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A question of identity

Feature Articles

Cite as: April 2015 89 (4) LIJ, p.32

Through poor drafting, clerical error or misunderstanding who they were dealing with, contracts sometimes wrongly identify or fail to specify a party. This can have serious consequences.

By Josh Wilson and Cam Truong

Who am I contracting with? Fortunately this is not a common question. However, where clerical errors occur or there is some uncertainty about identity, courts have to determine the issue.

This can have serious consequences for contracting parties because when attempting to enforce a contract, the wrong party may be suing or being sued.

Ultimately, the court will strive to identify the contracting parties by referring to an objective test of what a reasonable observer would conclude were the contracting parties even where it does not reflect the parties’ subjective intentions. To avoid later risks, contracting parties need to clearly set out and document their identities, including clearly setting out the capacity in which signatories are signing a contract.

Names and descriptions

In Shogun Finance v Hudson,1 Lord Phillips reflected on the nature of names:

“What’s in a name?

“This area of the law has developed because of confusion about names and it may be helpful at the outset to reflect on the nature of a name. Words in a language have one or more ordinary meanings, which will be known to anyone who speaks that language. Names are not those kinds of words. A name is a word, or a series of words, that is used to identify a specific individual. It can be described as a label. Whenever a name is used, extrinsic evidence, or additional information, will be required . . . to identify the specific individual that the user of the name intends to identify by the name – the person to whom he intends to attach the label. Almost all individuals have two or more names which they use to identify themselves and where a name is mentioned in a particular context, or a particular milieu, those who hear it may have the additional information that they need to identify to whom the speaker is referring.

“Where a name appears in a written document, the document itself may contain additional information which will enable the reader to identify the individual to whom the writer intended to refer when he wrote the name.”

With most contracts, particularly those prepared by lawyers, there is no issue of identity of contracting parties. The parties will be clearly identified on the first page of the contract, which will accurately reflect who had entered into a commercial bargain.

However, there are contracts, mostly prepared by non-lawyers, in which the identity of the contracting party is not clear or is wrong. A common problem is identifying whether a particular contract is made with a company or the person standing behind the company. Errors or ambiguity in identity can manifest in several ways including:

  • mistakenly referring to a non-existent company2 or mistakenly referring to an incorrect company within a group of companies;
  • referring to a business name rather than the entity carrying on business under that name;3
  • referring to a business name rather than the partnership name;4 or
  • following an oral agreement with an individual, inconsistent references to an individual and to a company.5

In these situations, where there is error or ambiguity, courts are called on to determine the identity of the contracting parties. How does a court determine identity?

Reasonable observer test

The objective theory of contract was authoritatively settled by the High Court in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd,6 in which the High Court observed at [40] that:

“This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the party to believe . . .”

Following the objective theory of contract, the NSW Court of Appeal in Pethybridge v Stedikas Holdings Pty Ltd (“Pethybridge”)7 comprehensively examined the issue of identity of contracting parties. The primary issue in Pethybridge was whether a building contract was made with a company (Torpoint Investments Pty Ltd) or the person standing behind the company (Dennis Pethybridge). At first instance, the trial judge found that the building contract was with Mr Pethybridge rather than the company.

Campbell JA, with whom Beazley and Basten JJA agreed, observed at [40]:

“At the risk of some repetition, I will seek to draw the threads together. Identification of the parties to the contract must be made in accordance with the objective theory of contract: Ryledar Pty Ltd & Anor v Euphoric Pty Ltd [2007] NSWSCA 65 at [262]–[266] and cases there cited. It was the respondent who bore the legal onus of proving that the appellant was the other party to the contract that had undoubtedly been entered for the performance of the work on the two carparks. It was relevant, for that purpose, to establish who was carrying on business under the name C & D Asphalt Service. That is because the conclusion to draw from the objective evidence is that a reasonable observer of the communications that led to the entering of the contract, together with the background facts known to the parties, would conclude that the parties intended that the contract would be with whomever it was that was carrying on business under the name C & D Asphalt Service”.

