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LEGAL NOTICE FOR MEMBERS FEB 2020

At the end of last year, the court delivered its judgment in a case that has important implications for members.

BrandX v RetailerY concerned negotiations between BrandX and a buyer at RetailerY, which culminated in the following email exchange:

"Hi Dave, … Just to confirm, you are placing orders and committing to the yearly quantity against all lines detailed below based on the ROS you have provided… We have agreed that you will call off stock, in exactly the same way as XYZ, on an ad hoc basis within a 12 month period… [there was then a table of 9 products with quantities and prices] If you could drop me a note to confirm all the above ASAP that would be great, I shall then be in a position to push the button at this end. Thanks, Claire"

"Hi Claire, Please go ahead with the below, happy on [the brand]… Regards, Dave"

The products didn’t sell as well as anticipated, so RetailerY stopped buying them. BrandX then sued for the profit it hadn’t made on the orders that hadn’t materialised - £980,000, plus storage charges for unsold stock.

In its defence, RetailerY claimed that BrandX were well aware that the buyer did not have the authority to place orders or to make contractual commitments regarding quantities, and that his authority was limited to identifying products that RetailerY should stock and negotiating the commercial terms.

 

The key arising from the judgment were:

  • The judge rejected RetailerY's claim that everyone working in the FMCG sector knows that buyers’ in large retailers do not have the authority to commit their company. He ruled that FMCG is not a distinct market with special practices and that the normal rules apply. 
  • The position within RetailerY was irrelevant. What mattered was that the buyer was held out as the person with whom terms of trading were to be discussed and agreed, and the documentation in the supplier pack which RetailerY had supplied to BrandX did not set any limitations on his authority to do that. Whether or not he had the authority to place actual orders did not matter: BrandX were entitled to treat him as having the authority to commit RetailerY to buying a minimum quantity over the year.
  • BrandX were entitled to the profit they would have earned on those sales.

 

The take-away points are:

  • Casual emails can create million-pound contracts.
  • Buyers should open commercial negotiations by setting out - in writing - any restrictions on their authority to commit their company. They cannot assume that this is general knowledge in the business.
  • Companies need to make sure that their buyers do this. 
  • Suppliers should not be deterred from bringing claims for lost profit in these circumstances - this was a successful application for summary judgment without the expense of a trial, on the basis that holding a trial would be pointless because BrandX's claim was clear-cut and RetailerY's defence was not even arguable.