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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
WTL v BEL
Michel Kallipetis
General Information
This is a dispute between Worldwide Telecommunications Limited (“WTL”) and Boshita of Europe Limited (“BEL”).
WTL provides telecommunication services to companies that do not wish to carry the cost of a designated Information Technology (“IT”) Division within their own organization. WTL is based in Belgium.
BEL is a UK company and a wholly owned subsidiary of Boshita International Inc. (“BI Inc.”), a worldwide manufacturing company with wholly owned subsidiaries on each major continent.
WTL has commenced proceedings in the High Court of Justice in London to recover the sum of £116,638.24 with respect to three invoices dated six months ago, for telecommunication services supplied to BEL over a three-week period immediately prior to the invoices.
WTL relies upon an agreement (“the Agreement”) that was signed by Mr Dick Thomas (“Mr Thomas”), who was then employed by BEL as an IT and communications manager. Mr Thomas is no longer employed by BEL.
BEL disputes liability on the grounds that it was the victim of a fraud perpetrated by Mr Thomas and a Mr Paul Crooke (“Mr Crooke”) and that Mr Thomas had no authority to enter into the Agreement on behalf of BEL. The telecommunication services supplied by WTL were in fact used by Mr Crooke only and BEL had no benefit whatsoever from them.
Although not expressly foreseen in the Agreement, WTL’s lawyer suggests to BEL that the parties engage in mediation pursuant to the ICC Mediation Rules. BEL accepts the proposition. The parties have been persuaded to seek to resolve the dispute through a pre-action mediation even though each party firmly believes (and each has been so advised by their respective lawyers) that they will succeed if they go to court.
Representing WTL is Mr/Ms Kilroy, its Managing Director, and a company lawyer. Representing BEL is Mr/Ms Akimoto, its European Managing Director, and a company lawyer. Both parties have settlement authority.
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Confidential Information for WTL (Mr/Ms Kilroy)
Requesting Party
Mr/Ms Kilroy is disgusted by what s/he sees as an attempt by a large multinational organization to escape liability for its sloppy management procedures. BEL allowed one of its managers to contract on its behalf, and as a result put a small company in danger of liquidation by refusing to honour the contract and make payment to WTL.
Mr/Ms Kilroy received a telephone call from Mr Crooke on 4 January last year. Mr Crooke asked about WTL’s IT services and a trial account was set up for him. Subsequently, Mr Crooke telephoned Mr/Ms Kilroy in early February and told him/her that he had been appointed by BEL as its consultant. He also said that he was in charge of BEL’s call traffic, and that as he was managing the service on behalf of BEL, it would be going through his “switch”.
It was and remains standard practice for third parties to contact WTL to find out what communication services it can offer for its clients. WTL did not find it strange that the call traffic should go through Mr Crooke’s switch rather than one set up for BEL. More often than not, the contracting party (in this case BEL) does not want to be responsible for managing its own connection. Therefore, if a consultant is appointed, call traffic for the contracting party will often go through the consultant’s switch. In addition, on or around 10 February, WTL was informed by Mr Crooke that the service had to commence immediately because BEL had been let down by its service provider at the time. Mr/Ms Kilroy had no reason to doubt this confirmation.
On or around 11 February, Mr Crooke provided WTL with Mr Dick Thomas’s contact details, which confirmed his position as “IT and communications manager”. The fact that Mr Crooke provided this information lent further support to Mr/Ms Kilroy’s belief that Mr Crooke was acting as BEL’s consultant. Mr Crooke gave them a telephone number and an address for his office, but after the fraud was discovered and WTL tried to contact him, the telephone had been disconnected and the office was merely a service office.
Mr/Ms Kilroy had no reason to doubt Mr Crooke’s authority, as BEL now alleges. Nothing about the dealings raised any suspicions, as the pattern of events described above was not out of the norm in any way. There was no reason for Mr/Ms Kilroy to question Mr Crooke’s assertion that he was acting as a consultant for BEL. As far as any allegation that Mr Crooke had no authority to confirm that BEL did require the services offered by WTL, this is irrelevant because regardless of what Mr Crooke said or did, it was Mr Thomas, BEL’s IT manager, who actually signed the Agreement on behalf of BEL.
