In the recent case of CRJ Services Limited v Lanstar Limited [2011] EWHC 972 (TCC) the lessee disputed liability under 3 Lease Agreements on the grounds that the signatory did not have authority to enter into the Agreements.
The problem for the lessee was that although the signatory was not an employee, he was engaged as a consultant and given the title “Landfill Manager” to run a landfill site operated by the lessee. It was common ground that in this capacity he had actual authority to enter into short term Hire Agreements with the Financier for various items of plant, but it was the lessee’s case that he had no actual or implied authority to enter into long term hire contracts. Nevertheless the signatory entered into two 3 year contracts and a 2 year contract for the hire of plant all of which contained terms that if the lessee terminated the arrangement before the expiry of the fixed period of hire it would be liable to pay 60% of the agreed hire rates for the remaining periods of hire.
The lessee claimed that it had no knowledge that these 3 long term contracts had been signed, and had effected payments on the assumption that as with the short term hire contracts rentals were payable on a monthly basis but without any long term commitment.
When the signatory left his engagement with the lessee as a result of an acrimonious dispute the lessee’s solicitors did not improve the lessee’s prospects of being able to avoid liability by writing to the Financier and stating inter alia that the signatory “…was the Landfill Materials and Recycling Facilities Manager…[and] was required to “run things by” the Finance and Managing Directors”.
The court had little difficulty in rejecting the lessee’s arguments that the signatory to the Hire Agreements lacked the necessary authority to bind the lessee. There was no suggestion that the lessee had taken any steps to inform the Financier that there were limits on the signatory’s authority, and at no stage had the lessee protested or withheld any payments during the periods of hire before termination. Thus although the signatory had no actual authority to contract for long term hire, he clearly had apparent authority on the principles set out by the Court of Appeal in Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480:-
“An “apparent” or “ostensible” authority…is a legal relationship between the principal and the contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the “apparent” authority, so as to render the principal liable to perform any obligations imposed upon him by such contract…
The representation which creates “apparent” authority may take a variety of forms of which the commonest is representation by conduct, that is by permitting the agent to act in some way in the conduct of the principal’s business with other persons. By so doing the principal represents to anyone who becomes aware that the agent is so acting that the agent has authority to enter on behalf of the principal into contracts with other persons of the kind which an agent so acting in the conduct of his principal business has usually “actual” authority to enter into.”
Comment
The key point in this case is that the lessee by its conduct in allowing the signatory to enter into short term hire contracts effectively clothed him with apparent or ostensible authority to enter into long term hire contracts as well. It would have been different if the signatory had no actual authority to enter into short term contracts either.
An agent or employee cannot clothe himself or herself with authority: the essential point is that it must be the lessee itself which has done some act or made some statement which has the effect of clothing the agent or employee with apparent or ostensible authority.
Thus it is good practice to ensure that in any case of doubt as to the actual authority of a signatory to a Hire Agreement there should be some communication with the Directors or others with senior management responsibility to confirm that the proposed signatory has indeed authority to contract on behalf of the lessee.
Even in cases where actual or ostensible authority in the signatory is lacking it may still be possible to establish liability if the lessee subsequently ratifies its involvement in an Agreement, for example by using the equipment and making payments with knowledge of the lack of authority in the signatory.
Whilst it is too early to predict the likely effects of Brexit on legal issues in the asset finance industry, it is worth noting that much of the current legislation affecting consumer credit derives from EU Directives.
A difficult point of consumer credit law has for some years been the extent to which a one-off or occasional series of transactions may be subject to the need for licensing or authorisation. The issue arose in the recent High Court case of Newmafruit Farms Ltd v Pither [2016] EWHC 2205.
The FCA has now published its finalised guidance (FG17/1) concerning default notices and guarantors under regulated consumer credit and consumer hire agreements.
The FCA previously consulted on its draft guidance twice during 2016, resulting in revised draft guidance in October which took a more burdensome view of funders’ obligations. The Final Guidance is largely unchanged from the October revised draft.
We recently successfully represented a funder at a High Court trial which reaffirmed a number of interesting points for asset financiers involved in funding parts of the motor trade.
The funder had arranged for one of its motor dealer clients to look after vehicles which had been provided by the dealer with finance from the funder but had subsequently been repossessed. There was a verbal agreement for payment of a commission for sales which the dealer achieved in respect of these vehicles.
The FCA has published revised consumer credit information sheets to accompany arrears and default notices, which must be used by funders from 14 April 2017. Until then, the current versions (which have been in force since 2014) must be used after the initial draft of the new versions intended to come into effect this January were found to be defective and had to be withdrawn.
We will shortly be publishing the fourth edition of our popular Guide to Asset Finance Law , which brings the previous third edition published in 2012 right up-to-date with relevant legislative and case law developments, setting out differences between English and Scots law.
Funders with experience in the education sector have for some time been aware of arguments that as a matter of law finance leases with local authority schools may not be enforceable on the grounds that they are ultra vires, and to compound this many schools have threatened legal action claiming repayment of sums paid under such leases. Many tens of millions of pounds are involved and the issue has led to many funders retreating from this type of business altogether.
