Are you sure whether you are signing on behalf of yourself or your limited company?

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[1998] 1 WLR 896 (House of Lords, Approved)

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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.

The Facts

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.

The Issue

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:

Factual 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.

Legal Factors:

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.

Result

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.

Comment

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 @ taj.uddin@gcp-barristers.com.

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Taj Uddin, Barrister
Guildhall Chambers Portsmouth
Practising in London and the South (Salisbury to Brighton, Oxford to IoW)

How much is a ruined holiday and food poisoning worth?

Just settled a case where a father and two daughters received £3,600, £1,600 and £1,650 respectively after a ruined holiday in Egypt – in a case where there was no formal admission of fault.   For the children, this case involved 8 days sickness and a ruined holiday.

Even with the best of tour operators, the local hotel sometimes does not match the description of the catalogue:  swimming pools are often dirty and food prepared in poor conditions resulting in, e.g. severe diarrhea.

Note: it is simply not prudent to accept an offer from a 3rd party insurer without an independent legal assessment of the value of your case – this can cost as little as £150.

Taj Uddin, Barrister
Guildhall Chambers Portsmouth
Practising in London and the South (Salisbury to Brighton, Oxford to IoW)

Solicitor’s Feedback

It is constructive and pleasing to receive positive feedback – this followed on from a hearing on a buildings dispute in Portsmouth County Court:

“Thank you for your assistance on this one and for the helpful guidance points provided.” National Law Firm

Taj Uddin, Barrister

Guildhall Chambers Portsmouth
Practising in London and the South (Salisbury to Brighton, Oxford to IoW)

How much is a minor scar worth?

Advised on quantum and then settled a personal injury matter at £2,500 (I assessed at 1700 to 2000 in trial conditions).  More than even I thought my client might get in court.  In any case, it shows that minor (1 cm x 0.5 cm) long lasting scars ought not to be undervalued – this case uniquely was made up of a tiny scar as the main head of injury.  It is simply not prudent to accept an offer from a 3rd party insurer without an independent legal assessment of the value of your injury – this can cost as little as £150.

Taj Uddin, Barrister
Guildhall Chambers Portsmouth
Practising in London and the South (Salisbury to Brighton, Oxford to IoW)

Client Feedback

Client feedback following a successful outcome at a trial on the terms of an international logistics contract in Edmonton County Court:

“From the outset, Mr Taj Uddin provided prompt and reliable legal advice on my claim. He thoroughly and expeditiously analysed the dispute and accurately identified enforceable claims to pursue and advised me on the potential legal risks which he anticipated. At the hearing, Mr Taj Uddin skillfully presented insightful arguments and I am very pleased with the successful outcome in which the Court awarded me all that I have asked for.” Mr Elhag

Taj Uddin, Barrister
Guildhall Chambers Portsmouth
Practising in London and the South (Salisbury to Brighton, Oxford to IoW)

Ignorance of Court Procedure is no excuse! Brave Individuals beware!

Justice in the balance

Tinkler & Anr v Elliott 2012 EWCA Civ 1289
Elhag v Swift Freights UK Ltd 14.2.2013 (Edmonton County Court)

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Of interest to individuals and lawyers

More and more individuals are choosing or being forced to represent themselves (litigants in person). Often choosing because of the perceived disproportionate costs of lawyers or being forced to do so due to a lack of funds.

Lawyers will be well aware of this new reality. They will also need to be aware of their responsibilities in court and their duty to act in the best interests of their client – that includes ensuring individuals do not get undue leniency or indulgence because of a lack of legal representation.

The Facts

In the Tinkler case (Court of Appeal), Mr Elliot was an ex employee of Mr Tinkler’s company. There was a long running legal battle between the parties resulting, inter alia, Mr Elliot being subject to a civil restraint order, being imprisoned for 3 months for contempt, and multiple applications being dismissed on the grounds of abuse of process. Legal battles still continued. Mr Elliott then failed to attend a court hearing at which judgment was given against him in his absence.

On Mr Elliott’s application to set aside that judgment, the key issue was whether Mr Elliott’s application was made promptly.  Mr Elliott succeeded in the High Court: in the interests of the overriding objective, 1) his mental health challenges and 2) the fact that he was representing himself (and thereby not totally au fait with court procedure and his right to apply for a set aside) meant it could be said he acted promptly.

