to represent him. In many instances, the authorisation of the agent could be oral, or done by a Board of Directors Resolution." According to the terms of the contract of Mr Swift, he was ‘to perform such duties as may reasonably be associated with his job title’, i.e. salesman for Compusolutions Ltd. Therefore, Mr Swift being engaged as salesman indicates that there is an employment contract between him and Compusolutions Ltd and hence this shows the consensual agreement (SMC Electronics Ltd v Akhter Computers Ltd & Others) [3] . However, if actual express authority is established, then the fact that Mr Swift has contracted with Computer Services Ltd will amount to a breach of his actual express authority because he has acted beyond the authority of that of a salesman and thus will be held liable to Computer Services Ltd for breach of warranty authority because he made a representation that was not within the scope of his duty (Collen v Wright) [4] .

Mr Swift can have an actual implied authority. Even though Mr Swift was given the title and business cards printed as ‘Director Sales Promotions’ he was not actually appointed as a company director. An agency will occur when even though there is no specific agreement, a contract may be implied from the conduct or relationship of the parties. Because Mr Swift is signing contracts and correspondence with clients which is a job which only a director can do, it can be assumed that the latter has proven his consensual agreement as being the ‘Director Sales Promotions’. In Hely-Hutchinson v Brayhead Ltd [5] , Lord Denning stated that "The actual authority may be expressed or implied [...] It is implied when it is inferred from the conduct of the parties and the circumstances of the case, such as when the board of directors appoint one of their number to be managing director. They thereby impliedly authorise him to do all such things as fall within the usual scope of that office." [6] Thus Compusolutions Ltd may found itself bound the promise of making the introductory fee to Computer Services Ltd because Mr Swift had actual implied authority. Conversely, if Mr Swift does not have actual implied authority, then he can be held personally liable to Computer Services Ltd for breach of warranty authority (Waugh v HB Clifford and Sons) [7] .

Apparent or Ostensible authority is that authority that would lead a third party to believe that one is the agent of the principal. Lord Keith of Kinkel in Armagas Ltd v Mundogas SA [8] stated that "Ostensible authority comes about where the principal, by words or conduct, has represented that the agent has the requisite actual authority, and that party dealing with the agent has entered into a contract with him in reliance on that representation." In order for Compusolutions Ltd to be bound by Mr Swift’s apparent authority and paying the introductory fee, Computer Services Ltd will have to prove the three criteria as laid down by Slade J in Rama Corporation Ltd v Proved Tin and General Investments Ltd [9] which are representation, representation was intended to be acted upon and lastly reliance and alteration of position resulting from representation. The fact that Mr Swift was given the title and business cards printed as ‘Director Sales Promotions’ can be seen to be a representation made by Compusolutions Ltd as per the case of Summers v Saloman [10] . Computer Services can argue that it was based on that reliance [11] that it contacted Mr Swift for the business propostion (Farquharson Bros & Co v King & Co) [12] . Furthermore, Computer Services Ltd changed its legal position when it entered into a contract by believing that an introductory fee will be given to the company when Compusolutions Ltd will be granted the contract by FFR Ltd. Therefore, this results to a detriment to Computer Services Ltd as per The Tatra [13] which states that "The only detriment that has to be shown...is the entering into a contract."

Lord Diplock stated that for there to be apparent authority the four conditions in Freeman and Lockyer [14] must be fulfilled, there must have been a representation regarding the person as an agent, the principal must have expressed this representation, the third party must have relied on this representation and lastly under the memorandum of association and articles the company was not denied the ability either to make a contract of the kind made or to assign power to an agent to make the contract. As a result, because Compusolutions Ltd has given the impression (Hely Hutchinson v Brayhead ltd) [15] that Mr Swift had the power of that of the director to bind the company, the latter will thus be bound by the promise made by Mr Swift to Computer Services Ltd and hence the company will be entitled to the introductory fee. On the other hand, if Mr Swift acts with apparent authority, but without actual authority, then Compusolutions Ltd will not be able to sue Computer Services Ltd unless Compusolutions Ltd decides to ratify the contract.

Ratification caters for the retrospective acceptance of a contract and it allows the principal to all privileges and obligations that are provided under a contractual agreement. In Koeingsblatt v Sweet, it was pointed out that "Ratification is the equivalent to an antecedent authority and where there has been ratification, the act that is done is put in the same position as if it had been antecedently authorised." If Compusolutions Ltd decides to ratify the contract, then it will be contractually bound to Computer Services Ltd. As per the case of Bolton Partners v Lambert [16] , if the contract is ratified then Compusolutions Ltd may sue or be sued by Computer Services Ltd and hence Mr Swift will be absolved of all liabilities such as breach of warranty of authority and not liable for going beyond his authority. In our scenario, Compusolutions Ltd does not want to pay the introductory fee, therefore it is highly unlikely that the company would ratify the contract because if it does so, it will be bound to pay the introductory fee.

