Liberty Investing Ltd v Sydow & Ors

Contractual obligations should not be implied merely because a person has practical control over a contracting company. The relevant question is whether the term is necessary to make the contract work, obvious, or otherwise implicit in its wording. Commercial parties advised by skilled lawyers are ordinarily taken to have deliberately allocated liabilities in the written agreement. Practical necessity for a company director to act does not create personal legal liability. Where a contract expressly places an obligation on a company, it cannot ordinarily be construed as imposing the same obligation on the other parties to whom the company’s promise is owed.

The claimant invested in a theatrical production venture governed by a detailed shareholders’ agreement. The agreement required Topco and its shareholders to obtain the claimant’s consent before specified capital expenditure or debt was incurred. Mr Sydow was a party to the agreement, a director of Topco and FRL, and controlled DWMD, but he was not a shareholder.

The claimant accepted that its pleading incorrectly described Mr Sydow as a shareholder. It sought to amend the claim to allege an implied obligation requiring him to co-operate with, and not prevent, compliance by the corporate parties. Alternatively, it argued that the company’s promise in clause 10.2 imposed liability on the other contracting parties. The court determined the amendment application and Mr Sydow’s application for strike-out or summary judgment.

1. Implied term. Permission to amend was refused. The default position is that nothing is implied into a contract. The burden is particularly strong where commercial parties have recorded their bargain in a detailed written agreement prepared with legal assistance. A term may be implied only where it is necessary to make the agreement workable, so obvious as to go without saying, or otherwise implicit in the agreement’s wording.
2. Background and summary determination. The court may need a trial where disputed factual background is material to construction. However, referring generally to the factual matrix is not a reason to defer a construction issue where the relevant background is common ground or has not been specifically identified. Here, the only relevant background was Mr Sydow’s control of the corporate entities, and the agreement could be construed without further evidence.
3. No personal liability from practical control. The claimant’s argument confused factual or practical necessity with legal necessity. A company can perform its contractual obligations through human agents without those agents assuming personal contractual liabilities. There is no general presumption that the person controlling a company is personally liable for the company’s obligations. Clause 10 reflected a deliberate allocation of responsibility to Topco and its shareholders, rather than to Mr Sydow as Producer.
4. Clause 10.2. The fallback construction was untenable. Clause 10.2 imposed an obligation on the Company alone. It could not be construed as imposing that obligation on the parties to whom the company’s promise was made.
5. Orders. Summary judgment was entered for the defendants. The proposed amendment was refused. Mr Sydow was removed as a party, subject to his undertaking to be bound by any judgment or decision in the proceedings.

First-instance decision. No prior or subsequent appellate decision is stated in the judgment.