Be clear who your contract is with: individual or company representative, says Angus Dawson
Often those questions which ought to be the simplest, prove the most difficult to answer. Identifying who you have contracted with is a prime example. The following is a salient tale which reminds us of the importance of making clear who the parties are to any given contract.
Business or personal?
In the case of Hamid v Francis Bradshaw Partnership, the Court of Appeal had to consider whether Dr Hamid had entered into a contract through a limited company or whether it had been entered into in Dr Hamid’s personal capacity. Dr Hamid was the owner of a limited company, Chad Furniture Store Ltd (‘Chad’) which traded under the name ‘Moon Furniture’. The Francis Bradshaw Partnership (‘FBP’) was engaged as structural engineer in connection with the development of the site owned by Dr Hamid in his personal capacity. The contract with FBP was partly oral and partly written and included a letter issued on the headed paper of Moon Furniture. This letter was signed by Dr Hamid above the name of Moon Furniture. There was however no indication that Moon Furniture was the trading name of Chad or that Dr Hamid was signing in the capacity of a director of Chad.
As part of a wider dispute, the court had to determine whether the contracting party with FBP was Chad or Dr Hamid. The High Court found that Dr Hamid had personally entered into the contract, and so FBP took recourse to the Court of Appeal.
Two critical points
The Court of Appeal’s ruling followed the High Court decision. In reaching its conclusion, the Court made the following two points clear:
> The court is to act objectively in determining the identity of a contracting party. In reaching the decision, it must consider who it is that a reasonable person, in possession of all of the relevant facts, would consider to be the contracting party.
> A person who signs a contract will ordinarily be found to be the contracting party unless the contract spells out that the signatory is signing on behalf of an identified company or practice, or available evidence indicates that both parties knew that the signatory was signing on behalf of the company or practice.
The case emphasises the importance of identifying contracting entities and the dangers of relying on trading names. This is important to architects from two perspectives.
Personal risks
First, if you operate through a limited company or LLP, you should always make clear in fee letters and other communications that the client’s contract is with the company or LLP. If you fail to do so, there is not only a risk of you assuming personal liability, but also of your professional indemnity insurance not responding in the event of a claim – as the policy is likely to be for the benefit of the company or LLP.
You should also ask for confirmation of the identity of clients with whom you are contracting. Are you contracting with the client in a personal capacity or with their company? Are you contracting with a main trading company (which may have a strong balance sheet) or with an SPV (special purpose vehicle) set up for the project in question (which may just be a shell company)? Ultimately, you want to be comfortable that you can identify your client, so that you can enforce your contractual rights, and that the person with whom you contract is, or will be, capable of paying your fees.
Angus Dawson is a partner at Macfarlanes
Contracts in writing: Oral agreements are valid in law, but it’s always best to use written contracts
The contract in Hamid v Francis Bradshaw Partnership was found by the court to be partly oral and partly in writing.
This goes to show that the terms of any given contract may be found in various exchanges between the parties and that not all of these need to be recorded in writing.
In practice, there are few types of contract which must, in order to be legally valid, be recorded in writing. Contracts for the sale or disposition of an interest in land and guarantees are two such examples.
In the construction sphere, one of the key changes to the Construction Act which came into force in 2011 is that contracts no longer have to be entered into in writing in order to be governed by the Act. Construction contracts (including architect’s appointments) which are either entirely oral, or partly oral and partly in writing, are now subject to the payment and adjudication provisions in the Act.
However, while this provides architects with additional protection to where their contracts are not recorded in writing, we would always suggest that contracts are made in writing so that there is certainty as to the parties’ rights and obligations.