A Marketing Manager engages an Agency … lessons learned from the Etcom litigation

It has happened before and it will happen again.

 

A person who holds themselves out as working in the role of Marketing Director or Marketing Manager, engages an agency for the first time, or provides an existing agency with a new brief for marcoms services. Sometimes there are written estimates or terms that are signed or left unsigned, and sometimes the work is so urgent that the terms are loosely agreed by email, over the phone or a combination of these. What is certain is that the agency performs extensive and valuable services for the client from which the client derives a direct and substantial benefit.

 

After the rush is over, services have been delivered and the curve of satisfaction passes, the client eventually gets an invoice that heads upstairs to finance or even to CEO or director level. The message that comes back to the agency is that the marketing manager did not have permission or authority to engage the agency or otherwise approve the spend for the services. The client refuses to pay the invoice and suggests a fee far less than what the services are worth with a footnote that the agency is lucky to get that much.

 

This scenario gives rise to a number of important questions: for example, when can an agency rely and proceed on the instructions of its client? When can the agency be confident that their POC has the necessary authority to bind their organisation? Can the agency rely on a POC’s title alone? Should the agency require written approval from the top echelons of the client? What is the position in the absence of a formal agreement? In such case, how is a contract established? What constitutes a concluded agreement and does responsibility for approvals lie with the client or the agency?

 

These are some of the questions raised in a recent dispute between Ethnic Communications Pty Limited (Etcom) and Goldmate Group Pty Ltd in the Local Court of NSW [2019/00388787 Ethnic Communications Pty Limited v Goldmate Group Pty Limited, 17 December 2020]. Etcom’s win against its former client provides guidance from the courts regarding the status of an engagement, and for the first time, the degree to which an agency can rely on the instructions of its client via its marketing manager.

 

Etcom is an award-winning communications agency which provides a niche service through its targeted campaigns. The agency specialises in connecting brands and building brand awareness within certain cultural groups. The Etcom case related to a campaign Etcom had developed for its client Goldmate. Goldmate is a funds management group specialising in global assets management, with a focus on corporate lending and property development financing. In this case, Etcom sued its former client for unpaid invoices of significant value plus interest. In the absence of a signed agreement between the parties, the case turned on whether there was a contract on foot, and assuming there was a contract, whether Etcom’s POC (the Group Marketing Manager) had the necessary authority to bind Goldmate.

 

The case was straightforward. Etcom argued that it offered to provide a three-month marketing campaign for a price and that it did provide the services between August and November of 2018. Etcom was engaged by the Group Marketing Manager of Goldmate. Etcom pitched for the services and the pitch was accepted. There was ongoing and regular communication between Etcom and Goldmate employees during the course of the campaign, the work was delivered and completed to a high standard, invoices were issued but none were paid. Goldmate contended that although services were provided by Etcom, it was not aware of the services provided. Goldmate asserted that its Group Marketing Manager had no authority to bind Goldmate, and that Etcom was aware that the Group Marketing Manager had no authority to bind Goldmate in respect of the marketing services.  Thus, it was happy to take the benefit of the marketing services but just did not want to pay.

 

After a lengthy legal dispute, Goldmate’s argument was ultimately rejected on 17 December 2020. Magistrate Kennedy held that a contract was formed between the parties, there were clear indications that the services as pitched were to be delivered for the fee on clear terms. Further, the Court held that it was open for Etcom to believe that Goldmate’s Group Marketing Manager held the authority to make arrangements in relation to marketing services on behalf of the company. On balance, there was a valid contract which was performed, and the contact was breached by the failure of Goldmate to make payment. The Court awarded Etcom the judgment sum, plus interest, plus costs in part on the ordinary basis and also in part on the higher indemnity basis.

 

The matter was a comprehensive win for Etcom. In finding for Etcom, Magistrate Kennedy’s judgment provides critical insights on which an agency might rely when considering questions of contract formation and authority, and underscores the need for (i) clear communication, (ii) transparent engagement processes, and (iii) formalised agreements which provide certainty to the parties.