In the Elhag case (County Court), Swift Freights was a business dealing with the international transportation of goods.  Mr Elhag was a customer, sending goods to Ethiopia.  The issue between them revolved around what the actual terms of the contract were regarding delivery and payment and what constituted a reasonable time within which to deliver the goods.

At the trial, a Swift Freights director attended as its only witness with evidence in hand having failed to serve or file any evidence beforehand in accordance with court directions. The director and Mr Elhag (my client) were positively amicable with each other – their continuing relationship was apparent.  Nevertheless, on satisfying Mr Elhag on my intentions, I applied for Swift Freight’s Defence and Counterclaim to be struck out or for none of their evidence to be allowed to be produced on the basis that:

  • court order flouted;
  • Mr Elhag arranged evidence to be filed and has attended court all the way from Ethiopia;
  • no notice had been given of the evidence being produced; fairness of the trial process prejudiced;
  • in any event, recent Court of Appeal authority (the Tinkler case) directs that individuals (LiP) ought not to be given undue indulgence.

The Decisions

In the Tinkler case, The CoA overturned the High Court’s decision. It was clear that Mr Elliot’s mental health concerns were not alone sufficient in supporting a finding of promptness.  The question then remained whether the lack of legal representation could provide further support to that issue.  The answer was no:

  • Unrepresented individuals and the particular challenges that arise from that could only “operate close to the margins”
  • Unrepresented individuals cannot expect “excessiveor “extra indulgence”

In the Elhag case, the application succeeded.  The trial was to continue without any defence evidence. Swift Freights was allowed to cross examine Mr Elhag (which turned out to be impossible – it’s hard enough cross examining without any evidence as a practiced barrister) and make final submissions (which turned into a list of assertions with no supporting evidence). Mr Elhag’s claim succeeded and the judgment included loss of quite a lot of income, the costs of an international flight and specific performance.

Comment

The courts are there to resolve disputes and the parties must be urged to play by the rules – this is a prerequisite to a fair trial.  To this end, the CoA decision in Tinkler must be applauded.  Many lawyers would surely agree that this decision has been long overdue.  The Elhag case proves that County Courts and surely anywhere upwards, the same principle will be applied more generally.

That said, where the margins end and extra indulgence begins clearly leaves room for debate. It is arguable that this decision is particularly relevant where finality of judgments is threatened and should be less applicable, e.g. to case management decisions prior to a trial.  Further, that on the facts, Mr Elliot’s case is quite exceptional.

A Word of Warning for Individuals and Lawyers

With the limit on Small Claims Track matters being increased to 10k, there will be an increasing number of individuals representing themselves. This is what the current government wants to see. (The cynic in me wants to remind everyone that access to the court room alone does not amount to access to justice.)

Individuals choosing to represent themselves should take care to comply with court orders – that is not designed to be difficult.  If representation cannot be afforded, many lawyers offer a limited service assisting with preparation for a trial. Not forgetting, even in the Small Claims Track, a fixed amount is recoverable for legal assistance towards issuing a claim.

Whether you are a barrister, solicitor (or even an individual), if you find an individual on the other side, you must ensure ignorance of the law does not turn into an advantage – it’s your professional duty to make sure otherwise.

In the Swift Freights case, the Claimant was represented by Mr Taj Uddin of Counsel, Guildhall Chambers Portsmouth and RJR Solicitors. If readers have questions on this case, they will be happily received @ taj.uddin@gcp-barristers.com.

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Solicitor’s Feedback on Taj Uddin

Client’s Feedback on Taj Uddin

Taj Uddin, Barrister
Guildhall Chambers Portsmouth
Practising in London and the South (Salisbury to Brighton, Oxford to IoW)

 

RJR Solicitors Feedback

It is constructive and pleasing to receive positive feedback – this followed on from a trial on the terms of an international logistics contract in Edmonton County Court:

“We found Mr Uddin to be very efficient, both responding to questions in advance of the hearing and notifying us of the outcome straight away by telephone. He produced an excellent result for our client. After the hearing he provided a full attendance note. A thoroughly comprehensive service.” RJR Solicitors

Taj Uddin, Barrister
Guildhall Chambers Portsmouth
Practising in London and the South (Salisbury to Brighton, Oxford to IoW)

In an era of consolidations and alternative business structures, solicitors beware!

