Royal Mail Estates Limited v Maple Teesdale Borzou Chaharsough Shirazi

For the statutory effect of section 36C of the Companies Act 1985 to be excluded, there must be a clear agreement that the contract will not take effect as one made with the person purporting to act for an unformed company. It is insufficient that a contractual term is merely inconsistent with one consequence of the statutory effect, such as the agent obtaining the benefit of the contract. Restrictions on assignment or sub-sale do not, without more, exclude the statutory substitution of the agent as the original contracting party. The court may consider evidence outside the written contract when determining whether such an agreement was made.

The claimant sought payment of a contractual deposit and damages, alleging that the defendants were personally liable under section 36C of the Companies Act 1985 after signing a contract on behalf of a company that had not yet been incorporated. The defendants applied for summary judgment, arguing that clauses restricting assignment and limiting the benefit of the contract to the buyer constituted an agreement to the contrary under section 36C.

The central issue was whether those contractual provisions objectively excluded the statutory effect that the contract should operate as one made with the persons purporting to act for the unformed company.

1. Application dismissed. The claimant’s claim was not bound to fail on the basis advanced by the defendants.
2. Part 24 summary judgment may determine a short point of law or construction where the court has the necessary evidence and the parties have had a proper opportunity to address it. The court should determine the issue where a party’s case is bad in law, but should not do so merely because further evidence might conceivably emerge.
3. Section 36C of the Companies Act 1985 provides that a pre-incorporation contract operates as one made with the person purporting to act for the company, unless there is an agreement to the contrary. The proper construction requires an agreement which objectively excludes that statutory effect itself. It is not enough that a term is inconsistent with one consequence of the statutory effect.
4. The court may look beyond the written contract when deciding whether the parties reached a contrary agreement. The agreement must nevertheless be clear. The statutory purpose, reflected in article 7 of the First Council Directive, is principally to protect the other contracting party by ensuring that the person acting for the unformed company is personally liable.
5. The words making the benefit personal to the buyer restricted assignment or sub-sale. They did not show an intention to prevent the defendants becoming the original contracting parties through section 36C. The surrounding provisions did not alter that conclusion, particularly since neither side knew that the company had not been incorporated and neither had section 36C or that possibility in mind.