A salutary reminder of the importance of following internal policies when negotiating purchase agreements by email

By Victoria Hobbs, Theo Cooper

05-2020

As the shift to home working looks like it is here to stay, at least for the next few months, it is more important than ever that employees follow internal policies when negotiating new contracts.

 

In Athena Brands Ltd v Superdrug Stores Plc [2019] EWHC 3503 (Comm), the English Commercial Court handed down a decision granting summary judgment in favour of cosmetics manufacturer Athena Brands Ltd, the Claimant, against Superdrug Stores Plc, the Defendant. The judgment serves as a reminder that a simple exchange of emails is capable of creating binding legal relations. While the Defendant did have policies covering the negotiation of purchase contracts, the relevant employee did not make the Claimant's representative aware of those policies and therefore, on the facts she was entitled to assume that he had the necessary authority to negotiate terms of trade and that he intended to bind the Defendant.

 

The Facts

 

The claim related to a contract allegedly formed by email exchange between a 'Senior Brand Manager' for the Claimant and a 'Buyer' for the Defendant, for the purchase of a minimum quantity of cosmetic products by the Defendant from the Claimant's new product line, 'Natures Alchemist'. The Senior Brand Manager emailed the Buyer in May 2017 asking for confirmation that the Defendant was committing to a minimum yearly quantity of products to be called off over a 12 month period. The Buyer replied to the email writing 'Please go ahead' and the first delivery of products took place in October 2017.

 

Initial sales of the new products were slower than expected and in February 2018 the Defendant informed the Claimant that 'orders going forward would be unlikely', after which time no further orders were placed. The Claimant subsequently claimed against the Defendant for the shortfall in the minimum quantity of products sold, amounting to just under £980,000, as well as storage costs for the unsold stock and interest on these sums, arguing that their correspondence clearly constituted a contract with the Defendant.

The Defendant argued in their defence that: 1) The emails did not give rise to any such agreement or commitment as a matter of construction in context, in the absence of a specific purchase order being issued by the Defendant; 2) Even if such an agreement was expressed, there was no intention between the parties to create legal relations; and 3) The Buyer in the email chain did not have actual or apparent authority to enter into a contract on behalf of the Defendant.

The Decision

The Court held that the Defendant had no real prospect of success in defending its case on any of the defences put forward. The Buyer was held out as the individual authorised by the Defendant to discuss and agree terms and trading, and there was no evidence that a limitation on the Buyer's ability to enter into such an agreement was explicitly expressed to the Claimant in the correspondence or otherwise. The Court further held that none of the evidence put forward suggested that the Claimant was unreasonable in relying on the Buyer's confirmation. The Court also noted that the Claimant had previously sold products to the Defendant under another brand, 'HiGlow', in a similar agreement involving a minimum quantity commitment.

The importance of following internal policies when negotiating purchase agreements by email

This judgment should serve as a reminder of the importance of following internal processes for entering into agreements on behalf of a company. Ultimately it is the responsibility of the company to ensure that employees adhere to the policies put in place and understand the ramifications of not doing so. Businesses must be cognisant of the fact that the courts are willing to hold the employer accountable for the representations and promises made through email correspondence by their employees. Such exchanges can trump internal policies if the employee does not make the counterparty aware of those policies, and the negotiations are not considered in accordance with the standard business terms or practices of the relevant industry.

For further disputes related know-how, Click here to access to Disputes+ Bird & Bird's dedicated DR know-how portal.