Mr/Ms Kilroy knew that Mr Thomas was the IT and communications manager for BEL, not least because on receipt of his contact details, WTL called BEL and obtained confirmation from the switchboard that Mr Thomas did indeed hold that position. Clearly, BEL held Mr Thomas out as being its IT and communications manager.
Mr/Ms Kilroy also carried out an Internet check on Mr Thomas. One of the documents considered as a result of this search was a delegate list for a computing event. Mr Thomas and Mr/Ms Akimoto were listed as attendees on behalf of BEL, as IT manager and vice president respectively. This further confirmed that Mr Thomas was employed by BEL.
The Agreement was signed by Mr Thomas, who at the time said that the traffic the contract would generate would not be from BEL alone, but also partly from other divisions of the parent company, BI Inc. Despite what BEL now says about the authority to enter into such a contract, Mr/Ms Kilroy had no reason to doubt Mr Thomas’s authority to sign a contract on behalf of BEL. Mr Thomas even faxed the signed Agreement from BEL’s offices, with BEL’s logo and address and contact numbers on the accompanying header sheet. In WTL’s experience it is common for an IT communications manager to sign such contracts.
After the contract was signed, Mr/Ms Kilroy visited Mr Thomas at BEL’s offices with Mr Crooke and discussed payment terms as well as the possibility for WTL to provide further services. Mr Thomas had an office of his own with his name on the door confirming his position as IT and
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communications manager, and Mr Crooke’s attendance did not cause any surprise to anyone Mr/Ms Kilroy saw.
When payment was not made, Mr/Ms Kilroy telephoned Mr Thomas. Mr Thomas was not in and Mr/Ms Kilroy was put through to his secretary, who in turn transferred Mr/Ms Kilroy to the accounts office. There, Mr/Ms Kilroy explained the situation to a woman named Marlene. She expressed no surprise about the contract being signed by Mr Thomas and said something like: “Oh, he must have forgotten to give me the paperwork, I will chase him for it.” Clearly she was not aware of BEL’s alleged procedures that make it impossible for anyone other than a vice president to sign such contracts.
WTL’s lawyers have advised that even if the court does not accept that Mr Thomas had actual authority to enter into the contract on behalf of BEL, there is every likelihood that the court would find he had ostensible authority in all the circumstances.
WTL cannot afford to write off the sum of £116,638.24, as it has had to pay nearly £90,000 to its sub-contractor for the services WTL supplied to BEL.
WTL has been advised that the English courts expect the parties to try and resolve their disputes by mediation rather than litigation, and, on WTL’s lawyers’ advice, WTL is prepared to try and recover the sums it is owed with interest, as well as its costs, from the mediation rather than go to court.
WTL has for some time been looking to expand its customer base, and having BEL as a customer would have been ideal in pursuing that objective, especially as BEL uses its IT services to communicate with associated companies all over Europe and the rest of the world, particularly in South America. However, WTL is not at all sure that BEL’s business ethics are compatible with their own, and would prefer to wait and see how WTL’s legitimate claims are received by the BEL representatives who will be present at the mediation.
As far as WTL is concerned, any new contract with BEL must be conditional upon BEL paying what it owes WTL. As an absolute minimum, WTL expects to be reimbursed for the sums it has had to pay its subcontractors, plus interest and legal costs to date. This would make a total of amount to £125,000. If the matter proceeds to trial, there would be further legal costs of around £75,000. WTL v
Confidential Information for BEL (Mr/Ms Akimoto)
Responding Party
Mr/Ms Akimoto is absolutely furious about this attempt to “rip off” BEL. BEL knew nothing of the contract with WTL and did not order the IT services nor did it receive the benefit of them. As far as Mr/Ms Akimoto is concerned, WTL made no proper checks to ensure that Mr Thomas was authorized to enter into this contract and, if they were defrauded, it was WTL’s own fault and they must bear the consequences.
Mr Thomas has never had the authority to contract on behalf of BEL. According to BEL, only the company’s vice presidents have such authority. The only other occasion on which Mr Thomas did contract on behalf of a BI Inc. company was while perpetrating a similar fraudulent scheme against BI USA. Mr Thomas was then using a different name, and his confederate got away with US$4 million before the fraud was discovered. BEL would rather not let WTL know about this case because BI USA was sued in New York for US$12 million (claim plus punitive damages). The case was finally settled out of court for US$1 million. Mr Thomas somehow managed to repeat the fraud in the UK, and BEL has only now ascertained that this must be the same person who deceived BI USA, which is highly embarrassing. His exact whereabouts are now not known but he is rumoured to be somewhere in South America.