After examining the relevant evidence, the NSW Court of Appeal found that there was undisputed evidence that the company, Torpoint, carried on business under C & D Asphalt Service, and other objective indications that the contract was with the company rather than the individual, Dennis Pethybridge. Accordingly, the appeal was allowed. The practical result of the decision was that the respondents would, subject to any issues of Anshun estoppel or abuse of process being agitated, be required to issue new proceedings to enforce the building contract against the correct contracting entity.

More recently, in Lederberger v Mediterranean Olives Financial Pty Ltd,8 the Victorian Court of Appeal was asked to determine the identity of a contracting party in the context of a number of agricultural contracts for tax effective products entered into under the grower name “Loaders Manufacturers & Traders”. At first instance, the trial judge found that the contracts were entered into by a partnership rather than a company called Loaders Traders Pty Ltd.

In a joint judgment, the Court of Appeal set out the following statement of principle at [19]:

“Identification of the parties to a contract must be in accordance with the objective theory of contract. That is the intention that a reasonable person, with the knowledge of the words and actions of the parties communicated to each other, and the knowledge that the parties had of the surrounding circumstances, would conclude that the parties had. The process of construction requires consideration not only of the text of the documents, but also the surrounding circumstances known to the parties and the purpose and object of the transaction. This in turn presupposes knowledge of the genesis of the transaction, the background, and the context in which the parties are operating”.

The Court of Appeal, in applying these principles, upheld at [22] the trial judge’s finding that the relevant contracting party was the partnership because “a reasonable person, with the knowledge that the parties had of the surrounding circumstances, would conclude that it was the partners in the partnership that entered into the transaction agreements”. The Court of Appeal reasoned that this finding was supported by the suite of documents between the parties, the fact that the partnership was registered for GST, not the company, and that the partnership had obtained significant tax benefits from entering into the schemes rather than the company. The practical consequence was that the respondents had correctly sued the entities comprising the partnership.

Accordingly, what is critical to determining the issue of identity is what a reasonable observer or person of communications and knowledge of the surrounding circumstances would conclude the parties intended the contract to be with. What is irrelevant are subjective beliefs or intentions unless they are made known to the other party.9

The approach taken in Britain is essentially the same. In the recent decision of Hamid v Francis Bradshaw Partnership,10 Jackson LJ observed 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. The private thoughts of the protagonists concerning who was contracting with whom are irrelevant and inadmissible”.

The reasonable observer or reasonable person test on how to identify the contracting party is now entrenched and has been applied in recent decisions of intermediate or superior courts.11

Post-contractual communications

An issue remains as to whether objective post-contractual communications are admissible in determining the identity of a contracting party. This issue was explored in Pethybridge, where Campbell JA observed at [59] that:12

“. . . whether and if so when it is possible to use post-contractual conduct as an aid to construction of the contract is not yet settled . . . The more restrictive view, favoured in this Court, is that subsequent communications cannot be looked to as an aid to construction of a contract, but can be looked at as an aid in deciding whether a contract has been entered into at all . . . It was argued that, in the present case, even on that more restrictive view, it is permissible to look to the subsequent communications because the question of whether the contract was entered into with the appellant, or with Torpoint is, in substance, no different to a question of whether there was a contract entered into with the appellant at all. It is not necessary to form a view about the correctness of the argument I have just mentioned”.

The issue of post-contractual conduct was also considered in Lederberger by the Victorian Court of Appeal. While not expressing a concluded view because the argument was not relied on at trial or on appeal, the Court of Appeal observed at [31] that:

“. . . Plainly the general principle, affirmed by the High Court in Agricultural Finance, does not allow use of the subsequent conduct of the parties as an aid in the construction of a contract. But we are not inclined to think that this now well-settled principle has affected the second principle stated by Heydon J in Brambles Holdings13 so as to have precluded the trial judge from relying upon tax returns filed after the tax effective scheme contracts had been signed, in order to ascertain whether the respondents and the parties of the partnership had entered into the agricultural contracts”.

These observations in Lederberger suggest that it would be open for a party to rely on post-contractual conduct on the question of identity. With respect, this position is sensible and entirely consistent with the admissibility of post-contractual conduct in determining whether a contract was formed at all. It is unlikely that such evidence will ever be critical in any event but the court may be assisted by examining such evidence where the objective pre-contractual evidence is not conclusive.

