Court of Appeal (Civil Division)
Lord Justice Henry Lord Justice Latham and Sir Murray Stuart-Smith
Lord Justice Henry:
1 The Claimant, SMC Electronics Ltd, ("SMC"), and the Defendants (all part of the Akhter Group of companies ("Akhter")), both sell power supply units ("PSUs"). PSUs are printed circuit boards with capacitors and other components soldered on to them. 2 This is Akhter's appeal from the decision of HHJ Green dated 31st March 1999, sitting in the Central London County Court, allowing SMC's claim and declaring that SMC was entitled to 50% of the profits that Akhter had made on sales of certain PSUs to Pitney Bowes Plc ("Pitney Bowes"). This entitlement is said to arise under a commission agreement made on 26th July 1993, under which Akhter promised to share their profits with SMC, in consideration for the introduction to a major new customer for PSUs, Pitney Bowes. This is a case about the authority of the third party to these proceedings, David Bennett, to enter that commission agreement on behalf of Akhter, his employers, who now seek to avoid having to pay any commission by challenging his authority to make the contract.
The background facts
3 In July 1993, David Bennett was employed by Skynet, a division of Akhter, as "Director PSU Sales". In fact, he was not a director of any company in the Akhter Group. He worked from a small sales office in Basingstoke with two other people, his assistant, Andy Wall, and a secretary. David Bennett's primary duty was to promote sales and he was paid large commissions when he was successful. The judge found that he was given a very high degree of autonomy. He even had the habit, known to and permitted by his employers, of writing on Skynet notepaper and describing himself as "director". This Skynet notepaper, in breach of s. 351 of the Companies Act 1985, omitted to contain the registered name, company number and address of Akhter, leaving the reader no indication as to whom David Bennett might answer. 4 In July 1993, Pitney Bowes, a large UK manufacturer, was interested in buying large quantities of PSUs and approached, among others, SMC in order to get a quote. SMC thought the job was too big for them, and so Merhzad Koranki of SMC approached David Bennett to suggest that Skynet quote for the business. Merhzad Koranki suggested that, if Skynet's tender was successful, it should share the profits of the Pitney Bowes' deal equally with SMC under a commission agreement, in return for the introduction. Having checked with Andy Wall that Skynet did not already know about the invitation to quote, David Bennett agreed with the proposal. At a meeting with SMC, David Bennett brought with him a letter containing draft terms of contract. After some negotiations, Merhzad Koranki then handed him the contract document, addressed to David Bennett at Skynet. This became the commission agreement. It provided: "Dear Dave,
(1) Further to our telephone conversation this morning, I would like to confirm what we discussed and agreed with regard to customer projects. (2) SMC Electronics Ltd will do its utmost to sell and distribute Skynet products as part of our range, however on the occasions where we would have to pass on the project to Skynet Electronics, we agree to do so based on our agreement that the total profit will be shared equally (50% SMC Electronics, 50% Skynet Electronics) (3) This will not only apply to the current project, but any future projects and orders generated from the customer identified. (4) We anticipate a lifetime of customer designs to be in the region of five years plus, therefore any agreements made would have to cover at least the running period as well as the lifetime of the products. (5) Could you please make a record of the following customer for which the project is passed on to yourselves in order to complete for the order. (6) Of course, SMC Electronics will work...