Rebecca joined Bermans in September 2016 as a Consultant in the Property team.
She has a degree in law & French and qualified as a Solicitor in 2005.
Rebecca advises a variety of clients including SMEs, private individuals and international investors. She specialises in all aspects of commercial property, in particular acquisitions and disposals, landlord and tenant, property finance and property development.
She is also a volunteer for Henshaws Society For The Blind and is a member of Solicitors Regulation Authority.
We met up with Gemma McGowan (pictured below), Managing Director of The Isla Gladstone, a popular wedding and events venue in Liverpool to chat with her about her typical working day, business challenges as an SME, and exciting plans for the future.
1. What is your business?
I am the owner of the business that operates the Isla Gladstone Conservatory and Kemps Bistro in Stanley Park Liverpool. We have over 100 weddings per year and look after the official off-site Hospitality for Liverpool FC.
Each year we host on average 200 events and provide outside catering for small and large events.
I am also the founder of HESTIA CAREERS, an Apprenticeship program for young people wishing to have a career in hospitality. I founded this after I saw how many young people had the potential for a career in this growing market – but didn’t have the understanding of what the industry actually was. Our young people have travelled to London for silver service and butler training and even to Dubai to work with the Emirates Training Academy.
2. Which solicitors do you use at Bermans and how do we compare to other firms?
Fergal O’Cleirigh (Partner and Head of Property) is my point of contact at Bermans.
I have known Fergal now for a number of years and would not choose to work with anyone else. Not only is he excellent with his knowledge – he cares. He cares enough to take late night calls from me and have my best interests at heart. This type of relationship is priceless and I trust him implicitly – if I had a circle of trust he would be the ring leader!
3. What are the biggest challenges you face in growing your business and maintaining profits?
As I am an SME risk is always seen as the biggest challenge. I personally don’t ever worry about risk – but sometimes to enable yourself to grow you need to take risks that some financial institutions might not be able to place a tick in a box next to. Through Fergal I have met a Bank now that I can work with and who want to grow with me.
The ever increasing utility charges, living wage and business rates have always been an issue when trying to maintain profits. The industry I work in is seen as not a necessity in everyday life. You can choose how much you spend on a wedding or a corporate event – it is not a ‘must’ in your life. Therefore when times are hard these are the first things people stop spending money on. Thankfully for us we work with our customers to ensure value for money and also for us to make a profit.
Also not many people will admit this – but being a woman in a man’s world is still an issue – as I have got older its not as apparent – maybe because I have proven a point – that I am equal to any man – but it still happens and it drives me insane!
4. Tell us about your typical working day?
The school run for the school bus at 7.30am is really the only typical part to my day.
For the rest of the day it can either be spent working with the team at the Isla Gladstone, meeting with my team who are overseeing the Hotel development in Anfield or developing the CIC we have set up for Stanley Park to animate the park and bring more park users to north Liverpool. My day is never dull – and I always go to bed exhausted!
I like to be hands on and know everything that is going on!
5. What has been a highlight for The Isla Gladstone over the last 12 months?
Year on year our business has continued to grow. Particularly with the new hotels and venues opening in the city – this makes me proud that we have been able to continue the growth.
6. What are your plans for The Isla Gladstone for the year ahead?
We have just appointed a new head chef – so I am excited about the new menus and events that we will be catering for. Our demand for corporate and private outside hospitality is also growing. It’s good to see that our brand is being recognised and people chose to work with us.
With the Stanley Park CIC – we will also have lots of exciting weekly community and large scale events being brought to the park that we will be working with.
7. Is there are sector or industry that you are strong in or looking to develop opportunities?
For the past five years I have been working with Your Housing Group, Liverpool City Council and LFC to bring a training hotel to Anfield. We have finally got to a position where we will be signing a franchise agreement with a major brand to bring a 150 bedroomed training hotel to Anfield.
The community of north Liverpool will be able to work and train in the hospitality industry whilst gaining qualifications. This is something I am very proud and excited about. I understand that in this industry people like to learn by working and not by attending college. The way we teach will cater for this. I know first-hand how this feels, I went to University for half a day and I left at dinner time as I didn’t want to read 50 books – I wanted to learn… so I went to work instead!
Bringing a branded training hotel to a regeneration area in Liverpool will be my proudest moment to date – I just can’t wait to get the spade in the ground!
8. Do you find social media assists your business and if so, how?
Our customers love to see new ideas and keep up to date with different trends. This is a major part of our business. In fact I have just employed someone to start looking after this for us as I realise how important it is. We need to have a regular presence and ensure we are always in our customers minds – but without being boring!
9. If you were chancellor, what single change would you make to help improve the economy and/or your business?
If I can be allowed two changes, reducing the burden on business of corporation tax/business rates and increased investment in providing employment opportunities for young people.
10. What are your passions away from business?
Whenever I can I jump on a plane to Portugal with my family – it’s my happy place and I love spending time with my husband and 2 children watching them grow up and enjoy life!
To get in touch with Gemma at Isla Gladstone:
e: gemma@theisla.co.uk
t: 0151 263 0363
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