Adjudication Matters ' September 2020

Published date04 September 2020
Subject MatterCorporate/Commercial Law, Corporate and Company Law, Contracts and Commercial Law
Law FirmWalker Morris
AuthorCarly Thorpe and Victoria Southworth

Company Director on the hook with personal liability - a reminder of the importance of stating the correct contracting parties

A Company Director could find themselves incurring personal liability if it is not expressly stated that they are entering into a contract on behalf of a limited company. A party seeking payment could also find that their claim is unenforceable if it is not clear which company or individual has entered into the contract.

In this recent case, the Technology and Construction division of the Business and Property Courts (the TCC) was asked to decide whether the contracting party was an individual or a limited company. In the absence of a formal written contract the TCC considered the wording of an estimate, an invoice issued by one of the parties and wider evidence such as email correspondence, previous dealings between the parties and one party's website. The TCC concluded that the contract had been entered into by an individual because he had at no point indicated that he was acting on behalf of a limited company. The individual therefore had personal liability for the sums due.

FARAD MAFTOON T/A FM CONSTRUCTION SERVICES - and - (1) AHMED SAYED (2) LEBANEAT (YARM) LIMITED [2020]

The Background

Mr Sayed operated various restaurants in Durham and Yarm through limited companies. Lebaneat (Durham) Ltd was the main operating company, alongside Lebaneat (Wrap House) Ltd and Lebaneat (Yarm) Limited. Mr Sayed was a director (or the sole director) and a shareholder of each company.

Mr Sayed engaged Mr Maftoon to carry out building works at a restaurant in Yarm, North Yorkshire. There was no formal written contract entered into. Mr Maftoon subsequently referred to adjudication a dispute against Mr Sayed for unpaid sums. In this adjudication, My Sayed argued that the contract had been entered into by him in his capacity as director on behalf of Lebaneat (Yarm) Limited, rather than in his capacity as an individual, and that consequently the adjudication against Mr Sayed had been brought against the wrong party and the adjudicator did not have jurisdiction to determine the dispute. The adjudicator was sufficiently persuaded by Mr Sayed's argument that he resigned.

Mr Maftoon then sought Part 8 declaratory relief in the Technology & Construction Division of the Business & Property Courts (the TCC) as to whether the correct contract party was Mr Sayed or Lebaneat (Yarm) Limited.

The TCC's Decision

In the Part 8 Proceedings Mr Sayed and Mr Maftoon...

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