Matt owns 10% of the issued shares of Buildco Ltd, a construction company. Matt works for the company as an assistant to Jenny, the managing director.
On 10th February 2018 Jenny went to Tahiti for a 3 week holiday. She told Matt not to bother her and to take care of all issues while she was away.
On 12th February the engineering company which advised Bulidco went into administration. Buildco urgently needed a new engineering company for its major project to build a shopping centre at Rosewood. Matt asked Cath, a general manager responsible for some aspects of the Rosewood shopping centre, for a recommendation for a new engineering company. Cath instructed Matt to contact Sally who was a director of EngCo Pty Limited. Cath had worked with Sally on other projects and thought EngCo would be ideal for the Rosewood shopping centre. Cath assured Matt that Jenny would be happy with EngCo. Although Matt was concerned that such a decision would usually only be made by Jenny he reminded himself that Jenny didn't want to be contacted and she had told him to take care of all issues.
Matt contacted Sally. He explained that he worked with Jenny, and that Cath had instructed him to engage EngCo. After some discussion it was agreed that EngCo would be appointed as a consulting engineer for the Rosewood project. Sally e-mailed a copy of EngCo's standard contracting terms and its hourly charge-out rates. Matt compared the rates with other companies which had consulted with Buildco and, while they were slightly higher, Matt signed the appointment contract with EngCo and emailed the appointment document to Sally.
On 15th February Sarah, an accountant in Buildco's accounts department, contacted Matt to advise that its loan facility with one its banks - South Bank - needed to be extended due to a temporary cash flow problem Buildco was having. The facility was due to expire on 20thFebruary. Tomas, a Loans Manager at South Bank, had advised that the extension could be agreed to by exchange of e-mails. Sarah said that Jenny usually dealt with the bank on these types of issue. Matt told Sarah to arrange for the extension and Matt approved the exchange of e-mails between Buildco and South Bank.
EngCo gave some initial advice the following week and sent its first invoice at the end of that week.
Jenny returned from her holiday before the accounts department had paid EngCo's invoice. Jenny became aware of the issues dealing with EngCo's possible appointment and was very unhappy; she had had previous bad experiences with EngCo. She called Sally and said that Buildco had no liability under the appointment letter as Matt didn't have the authority to enter into the contract. She said that the Board of Directors of Buildco always confirmed such important contracts and no such confirmation had been given.
Jenny then discovered that the reason the invoice had not been paid was because there were insufficient funds available to pay it. Although e-mails had been exchanged with South Bank, the bank was now saying that it was not bound by the e-mail exchanges as they had only been approved by Matt. The bank said that the interest set out in the e-mails would need to be increased for the bank to do the deal.
1. By considering issues of authority only:
a) Advise EngCo on whether it can enforce the contract it thought it had with Buildco.
b) Buildco does not want to pay the increased interest rate. Advise Buildco on whether it can enforce the extension at the interest agreed to in the exchange of e-mails by Matt.
2. If you had been Matt, what would you have done to minimise the risks of authority raised by these facts? Briefly say how these steps would have helped. You should be able to consider 2 steps Matt could take.