Hamid v Francis Bradshaw Partnership 2013 EWCA Civ 470 (Court of Appeal)
Debtor v Creditor 2013 (Portsmouth County Court)
Investors Compensations Scheme Ltd v West Bromwich Building Society 1 WLR 896 (House of Lords, Approved)
Of interest to entrepreneurs, directors and solicitors
There is business to be done, the other side (e.g. a bank or contractor) has a lawyer and therefore you might as well let them draft the contract between you so that you can concentrate on your business. It comes through and you sign it and send it back. But do you know whether you are personally liable or whether it is your company’s liability?
As a matter of financial convenience, a personal liability can push you into bankruptcy or it can be made to disappear should you be made bankrupt. On the other hand, a company liability can make it harder to sell the business or the corporate veil can protect the most precious things in your life if the bad times come. The important thing to do is control where you fall on this spectrum of possibilities otherwise bad times can turn into worse times in a pool of personal uncertainty, business stagnancy or even expensive litigation.
Mr Hamid (“H”) owned and ran his furniture business Chad Furniture Store Ltd (“CFS Ltd”). CFS Ltd traded under the trading name Moon Furniture. Mr Hamid sometimes traded in his personal capacity and at other times as CFS Ltd. Francis Bradshaw Partnership (“FBP Builders”) were employed to carry out building works at H’s store. The contract between the parties was partly written and partly oral. The works were defective and H brought these court proceedings against FBP Builders. One of FBP Builders’ defences was that the contract was entered into with CFS Ltd and not H personally.
Did H enter into the partly written agreement personally or on behalf of CFS Ltd?
Ratio / Reasoning
If an individual signs a document, the starting point is he is signing in his personal capacity. It appears to be a factual presumption, albeit, no judge has called it that. The starting point or factual presumption can be shifted / rebutted with clear evidence to the contrary.
It is important to distinguish between disputes over identity and capacity. This case is principally about capacity. The following appear to be significant factors:
1) Qualifications with proximity to the signature; 2) Whether or not words such as “director” or “on behalf of” are adopted; 3) Whether reference to the limited liability nature of a party is mentioned.
1) Objective bystander test applied, per interpretation of written documents generally; 2) Background knowledge of objective bystander includes all those things that would have been reasonably available (and discovered? See below.) to the parties and that would have affected the understanding of the words; 3) Lord Hoffman’s approach to interpreting written contracts does not [require / allow] matters to be taken into account that were discoverable but not discovered; 4) Private thoughts are irrelevant; 5) Extrinsic evidence is automatically admissible to establish the identity of a party – this constitutes an exception to the parol evidence rule (facts outside the written contract cannot assist its interpretation); 6) Extrinsic evidence is not automatically admissible to establish the capacity in which an individual has signed a written document. The parol evidence rule applies, unless the written document is not alone sufficiently clear. In which case, extrinsic evidence can come to the assistance of the Objective Bystander; 7) If extrinsic evidence establishes that a party has been misdescribed, the court may correct that error without formal rectification; 8) Words should be given their ordinary and natural meaning. It is assumed people do not make linguistic mistakes in formal documents. But the law does not attribute meanings to words that parties could not have meant.
FBP had contracted with H and not CFS Ltd.
The presumption that H was personally party to the agreement was consolidated by: 1) No reference to a limited company; 2) No reference to registered company address / no.; 3) No references to “director”; and 4) The lack of company details in the document would be contrary to Companies Act requirements otherwise.
The presumption could not be rebutted by references to: 1) CFS Ltd’s trading name; 2) CFS Ltd’s email address; 3) the plural “we” instead of the singular “I”; and 4) email and website addresses ending in .co.uk.
Why am I writing about this issue?
I acted for a Creditor against a Debtor. Following a substantial personal loan recorded with style and brevity in a hand written document, the Debtor failed to make any headway on payments as they fell due. The Creditor obtained a Statutory Declaration. The Debtor subsequently applied to set it aside on the basis that he was not personally liable; it was his ex-company that was party to the loan agreement.
The Judge, perhaps sensibly, decided the issue of capacity was inherently triable given the obvious lack of absolute certainty on the issue (the Debtor was named with reference to his surname only unlike the Creditor; the creditor’s company’s name was made up only of the same surname; albeit, there was no reference to limited liability anywhere) and the apparent necessity of referring to extrinsic evidence to help interpret the relevant capacity of the Debtor. No amount of emphasis by me on the fact that neither party were relying on any extrinsic evidence to interpret capacity was going to shift this District Judge.
When my case goes to trial, I anticipate Hamid v FBP will be critical.
Interestingly, the Hamid v FBP case leaves us less than clear on 1 very narrow point. What should be done if the written document is clear on capacity and inconsistent with both parties cases. It must follow, that the court will not give meanings to words that nobody intended!
A word of warning
It is surprising how often private individuals have to sign legal documents. This is exponentially worse for owner-operated small businesses.
This article has hopefully urged a little caution and encouraged everyone and drafters to pause before any signing – it is too easy to confuse when somebody is signing for themselves and when for a company – do not fall into the trap.
In the Debtor v Creditor case, the Creditor was represented by Mr Taj Uddin of Counsel, Guildhall Chambers Portsmouth. If any readers have questions on this case, they will be happily received @ firstname.lastname@example.org.
Taj Uddin, Barrister
Guildhall Chambers Portsmouth
Practising in London and the South (Salisbury to Brighton, Oxford to IoW)