 

Contract formation

In determining whether an agreement had been reached by the parties, Magistrate Kennedy referred to three situations where parties agreed terms subject to a formal contract highlighted by the High Court in Masters v Cameron [1954] 91 CLR 353, as well as Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622.

 

Ultimately, the test applied was as described in Martinez v Park Trent Properties Group Pty Ltd (No 2) [2016] NSWSC 1661:
In construing the terms of the correspondence so as to ascertain the intention of the parties, the question is whether what was communicated would have led a reasonable person in the position of each party to believe that the other also intended to enter into a binding agreement”.

 

Applying legal principles to the relevant facts and looking at the circumstances surrounding the agreement and the words used in email correspondence, Magistrate Kennedy took the view that “a contract in this matter was, in fact, formed…  [there were] very clear indications that the proposal, as pitched by the plaintiff, was to go ahead… it seems clear that Ms Ludwell, the marketing manager, was engaging the plaintiff on clear terms.  She was accepting their offer to provide a service at costs.  The terms are clearly set out in the proposal.”

 

Authority

The next major issue in the case was whether Ms Ludwell, the defendant’s Group Marketing Manager, had authority to enter the contract and bind Goldmate.

 

In relation to the expression of the law, Magistrate Kennedy relied on the judgment of Lord Denning in Hely-Hutchinson v Brayhead Ltd & Anor [1967] 3 All ER 98, and referred to Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 and the more recent decision of Left Bank Investments Pty Ltd v Ngunya Jarjum Aboriginal Corporation [2020] NSWCA 144.

 

The judgment of Lord Denning in Hely-Hutchinson v Brayhead breaks down the various categories of authority, as follows:

 

Actual authority may be express or implied. It is express when it is given by express words, such as when a board of directors pass a resolution which authorises two of their number to sign cheques. 

 

It is implied when it is inferred from the conduct of the parties and the circumstances of the case, such as when the board of directors appoint one of their number to be managing director. They thereby impliedly authorise him to do all such things as fall within the usual scope of that office. Actual authority, express or implied, is binding as between the company and the agent, and also as between the company and others, whether they are within the company or outside it.

 

Ostensible or apparent authority is the authority of an agent as it appears to others. It often coincides with actual authority. Thus, when the board appoint one of their number to be managing director, they invest him not only with implied authority, but also with ostensible authority to do all such things as fall within the usual scope of that office. Other people who see him acting as managing director are entitled to assume that he has the usual authority of a managing director.”

 

Applying legal principles to the facts and circumstances, Magistrate Kennedy held that:

 

Ms Ludwell was the group marketing manager… In relation to the role as group marketing manager it was fairly open to the plaintiff [Etcom] to believe that Ms Ludwell would have authority to make agreements in relation to the provision of marketing services. She was able to articulate the needs of the business and appeared to go through a process of having the pitch considered by her company over the following week.  By giving her the title it’s not unexpected that when she seeks marketing services out it would seem that other people seeing her acting in this role would be entitled to assume that she had the usual authority of the marketing manager…

 

It is further my opinion that Ms Ludwell was acting in her designated role and that, consistent with the evidence, the plaintiff was entitled through her conduct and engagement and her position and title to infer that she had authority to enter into the agreement. It is clear that there was ostensible authority. It might also be said that there was a further authority implied in the vesting of the role of Ms Ludwell in her actions, in the actions of other members of the defendant in participating and in fact ratifying her work. No attempt was made by anyone to identify or inform any person within the plaintiff [Etcom] otherwise.

 

Lessons Learned

The lessons for agencies are as follows:

  1. For the first time the Courts have directly found that an agency is entitled to rely on the usual authority of a person holding themselves out as performing a role such as Marketing Manager and doing such things as fall within the usual scope of that role; and
  2. An agreement may be reached in the absence of a formal contract but a written agreement is likely to reduce uncertainty. Such an agreement should ideally be inked before the agency commences services.

 

von Muenster Legal advised and acted for Ogilvy Australia Pty Ltd in this case.