Clear evidence is required to show that an individual, who appears to have entered into a contract personally, did so on behalf of a company
Fairhurst Developments Ltd v Collins [2016] EWHC 199 (TCC); [2016] PLSCS 48 concerned a landowner who entered into joint venture agreement with a developer without recording essential terms in writing. The parties did not ask their lawyers to draw up a written contract – and then fall out very badly, amid mutual recrimination.
The first written communication between the parties emerged eight months down the line when the developer’s solicitors sent the landowner a draft written development agreement. The draft identified the developer as “Fairhurst Developments Limited”. The landowner did not sign or return the document and, in the litigation that followed, claimed that he had entered into a contract with the developer personally – and not with the developer’s company.
In Hamid v Francis Bradshaw Partnership [2013] EWCA Civ 470; [2013] PLSCS 92 the court ruled that the approach to determining the identity of a contracting party is objective – and not subjective. The question is what a reasonable person, furnished with all the relevant information in the period leading up to the formation of the contract, would conclude. The private thoughts of the protagonists are inadmissible – and the person whose words and/or conduct result in the formation of a contract is the contracting party, unless it was made it clear, during the negotiations or at the time of contracting, that he was speaking and/or acting as an officer of a company.
Fairhurst Developments Ltd v Collins [2016] EWHC 199 (TCC); [2016] PLSCS 48 concerned a landowner who entered into joint venture agreement with a developer without recording essential terms in writing. The parties did not ask their lawyers to draw up a written contract – and then fall out very badly, amid mutual recrimination.
The first written communication between the parties emerged eight months down the line when the developer’s solicitors sent the landowner a draft written development agreement. The draft identified the developer as “Fairhurst Developments Limited”. The landowner did not sign or return the document and, in the litigation that followed, claimed that he had entered into a contract with the developer personally – and not with the developer’s company.
In Hamid v Francis Bradshaw Partnership [2013] EWCA Civ 470; [2013] PLSCS 92 the court ruled that the approach to determining the identity of a contracting party is objective – and not subjective. The question is what a reasonable person, furnished with all the relevant information in the period leading up to the formation of the contract, would conclude. The private thoughts of the protagonists are inadmissible – and the person whose words and/or conduct result in the formation of a contract is the contracting party, unless it was made it clear, during the negotiations or at the time of contracting, that he was speaking and/or acting as an officer of a company.
The developer had not provided a written quotation and there was no contemporaneous documentary evidence to assist the court. So the judge had to refer to extrinsic evidence to establish the correct identity of the contracting party.
The landowner had known that the developer owned a limited company. However, the developer had not named the company, or stated that he carried out his construction business through that company and that, in making the contract, he was doing so in his capacity as director of Fairhurst Developments Limited, rather than in his private capacity. Furthermore, it was impossible to argue that, if the landowner had asked, then that is what he would have been told. Contracting parties are not ordinarily under a duty to enquire about the capacity in which the other is acting.
The landowner’s first payment to the developer was made by cheque addressed to the developer personally. Subsequent payments were made to a bank account in the company’s name. However, there was no evidence to suggest that the developer had asked for payment to be made to the company on the basis that it was the contracting party.
This was not a straightforward contract for construction work. It was a joint venture agreement between two men who knew each other reasonably well, who were relying on their perception of each other’s personal attributes. It was not self-evident that the developer could only have been entering into the transaction on behalf of his company. It would, viewed objectively, have been equally plausible that he was entering into the agreement personally – in order to profit personally – and planning to subcontract the building works to his limited company. Therefore, the company’s claim failed. However, the developer was entitled to claim in his own name and was also personally liable for any breaches of the development agreement.
Allyson Colby is a property law consultant
