Ensuring that a contract is finalised and executed is important, but so is knowing with whom you are contracting. In Fairhurst Developments Ltd v Collins ([2016] EWHC 199) 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 (FDL) or Mr Fairhurst, who wholly owned and controlled FDL? FDL was value added tax (VAT) registered, whereas Fairhurst was not. Moreover, FDL 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 Collins, through his company and his partner, to FDL. However, Fairhurst had not always conducted his development projects through FDL and Collins claimed that the development agreement was entered into with Fairhurst personally, 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 or conduct resulted in the contract being formed is the contracting party, unless it is made clear at or before contract formation that the person is speaking or acting as an 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 was acting; if Fairhurst did not tell Collins about his ownership of (and carrying out of construction business through) FDL or its VAT registration, or that he was not contracting in his personal capacity, but rather as director of FDL, such matters could not be taken into account. Fairhurst never made it clear that he was acting on behalf of any limited company – let alone FDL – and the court decided that Fairhurst was the contracting party.

For further information on this topic please contact Chris Fellowes at Mayer Brown International LLP by telephone (+44 20 3130 3000) or email (cfellowes@mayerbrown.com). The Mayer Brown International LLP website can be accessed at www.mayerbrown.com.

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