Take care....or you could be held personally liable for a breach of contract

Construction contracts are often signed by an individual on behalf of a corporate entity. But it is not uncommon within the construction industry that an individual may wear a number of different ‘hats’ in relation to a number of different entities or use different trading names for the provision of different services.

In the absence of a written, signed contract, with a clearly defined legal entity, it is not always clear as to who is the contracting party.

In Lumley v Foster & Co Group Ltd and others [2022] EWHC 54 (TCC) (“Foster”) the Technology and Construction Court (“TCC”) grappled with the question of which, out of a number of potential defendants, was the contracting party to a construction contract. 

This blog post will look at key points raised in Foster and how the TCC came to its decision.

The facts:

• The Claimant was a residential homeowner who approached a builder she had seen named as ‘Foster & Co’ on an advertising flyer which had been delivered to homes in her area.
• Following an initial telephone call and emails, the Claimant was emailed with a pack of example documents which showed references to various Foster & Co Group entities (none of which were designated as a limited company).
• The Claimant met with Mr Foster on 21 June 2016 who arrived in a car bearing the livery of ‘Foster & Co’. During the meeting, Mr Foster made assurances that he and his wife would be taking personal responsibility for the project. Mr Foster also made references to the Foster & Co Group and the Foster & Co brand, but did not mention any particular corporate entity. 
• At the end of the meeting, Mr Foster offered to undertake the Claimant’s project for £100,000 (including VAT) and the Claimant agreed. No formal contractual documents were provided following this meeting.
• During the works, the Claimant was sent invoices in the name of Foster & Co. The bank account into which money was paid was for a specific legal entity, of which Mr Foster was a director, identified by the Court as “FCCL”. A sign was erected at the property stating “Foster & Co” and the workmen deployed at the property had uniforms with “Foster & Co” livery.
• The works did not proceed as expected by the Claimant. In the event, she was asked for payments over and above the agreed £100,000 and by November 2016 the property remained in a state of disrepair. Eventually the Defendant downed tools with the works incomplete.
• The Claimant brought a claim for breach of contract, naming 6 different Defendants, on the basis that Mr Foster had concluded the contract on behalf of one or all of them. Mr Foster responded that the contract was in fact concluded with FCCL (Defendant number 5), which had ceased trading in October 2016 and was in liquidation (which would effectively make the claim worthless).
• By way of reply, the Claimant alleged that the contract was with Mr Foster personally, or alternatively Mr and Mrs Foster who traded together as Foster & Co or the Foster & Co Group.

What did the Court decide?

The Court concluded that the contract was entered into between the Claimant and Mr Foster. Therefore, Mr Foster will be personally liable in any successful claim for breach of contract.

In coming to its decision the Court noted the following:

• The parties to an oral contract are to be identified on the basis of an objective approach. “The question is what a reasonable person, furnished with the relevant information, would conclude” (Hamid v Francis Bradshaw Partnership [2013] EWCA Civ 470).
• The parties to the contract fall to be identified at the time that it was concluded. Therefore any matters arising subsequent to that time (e.g. later invoices) are of limited relevance.
• Where a person signs a document, that person will be regarded as the contracting party unless he qualifies his signature or otherwise make it plain that the contract did not bind him personally.
• Mr Foster attempted to rely on the principle of agency law, “to the effect that an agent can contract on behalf of an undisclosed principal, such that a contract may be formed with a party of whom the other party was not previously aware”. However the Court dismissed this argument on the basis that “for that to occur… it must be clear that the agent is acting as such, even if he does not identify his principal”. In this case, there had been no suggestion by Mr Foster that he was acting as an agent.
• In the event, the Court found that “the onus was on Mr Foster to make clear that he was not contracting in a personal capacity. In my judgment, he plainly did not do so in the course of the meeting on 21 June 2016.”

The Court also made various comments on the conduct of the parties. In particular, the Court noted that there was a conflict of oral evidence between the Claimant and Mr Foster, but that the Claimant’s evidence agreed with the documentary evidence available, whereas the documents contradicted the competing account of Mr Foster. Significantly, the Court also found that Mr Foster had deliberately created a document some time after the relevant events, “in a dishonest attempt either to ensure that the any claim brought by the Claimant was worthless or to influence the outcome of the proceedings in the Defendants’ favour.” This perhaps inevitably coloured the Court’s assessment of Mr Foster’s evidence on other issues.

Key takeaways

• Individuals concluding construction contracts need to be clear about who is the contracting entity, whether the contract is oral or in writing.
• If the individual is concluding a contract on behalf of a corporate entity, that should be clearly stated at the time the contract is concluded, and preferably noted in writing.
• Anyone who fails to make another party aware of the correct contractual entity at the time of concluding the contract could be left with personal liability for any breach of the contract in the future.

As ever, ideally construction contracts (and their terms) should be agreed and recorded in writing before any work is started on site.