Unbeknown to BEL, Mr Thomas was in collusion with another individual, known to WTL but not to BEL, called Paul Crooke (“Mr Crooke”), who was described as a consultant.
The IT services supplied by WTL were utilized by Mr Thomas and/or Mr Crooke and used and/ or sold to unknown third parties, presumably with a view to Mr Thomas and/or Mr Crooke making a profit. Mr Thomas and/or Mr Crooke, despite numerous promises, were unable to pay WTL’s invoices and BEL discovered the fraud when Mr/Ms Kilroy wrote to Mr/Ms Akimoto to complain about non-payment of WTL’s invoices.
BEL has very strict rules as to who may contract on its behalf and there is a set procedure for procurement that must be followed to comply with EU regulations and English law. None of these procedures was followed in this case. Furthermore, BEL has no authority to contract on behalf of any other BI Inc. company, and it is not part of BEL’s function to manage the telecommunications on behalf of other BI Inc. subsidiaries.
Mr Crooke was never employed by BEL in any capacity, and BEL has never represented that he was. BEL’s lawyers have advised that the burden of proof is on WTL to show that Mr Thomas had apparent or ostensible authority to contract on BEL’s behalf, and that in order to succeed WTL must prove that BEL represented or held him out as having the necessary authority at the time the contract was entered into.
The only representation made by BEL was to confirm Mr Thomas’s status as IT and communications manager by allowing him to carry that title and indicate it on his business card and e-mail signature. Any other representations as to his authority appear to have come from Mr Thomas himself and/or Mr Crooke.
WTL took no proper or reasonable steps to check with BEL whether or not Mr Thomas had authority to enter into the Agreement. It is understood that a representative from WTL telephoned BEL’s switchboard to seek and indeed obtain confirmation that Mr Thomas was in fact the IT and communications manager. At no other time did BEL make any other representations to WTL that Mr Thomas had any authority to enter into the Agreement on its behalf. Nor did BEL hold Mr Thomas out as having such authority.
In short, BEL is convinced that it will succeed at trial and relies upon the following arguments:
BEL believes that it has good grounds for defending this claim, but it will take a commercial view and is keen to explore the possibilities of settling with WTL at the mediation.
In spite of its anger at what it regards as a blatant attempt at extortion, BEL has taken a look at WTL’s IT services operations and sees much that it likes. It therefore would be willing to explore the possibility of negotiating a proper contract with WTL provided the price is right and there is no suggestion of paying any sum that WTL is claiming under the “bogus” contract. BI Inc.’s current budget for all its worldwide IT services exceeds US$50 million. Its current supplier has a contract worth US$20 million annually; the rest of the IT Services are in house. A review of all in-house services is currently taking place. In particular, consideration is being given to closing down some of the internal IT departments and using outside suppliers, but no firm decisions have yet been taken. BEL has the authority to enter into an agreement in respect of its own IT department and would recommend further negotiations with WTL on further contracts to its parent company BI Inc. if a satisfactory agreement can be reached.
However, BEL does not want to suggest this itself because it feels that inevitably it would encourage WTL to request payment of the sums claimed as part of such a deal. For all the reasons set out above, BEL is adamant that it will not pay a penny for those services.
BEL’s legal costs to date are £42,000 but if the matter proceeds to trial will be about £110,000 in total.
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Colin J Wall
Case Analysis
This is a difficult role-play in the sense that the General Information is short but the Confidential Information for both parties is long and complex, so a mediator will know very little about the dispute prior to attending the first plenary session. It will be helpful therefore for the mediator to have long party presentations before attempting to draw up an agenda. In mediations it is usual for the claimant or Requesting Party to make the first presentation in the opening plenary session.
