Making sure a contract is finalised and executed is important, but so is knowing with whom you are contracting. Mr Collins entered into an oral agreement for the construction and sale of a residential property on his development site but was it with Fairhurst Developments Limited or Mr Fairhurst, who wholly owned and controlled FDL? FDL was VAT registered, whereas Mr Fairhurst was not; it had its own bank account and the judge was satisfied that the project was always intended to be, and was, undertaken by FDL, as FDL ordered and paid for all plant and materials (other than those obtained through the builder’s merchant) and the subcontract packages and labour. FDL also obtained finance for the works and reclaimed VAT on the supplies, and payments were made by Mr Collins through his company and his partner, to FDL. Mr Fairhurst had not, however, always conducted his development projects through FDL and Mr Collins claimed that the development agreement was entered into with Mr Fairhurst personally and not with FDL.
In determining the identity of the contracting party, the approach is objective and the parties’ private thoughts are irrelevant and inadmissible. What would a reasonable person, with all the relevant information up to contract formation, conclude? On the facts in this case, the essential principle was that the person whose words and/or conduct resulted in the contract being formed is the contracting party unless it is made clear at, or prior to, contract formation, that they are speaking and/or acting as officer of a company. In such a case as this there was no duty on a contracting party to enquire as to the capacity in which the other is acting and if Mr Fairhurst did not tell Mr Collins
about his ownership of, and carrying out his construction business through, FDL, its VAT registration and that he was not contracting in his personal capacity, but as director of FDL, then those matters could not be taken into account. Mr Fairhurst never made it clear that he was acting on behalf of any limited company, let alone FDL and the court decided that Mr Fairhurst was the contracting party.