| Date | 19 January 2005 |
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| Judgment | GPN Limited (In Receivership) v O2 (UK) Limited, TCC 22 October 2004 |
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| The Issue | Whether an architect or engineer has authority to bind its client into contract with a contractor. |
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| Implication |
In the absence of express representation by the client, an architect or engineer will not have authority to contract on the client's behalf. |
printAgency is a term used in English law to describe the situation where one party, termed the agent, is appointed to act as the representative of another party, termed the principal. The nature of the agency relationship may vary widely, however the most common question which arises when agency is being examined is whether the agent has legal authority to bind the principal into a contract with a third party. The relationship of agency may arise in a number of ways. There may be an express appointment of the agent; the principal may subsequently ratify a contract previously made on his behalf by an agent without prior authorisation; the law may imply a relationship of agency in certain circumstances; and in other circumstances a principal may be estopped (prevented) from denying the existence of an agent's authority to bind the principal to a contract where the third party has relied upon the appearance of authority. A typical example of agency applied in the construction industry is the relationship between a client and his architect or engineer. The architect's authority to act as agent of the client will normally be strictly limited by the terms of his contract of engagement. Generally, for example, the architect may be expected to have authority to design the works and to make arrangements for the construction activities, including inviting tenders. It would be highly unusual however for the architect or engineer to have authority to bind the client into a contract with a contractor. These matters were examined in the recent case between GPN Limited and O2 (UK) Limited. In April 2000, O2 was one of the successful bidders in the government auction of 3G Technology Licences for mobile phones throughout the UK. As a consequence O2 required to upgrade the facilities at some 2000 sites where its cellular radio equipment was located. O2 engaged McCreadies, a firm of quantity surveyors, in connection with the project. McCreadies was asked to prepare a schedule of rates for the construction element of the works to be carried out at each location. This was discussed and negotiated with GPN in the expectation that GPN would be appointed for the acquisition, design and construction of the works at each of O2's sites. In the event GPN commenced work on the upgrade programme in the summer of 2000 but it was not at all clear that a contract had been entered into by the parties. Although a draft contract document had been prepared which ultimately ran to some 15 versions, this was never signed by either party. Disputes arose and though by this stage GPN had been placed into administrative receivership, these were referred to adjudication. The adjudicator held that GPN was entitled to payment of some £6,000,000. O2 refused to pay these monies and in due course the matter came to court. O2 contended that since no contract had been concluded with GPN, the adjudicator's decision was a nullity. GPN argued that the conduct of McCreadies was sufficient to represent to GPN that McCreadies had authority to enter into a binding agreement on behalf of O2. McCreadies had been employed by O2 to negotiate the terms of the contract. GPN argued that agents were commonly employed by parties to negotiate and enter into contracts of this nature and that at no time had they been informed by O2 of any restriction placed upon the extent of McCreadies' authority. McCreadies had agreed terms with GPN without reference to O2 and this had led GPN to believe, it argued, that at all times McCreadies had ostensible, or apparent, authority to bind O2 in contract. O2 accepted that it had engaged McCreadies to negotiate the terms of the contract on its behalf and also accepted that at no stage had it informed GPN that McCreadies had no authority to conclude a binding agreement between the parties. It denied nevertheless that McCreadies had authority to conclude a contract. Judge Frances Kirkham noted that a necessary element of ostensible authority is a representation by the principal that the agent had authority to bind the principal. "When a person by words or conduct represents to a third party that another has authority to act on his behalf, he may be bound by the acts of that other as if he had in fact authorised them". Judge Kirkham noted that the GPN case was essentially that McCreadies' behaviour had given the impression had it had authority to bind O2. The difficulty with that argument was that GPN was relying upon McCreadies' conduct and not upon conduct by O2. That did not assist GPN. The law did not recognise the idea of a 'self authorising' agent. It was necessary to examine the conduct of O2 itself. Whilst it was accepted that O2 had engaged McCreadies to negotiate the terms of the contract, there was a significant difference between negotiating terms, on the one hand, and entering into a contract, on the other. The fact that O2 had engaged McCreadies to negotiate terms and had remained silent on whether or not there was a restriction on McCreadies' authority did not amount to a representation by O2 that McCreadies had authority to bind O2 to a contract. In conclusion therefore GPN's claim for enforcement of the adjudicator's decision would be refused.
CJ-0502
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