Construction Contracts Part 1 – Who is party to the contract?
It may at first sight appear difficult to imagine a scenario where works are performed and paid for but it is not clear who the parties to the contract are. Common sense would suggest that is simply the person or company who performs the work and the person or company who pays for it. However, it is not always readily discernible who those parties are, for example because payment is being made by a person or company who is not obtaining the benefit of the works or because a different party appears to be giving directions under the contract.
The most obvious solution to this issue is to consult the contract but, even in respect of significant projects, there may not be a signed contract, for example because there is time pressure to commence a project or the parties commence work with the intention of finalising the terms of the agreement later. Whilst work continues without issue, and payments are being made, this might not create any difficulties but, once a dispute arises, it will be crucial to identify who the parties to the contract are. As explained below, this isn’t always as easy as one might imagine it should be.
Contracts are generally formed by offer and acceptance and this exchange will usually be the starting point for determining who is a party to the contract. As explained in Estor Limited v Multifit (UK) Limited1 the fact that one individual believes that they are in contract with a particular party will be of limited weight in determining who the contract was actually with. Further, whilst it is tempting to take into account subsequent events, such as which person or company has made payment, the question of who is a party to the contract should be answered based on the information available at the time the agreement was made.
The issue came before the Court of Appeal in Muneer Hamid (T/A Hamid Properties) v Francis Bradshaw Partnership2. Dr Muneer was the sole director and shareholder of Chad Furniture Store Limited ("Chad") which traded under the name Moon Furniture. Dr Hamid also traded in his personal capacity under the name Hamid Properties. Francis Bradshaw Partnership ("FBP") was engaged as the engineer in respect of a proposed new showroom for Chad. The contract was partly oral and partly contained in a latter sent by Dr Muneer on Moon Furniture letterhead.
The piling of the retaining wall for the new showroom proved to be inadequate and so had to be restarted. It was then alleged that the replacement retaining wall caused excessive movement in the ground behind it. When sued by Dr Hamid, FBP argued that its contract was with Chad and that, as it did not own the showroom, Chad had not suffered any loss.
The Court of Appeal confirmed that in determining the identity of the contracting party, the court's approach is objective, not subjective. The question is what a reasonable person, furnished with the relevant information, would conclude. In deciding that Dr Hamid, not Chad, had contracted FBP the Curt of Appeal relied on the fact that there was no reference to Chad in the letter, there was no suggestion that Moon Furniture was the trading name of Chad and Dr Hamid had not qualified his signature on the letter in any way, for example, by including the word "director" under it.
Farad Maftoon T/A FM Construction Services v Ahmed Sayed, Lebaneat (Yarm) Limited3.
Mr Sayed operated a number of restaurants under the Labaneat name and approached Mr Maftoon regarding works on a proposed restaurant in Yarm. Mr Maftoon provided a quote for certain demolition and plastering works. It was only after this exchange that Labaneat (Yarm) Limited ("LYL") was incorporated.
Mr Maftoon subsequently provided a revised quote for an expanded scope of works. This was sent to Mr Sayed's Labaneat email address and was accepted Mr Sayed. The works commenced and a number of payments were made to Mr Maftoon by LBL, although invoices were addressed to "Labaneat". Mr Maftoon's final invoice, which was the subject of the dispute, was addressed to Mr Sayed.
The invoices and subsequent documents purporting to suggest that Mr Sayed had entered the contract on behalf of LYL were irrelevant as they all arose after the agreement had been reached. At no point during the negotiations had Mr Sayed suggested that any contract would be with LYL, not him personally, and therefore the court held that he was personally party to the contract with Mr Maftoon.
Kang v Pattar4
Mrs Kang's father-in-law, Mr Singh, engaged Mr Pattar to carry out works at Mrs Kang's property. The works were varied by an oral agreement between Mr Singh and Mr Pattar, following which the works stopped and each party alleged that the other had repudiated the contract.
Mr Pattar sought to argue that Mr Singh was the only person he had contracted with. The position was complicated by the fact that, after works had ceased, the parties entered into discussions to produce a written contract and Mr Patter included Mrs Kang as a party in the document he produced. The court held that Mr Singh had acted as agent for Mrs Kang who, as undisclosed principal, was able to sue, and be sued, on the agreement between Mr Singh and Mr Pattar.
As demonstrated above, ambiguity regarding the identity of the parties to a contract may only become a significant issue once a dispute arises. This poses particular difficulties in adjudication as, if a party to the adjudication isn't also a party to the contract, the adjudicator will not have jurisdiction to decide the dispute referred to them.
In MG Scaffolding (Oxford) Ltd v Palmloch Ltd5, MGS commenced an adjudication against MCR Property Group, a trading name of Palmloch Ltd, and sought to enforce the adjudicator's decision against Palmloch Ltd. Although the trading name was used by other entities, the Court held that a reasonable recipient would have understood its use as unambiguous reference to Palmloch Ltd and the adjudicator's decision was enforced.
It is not only the parties in dispute which a lack of clarity can create difficulties for. In Davies and Davies Associates Ltd v Steve Ward Services (UK) Ltd6 the adjudicator resigned as he did not consider that the responding party was a party to the construction contract. Neither the referring party nor the responding party had raised this issue in the adjudication and the referring party therefore refused to pay the adjudicator's fees. However, the court held that the adjudicator was entitled to his fees based on the particular terms of his appointment.
Whilst a project proceeds smoothly, the works are progressing and payments are made regularly, any ambiguity regarding the parties to the contract may well go unnoticed or the parties may not think that it is worth raising the issue. As demonstrated above, once a dispute arises, it is crucial to correctly identify who is party to the contract. This will probably require a detailed factual analysis free of any influence of the benefit of hindsight. The consequences of getting this wrong, particularly in the context of adjudication, can be significant and costly.
If you have any questions on the issues raised in this article, please contact Alan Stone, Tom Green or Paul Smylie.
-  EWHC 2565 (TCC) para 26
-  EWCA Civ 470
-  EWHC 1801 (TCC)
-  EWHC 1101 (TCC)
-  EWHC 1787 (TCC)
-  EWHC 1337 (TCC)