Have you ever meant to buy shampoo, only to discover that what you’ve got is conditioner? Well at least you’ve never accidentally bought 483,449 units of cosmetic products, as Superdrug were found to have done in the recent case of Athena Brands Ltd v Superdrug Stores Plc  EWHC 3503 (Comm). The Court held that a series of email negotiations, which included the fateful words “Please go ahead with the below”, led to a binding contract between the parties, committing Superdrug to a minimum purchase of over £1.3 million worth of stock.
While commercial pressures can often mean that businesses do not perfectly follow their own policies, this case is a reminder of the pitfalls of straying too far from robust purchasing procedures.
There are two important points to take away from the episode (along with – for Superdrug – a larger, but perhaps less useful, stockpile of cosmetic products):
- As a matter of pure construction, the courts will readily find that a legally binding agreement has been formed, even in the course of relatively informal email correspondence.
- Even if a company’s representative does not in fact have authority to enter into contracts on its behalf, the courts can find that the representative has bound the company if an objective observer would have believed they had the requisite authority.
The claim centred on Superdrug’s order from Athena of a new product range under the brand “Natures Alchemist” (the judgment references but, frustratingly, does not assist in understanding the lack of apostrophe). After a series of emails, a representative of Athena asked for confirmation that Superdrug was committing to buy a yearly quantity of products. The Superdrug employee, whose job title was “Buyer – Body Skin, Suncare and Travel Accessories”, replied saying “Please go ahead with the below”.
When the products sold more slowly than anticipated, Superdrug stopped placing orders with Athena. Athena argued that they were entitled to a full year’s worth of orders and sued for the shortfall. Superdrug denied that any contract for a minimum quantity of orders had arisen.
Perhaps the most interesting point to pick out relates to that old friend of contract law students, “intention to create legal relations”. Part of Superdrug’s defence was that there was not the requisite intention in this case. The Buyer, for his part, said in his witness statement that “It is not my job to raise a purchase order and I do not know how it is done”. On the evidence, it seems at least possible that in the Buyer’s mind, there was no such intention. The point, of course, is that English law generally ignores the subjective mental states of the respective parties when assessing intention to create legal relations (especially in commercial circumstances), and instead looks to their objective conduct. On the facts of this case the court found that an objective observer would have seen the Buyer’s “go ahead” as evidencing an intention to be legally bound.
The second, related, point is that even if an individual has no actual authority to act as agent for a principal, apparent authority will be sufficient for the principal to be legally bound. On these facts, the Buyer was held out as someone authorised to negotiate terms of trade and Athena was not told that he could not agree a minimum quantity commitment on behalf of Superdrug. In the circumstances it was not unreasonable for Athena to have relied on his confirmation as binding the company at large.
This case illustrates the importance of ensuring that companies have clear internal procedures for negotiating commercial contracts. Failure to put such procedures in place, and properly to train employees on their implementation in practice, risks a heavy financial cost. Inadvertent contracts can come about surprisingly easily. Indeed, such was the force of Athena’s position in this case that its application for summary judgment succeeded, consigning Superdrug to the Defendant’s equivalent of an early bath. At least they won’t run out of shampoo.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, February 2020