Royal Mail Estates Limited v Maple Teesdale Borzou Chaharsough Shirazi

This case concerns the operation of s.36 C(1) of the Companies Act 1985 in relation to a pre-incorporation contract for the sale of land and whether contractual wording can amount to an "agreement to the contrary" negating the statutory effect. The Claimant relied on s.36 C to treat the defendants as contracting parties and to recover the deposit and damages for repudiatory breach. The defendants sought summary judgment dismissing the claim on the ground that clauses 24.1 and 24.2 (in particular the phrase that "the benefit of this Contract is personal to the Buyer") constituted an agreement to the contrary which excluded the s.36 C effect.

The judge held that a contrary agreement under s.36 C requires a clear intention to exclude the statutory effect that the contract "has effect...as one made with the person purporting to act...as agent for" the company. The contractual wording relied on did not demonstrate such an intention: it was aimed at restricting assignment or third-party substitution, not at negating the s.36 C effect, and neither party knew the company was unformed. Accordingly the defendants' summary judgment application was dismissed.

Background and parties. The Claimant contracted to sell 257/259 Kensington High Street to a company which had not yet been incorporated. The contract was signed "for and on behalf of the Buyer" by the defendants, who purported to sign for the not-yet-formed company. The Claimant alleges the defendants repudiated the contract and, relying on s.36 C(1) Companies Act 1985, treats the defendants as personally liable for the deposit and damages.

Nature of the application. The defendants applied under Part 24 for summary judgment on the basis that, even if s.36 C would otherwise apply, there was an "agreement to the contrary" which excluded the statutory deeming effect; principally they relied on clauses 24.1 and 24.2 ("No Assignment" and wording that "the benefit of this Contract is personal to the Buyer") and related provisions.

Issues framed. (i) What is the correct construction of s.36 C(1) and what amounts to an "agreement to the contrary"? (ii) Do the contract clauses relied upon, properly construed, amount to such an agreement excluding the s.36 C effect?

Court's reasoning. The court explained the "s.36 C effect": where applicable the contract has effect as one made with the person purporting to act for the company. The judge rejected an approach that any contractual term inconsistent with a consequence of the s.36 C effect (for example, preventing a third party from receiving the benefit) suffices to negate the statutory deeming. Rather a contrary agreement must show that the parties objectively intended to exclude the fundamental statutory effect that the agent would be the contracting party. This approach accords with the purposive aim of s.36 C to protect third parties (derived from Article 7 of the First Company Law Directive) and the authorities (notably Phonogram and Braymist), which make it exceptional for an agent not to be treated as a contracting party. Applying this test to the clauses relied upon, the judge concluded they were directed at restricting assignment and third-party substitution and there was no evidence the parties had s.36 C in mind or intended to exclude its effect.

Conclusion. The defendants' summary judgment application was dismissed because the contractual wording did not constitute an "agreement to the contrary" under s.36 C(1).

This was a first-instance application and the court dismissed the defendants' summary judgment application. The judge held that an "agreement to the contrary" under s.36 C(1) must objectively show that the parties intended to exclude the statutory effect that the contract be treated as made with the person purporting to act for the company; the contract wording relied upon (notably that "the benefit of this Contract is personal to the Buyer") did not evidence such an intention and therefore did not displace s.36 C.