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Fuller v Guillaumes Gosling and Wilkinson17.06.2011 (Mayors & City of London CC)

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Of Interest to Solicitor Partners and other Partnerships

The case shows the unforeseen risks, to solicitor partners looking at any type of restructuring or consolidation, particularly to those undertaking publicly funded work due to the vagaries of the workings of the LSC).  Restructuring being a hot topic in every legal, and now non-legal, corridor.

Although it was a first instance county court decision (Mayors & City of London), the arguments deployed use precedents binding on the High Court.

The Facts

F was 1 of 2 partners at a local solicitors practice, GW.  GGW is a local solicitors practice, the product of a merger of GW (Gosling and Wilkinson) and G (Guillaumes). F sought to secure continuity for his colleagues and arrange a dignified exit from practice after 33 years in his firm.  His firm had a not insignificant publicly funded practice.  The courtship between GW and G continued for a number of years with a view to a merger, which ultimately crystallised as the defendant, GGW, following:

  1. A signed heads of agreement to merge between GW and G into GGW INCLUDING provision for F to depart as a partner and be paid the balance of his capital account; and
  2.  A consultancy agreement between F and GGW INCLUDING provision for F to be indemnified by GGW against GGW debts/liabilities.

The merged firm, GGW, continued with GW’s legal aid contract, but sought to close it down, which triggered an audit by the LSC.  As a result of that audit, the LSC clawed back overpayments of legal aid that had been paid during the existence of GW through, as became apparent, negligent administration of the legal aid account by an employee of GW.  Although GGW had no option as the successor firm to pay the overpayments in the first instance, there remained the issue of who ought to be ultimately liable for them: the GGW or the GW partnership – no obvious provision had been made for such overpayments in the accounts of GW. Indeed, they did not feature at all in the negotiations or the heads of the agreement because everyone was ignorant of them.  The action came about when F claimed the balance of his capital account.  GGW admitted the substance of the claim but defended on the basis of set-off against damages for misrepresentation of the value of GW.

The Issues in Dispute

  • F had the benefit of an express indemnity per the consultancy agreement.  That argument failed: the indemnity related to his position as a consultant only and therefore related only to new debts/liabilities of GGW.
  • F had the benefit of an implied right to an indemnity per Partnership Act 1980.  That argument failed:  F was vicariously liable for his employee’s negligence and in consequence, in equity, he could not rely on the indemnity.
  • There was no misrepresentation.  That argument failed: accounts were provided per heads of agreement; the capital account effectively represented the net worth of F’s firm.  The price paid was based on those accounts.
  • The misrepresentation was innocent.  That argument failed: the misrepresentation arose from a failure to supervise staff properly, which amounted to negligent misrepresentation.  Whether negligent or innocent, damages were the appropriate remedy.
  • The misrepresentation did not induce the merger.  That argument failed on the facts: G would not have entered into the agreement at the same price, ‘but for…’

Other

  • F is entitled to depart from early admission: that argument failed: albeit the admission did not amount to a Part 14 admission, F should not be allowed to depart from it.  F is a solicitor with a core duty to act with integrity.  His admission was made with full knowledge of the claim.

A Word of Warning for those seeking Mergers, Restructures and ASBs

It is clear that both F (as a partner of GW) and G, entered into the transaction in good faith.  However, their on going relationship effectively fell victim to the vagaries of the public funding system, which practitioners will know can prove notoriously difficult to keep on top of.  However, this type of risk will not sensibly be limited to firms with a legal aid franchise.

In finding for the Defendant, GGW, the Judge White largely adopted Defence Counsel’s skeleton.  It was a clear indication of the court’s disapproval of a solicitor’s attempt to turn away from his liabilities.

The Claimant was represented by Mr Lawrence Jacobson of Counsel.  The Defendant was represented by Mr Timothy Concannon and Taj Uddin of Counsel (both of Guildhall Chambers Portsmouth).  If any reader has any questions on this case, they will be happily received @ taj.uddin@gcp-barristers.com.

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Taj Uddin, Barrister
Guildhall Chambers Portsmouth
Practising in London and the South (Salisbury to Brighton, Oxford to IoW)