Moreover, if Computer Services Ltd wants to sue Compusolutions Ltd on the contract made by Mr Swift, this will depend on whether Compusolutions Ltd was a disclosed or undisclosed principal. If Compusolutions Ltd is a disclosed principal, Mr Swift will not be liable on the contract. But on the other hand, if Compusolutions Ltd is an undisclosed principal then Mr Swift will be personally liable to Computer Services Ltd. From the facts of the case, it can be seen that Mr Swift has never mentioned that he was the agent of Compusolutions Ltd. Also, when the latter commenced the job and started negotiations with FFR LTD, the board was not aware of this transaction, thus showing that at that time Compusolutions Ltd was an undisclosed principal.

From the above, it can be seen that Mr Swift might have negotiated with Computer Services Ltd without authority. Therefore, Compusolutions Ltd by refusing to pay the introductory fee is causing a detriment to Computer Services Ltd. Consequently, Mr Swift can be held liable for breach of warranty authority where he has gone beyond the apparent authority (Yonge v Toynbee) [17] . The remedies that are available for Compusolutions Ltd is that it can either take actions against Mr Swift for breach of contract by acting without any authority, dismiss the latter without any notice or it can even start a criminal proceeding against him. As far as Computer Services Ltd is concerned, it can be compensated for the damage for breach of warranty authority of Mr Swift. The damage is calculated according to the rules in Hadley v Baxendale [18] where Computer Services will be put in a position had the breach of warranty not occurred. In our scenario, this will depend how Computer Services Ltd has changed its position because it did not have the capability to contract with FFR Ltd.

Also, when it concerns the issue of Compusolutions ltd purporting that Mr Swift was in breach of his duties, it is necessary to consider the duties of an agent. An agent owes quite a number of duties towards its principal. These duties occur either from the contract between the principal and the agent or from the fiduciary nature of agency. As there is an agreement between the principal and the agent and that the agent is given the authorisation to act on behalf of the principal, the principal must be able to trust his agent. Therefore, the fact that Compusolutions Ltd has authorised Mr Swift to act on its behalf and also allowed him to enjoy a high degree of freedom with a minimum of supervision in the execution of his work shows the element of trust and confidence that the company has placed on Mr Swift. Consequently, it is the utmost duty of Mr Swift to lawfully act upon the instructions given by Compusolutions Ltd and also do it in its greatest interests (Bertram Armstrong and Co v Godfrey [19] ). The general rule is that an agent should not delegate his authority (delegare non potest delagare which means that a delegate should not sub-delegate) and thus should be personally doing the job that he has been assigned [20] . In our case, it has been stated that on several occasions Mr Swift had sent his brother to commence negotiations with potential clients instead of going himself. In this scenario, the fact that it is only now that Compusolutions Ltd has discovered that Mr Swift was delegating the job that he was assigned (De Bussche v Alt [21] ) to his brother, shows that the company has never expressly or impliedly authorised the latter do so. Lord Denning stated in John McCann & Co v Pow [22] , "The general rule is that an agent has no authority to appoint a subagent except with the express or implied authority of the principal." Therefore, Mr Swift delegating his job to his brother will amount to a breach of his own duty.

Furthermore, Mr Swift must act in good faith and in the interest of the principal. He must not let his personal interests conflict with his duty to his principal. "Where the agent is in a position in which his own interest may affect the performance of his duty to the principal, the agent is obliged to make a full disclosure of all the material circumstances, so that the principal , with such knowledge, can choose whether to consent to the agent’s acting. If this is not done, then the principal (if he does not choose to ratify it) may set aside the transaction, and claim from the agent any profit the agent may have obtained from such transaction." [23] In Armstrong v Jackson [24] , McCardie J stated that an agent was under a duty to disclose the probable conflict of interest to his principal and thus by not doing so would amount in a breach of duty. Therefore, Mr Swift by selling a quantity of toner cartridges to Compusolutions Ltd which he himself had previously bought from a supplier and also not disclosing the matter to his company would amount to a breach of duty as per Armstrong [25] and also as an intention to make secret profit because he carried out this act without the knowledge of Compusolutions Ltd (Boardman v Phipps) [26] . Also, according to Commercial Agents (Council Directive) Regulations 1993, Regulation 3(1) [27] make an imposition on commercial agent (Mr Swift) that he should act in good faith and not to breach any fiduciary duties. Therefore, Mr Swift selling his own toner cartridge amount to a clear breach of fiduciary duty. The remedies that Compusolutions Ltd can have is to recover the secret profit that Mr Swift made or decline to pay the latter his salary/commission or dismiss him without notice.

To conclude if Compusolutions Ltd can show that Mr Swift was acting outside the authority that was conferred upon him, it will not have to pay the introductory fee to Computer Services Ltd. Mr Swift might also be held in breach of his duties for having sub-delegated his work to his brother and for selling his own toner cartridges.