Who is contracting with whom?

Knowing who you are contracting with should be simple.  However, on many occasions the identity of contracting parties is far from clear.  In recent months there have been a number of cases highlighting the importance of this issue.  Although there are circumstances where uncertainty over contracting parties may be beneficial, in most situations it is better to be clear.

Clarity over who the contracting parties are can be difficult to obtain as many companies use trading names and individuals can be careless when describing who they work for.  Do you know whether you are contracting with a limited liability company, a limited liability partnership, a partnership or a sole trader?  If you don’t, problems may arise and it will be down to luck whether these issues turn out to be of benefit or otherwise.

In some cases it is possible for a court to correct an error as a matter of construction without formal rectification.  However, in the recent case of Liberty Mercian Limited v Cuddy Civil Engineering Limited the High Court declined to correct such an error.  In this case, a limited company had a trading name; they predominantly referred to that and had registered a dormant limited liability company using that trading name.  The parties entered into the contract using the dormant company’s name rather than the trading company.  Obviously, though, they meant to contract with the trading company and not the dormant one.  This meant that when a problem arose the claimant could sue only the dormant company, which was worth nothing.  The claimant’s only chance was for the High Court to correct the error but it declined to do so.

In the case of Hamid v Francis Bradshaw Partnership the Court of Appeal upheld a High Court decision that an individual contracted in his own name.  In this case, Dr Hamid was the director and sole owner of a company.  That company had a trading name.  Dr Hamid personally owned a piece of land upon which he wanted to build a show room for his company.  Dr Hamid employed the defendants to provide engineering services.  They were not informed they were contracting with a company but were told that Dr Hamid owned the business using the trading name.  Dr Hamid also signed a letter setting out some of the terms, which included a physical address, email address and website relating to the trading name.  In the letter, Dr Hamid referred to “we” and he signed his name above the trading name.  There was no indication that there was a company involved.

In these circumstances the court decided that Dr Hamid was contracting on his own behalf.  In this case, this proved useful and beneficial to Dr Hamid because had he contracted using the company’s name there would have been no loss to the company and Dr Hamid could not have sued for the losses he suffered.  However, on many occasions similar to this it would not have worked out to be beneficial.  A director who acted in this way would find that he or she was personally liable, rather than the company.  That person would lose the protection of trading through a company and would be faced with unlimited liability for that particular contract.

It is important to make sure that whenever you contract you know who exactly you are contracting with and the status of the contracting party.  You should also make sure that everyone is fully aware of your status when you are contracting, making the name and number of your company clear on all appropriate documentation.

For more information please contact Peter Allen on 01245 453813 or [email protected]