This will be particularly useful in this role-play because on the fact pattern WTL did go to considerable lengths to establish that Mr Thomas was a genuine employee of BEL and it appears that WTL are unaware of this. When Mr/Mrs Kilroy tells his/her side of the story it should become apparent that WTL saw nothing unusual for the call traffic to go through Mr Crooke, that Mr Crooke provided Mr Thomas’s contact details, which confirmed his position within BEL, that Mr Thomas signed the Agreement on behalf of BEL, that an Internet search confirmed that Mr Thomas was employed by BEL, that Mr Thomas faxed over the signed agreement to WTL with BEL’s logo and address, that the BEL accounts office did not see anything unusual in Mr Thomas signing the Agreement nor that they had yet to receive a copy and that a meeting took place in BEL’s offices in the presence of Mr Crooke and Mr Thomas. All these facts would make it clear that to all intents and purposes that Mr Thomas was contracting on behalf of BEL. This might make BEL reassess its legal advice that it has a strong case.
One of the problems of traditional litigation is that pleadings, such as those used in court, often reveal very little about the case and usually contain no evidence, thus making it difficult for any third party to understand what the case is really about.
Another difficulty in the mediation is the apparent power imbalance between the small company WTL and the much larger BEL, supported by an even larger parent company. While BEL can afford the costs of litigation, the same does not apply to WTL. The fact pattern in this case makes litigation almost economically unviable as the combined costs of litigating exceed the sum of money in dispute.
A further difficulty in the case is that WTL’s representative has instructions to recover what it is owed, even if BEL offers some future work. BEL’s representative has instructions “that it will not pay a penny” for the disputed service. It thus appears that there is a built-in impasse. In real mediations, it is commonplace for party representatives to attend the mediation with a preauthorized settlement authority figure. This figure is often based on inadequate information and it is only at the mediation itself that a better understanding of the true nature of the dispute becomes apparent. In these situations a mediator might suggest an adjournment so that a party can either seek a higher settlement figure or is prepared to settle for a lower amount that represents a better understanding of the true situation. Alternatively, the mediator might suggest that at a convenient moment the party representative telephones those in authority to seek to move the pre-authorized “bottom-line”. In this role-play that might be a good strategy, unless the potential future work with BI Inc. can provide a settlement that both parties can live with.
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Greg Bond
Commentary for Training
Mediation as Win-Win or Cutting Losses
This mediation offers students of law ample opportunity to present well-argued cases based on any or all of the law of mistake, misrepresentation, agency and authority. The facts say that both sides believe they have good arguments in court, and also that for both mediation is a viable alternative. One reason for this must be the fact that legal costs will rapidly increase above the value of the dispute, although if one party wins in court it can expect to take all, whereas the other loses all and will also have to pay a large proportion of the other party’s costs while also absorbing its own. While it is understandable that this is a risk not worth taking for the smaller WTL, BEL’s reasons for mediating cannot be financial considerations alone. Perhaps a training session using this role-play can explore what incentives BEL might have in taking this courtreferred mediation seriously?
One thing a mediator can work on here is the parties’ contradictory perceptions and interpretations of one and the same story. WTL is convinced that BEL is using its muscle to pressurise a smaller company and that it is plain as day that it was reasonable for WTL to assume that Mr Thomas had authority to act for BEL. BEL, on the other hand, is sure that WTL is trying to “rip them off” and that there can be no doubt that WTL should have made much more thorough checks as to the identity and authority of Mr Thomas. As the facts show, there is no serious dispute about what happened. What is conflictual is the interpretation of what happened. If a mediator can get both parties to see that the other party’s perceptions make sense from where they are standing, then this should help them to move beyond their fixation on only one possible evaluation of events. To achieve this, a mediator can take both views equally seriously, and then ask the parties to see if the view from the other side would make sense to them if they were on the other side.
This may help the mediation to move on, but it will nonetheless be difficult to achieve what might be defined as a win-win outcome that is also realistic. There may just as well be an acceptable resolution that still hurts, but that will hurt less than the prospect of losing in court. The no-agreement alternative, or BATNA, is a powerful concept, which in this case will help the parties to decide which route is the lesser evil: a settlement at mediation, or litigation. It is easier to imagine a reluctance to litigate on the part of WTL than it is for BEL. WTL has already paid £90,000 to a subcontractor, while the more affluent BEL has so far incurred only its legal costs and can take a more relaxed view. If the two companies can make real progress on new contracts that would mitigate WTL’s loss, this would probably be the best solution for WTL. Or, in the unlikely event that WTL discover that BI USA has already settled once concerning Mr Thomas’s fraudulent activities, they could use this a large bargaining chip. If neither of these happen, and there is an agreement to somehow split the loss, WTL will still have suffered a loss, but that may nonetheless be preferable to taking the case to court.
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