The Perils of Apparent Authority

The recent appeal decision of the High Court in Christchurch in Levin Meats Ltd v Perfect Packaging Ltd sounds a timely reminder for relaxed employers.

As an employee of Levin Meats Ltd, Mr Grey enjoyed such autonomy that he was the point of all outside contact for the company and he appeared to enjoy complete control of the business.  The directors claimed that Mr Grey was the company’s General Manager and that they were unaware that his business card showed him as the CEO and that his email signature identified him as the Chief Executive Officer.

After extensive negotiations Mr Grey entered into a contract for the company to purchase a machine to the value of $203,369 and he arranged payment of substantial deposits.

Several months later the directors declined to complete the contract and claimed that the company was not bound by it because Mr Grey had no authority to acquire significant capital items without board approval.  They argued that Mr Grey had been specifically instructed that the board would not approve any arrangement other than use of the machine without payment except only for consumables used and without any obligation to buy.  They also claimed that the deposit payment had been concealed from them.  Mr Grey claimed that he had acted within his authority.

The Court ruled that the question of whether Mr Grey was actually authorised to enter into the contract did not arise because by allowing Mr Grey such autonomy the company had given him apparent authority to bind the company.  The fact that the company had allowed Mr Grey the freedom to act was effectively a representation to the world that he had authority to bind the company.  The company was bound by the contract which Mr Grey had negotiated.