Implications for parties

The implications for contracting parties are obvious and very serious.

Where the identity of a contracting party is unclear and the court is required to determine this issue, it may result in a party (which was intended to be the contracting party) being unable to enforce a contract or conversely a party (which was not intended to be a contracting party) being liable under a contract. Indeed, a defendant, knowing that it contracted with the plaintiff, may opportunistically contend where there is some supporting evidence that a contract was entered into with another party.

To avoid these risks, it is critical that parties to a contract:

  • have a written contract, not an oral one;
  • avoid, as much as possible, any misunderstanding as to who is entering into the written contract;
  • clearly understand who the other contracting parties are and clearly document their identity in the written contract and in other contemporaneous correspondence;
  • make known to the other party their understanding of who they are dealing with;
  • ensure that signatories to the written contract clearly set out the capacity in which they are signing, i.e. they are signing for a company and not intending to be bound personally; and
  • undertake company searches and a proper review of objective company documents in relation to the identity of the counterparty.

Conclusion

An often quoted statement of Lord Tomlin in Hillas & Co Ltd v Arcos14 is that “the dealings of [parties] may as far as possible be treated as effective, and that the law may not incur the reproach of being the destroyer of bargains”. The need to uphold commercial bargains wherever possible is well established, but where mistakes or clerical errors occur or there is no clear documentation, it is sometimes difficult to know who the commercial bargains are between.

The reasonable observer or person test means that a court will determine the identity on the basis of the objective material before it, including possibly post-contract material, rather than someone’s subjective beliefs or intentions.

Where identity is an issue, parties are exposed to unnecessary risks of not being able to enforce a contract against an intended party or an unintended party becoming contractually liable. These risks can easily be avoided by paying careful attention to documenting party identity at the outset and in documents and communications between the parties.


JOSH WILSON SC and CAM TRUONG are members of the Victorian Bar. Both have been involved in recent decisions in which the identity of the contracting party was a primary issue.

The numbers in square brackets in the text refer to the paragraph numbers in the judgment.

  1. [2004] 1 AC 919 at [119] – [121].
  2. In Boss Partners, the relevant written contracts referred to Boss Partners Pty Ltd, a non-existent company, rather than Boss Partners Real Estate Agents Pty Ltd, the correct entity.
  3. In Dennis Pethybridge v Stedikas Holdings Pty Ltd [2007] NSWCA 154, the written communications consistently referred to the business name “C&D Asphalt Service” rather than Torpoint Pty Ltd, the entity which carried on business under that name.
  4. In Lederberger v Mediterranean Olives Financial Pty Ltd [2012] VSCA 262, there was an incorrect reference to a business name “Loaders Manufacturers & Traders” rather than a partnership acting through a company Loaders Traders Pty Ltd as a bare trustee.
  5. In De Jong Lelies Australia Pty Ltd v O J Four Pty Ltd [2003] VSC 475, most of the evidence established that the contracts for the sales of bulks were made with an individual, Mr Veis, rather than his company, O J Four Pty Ltd.
  6. (2004) 219 CLR 165.
  7. [2007] NSWCA 154.
  8. [2012] VSCA 262.
  9. Dennis Pethybridge v Stedikas Holdings Pty Ltd [2007] NSWCA 154 at [60] per Campbell JA with whom Beazley and Basten JJA agreed.
  10. [2013] EWCA Civ 470.
  11. See, for example, In the matter of DCM Solar Pty Limited (in liquidation) [2013] NSWSC 323 at [7]–[11] per Black J; Boss Partners Estate Agents Pty Ltd v Rivacourt Pty Ltd [2012] VCC 1884 at [114] per Kennedy J. It also accords with earlier decisions of the Supreme Court of Victoria in which the Court has approached the issue of identity on an objective basis from the position of a reasonable bystander: see, for example, De Jong Lelies Australia Pty Ltd v O J Four Pty Ltd [2003] VSC 475 at [12] per Byrne J.
  12. Basten JA expressly declined to form a concluded view on this issue: at [2].
  13. That post-contractual conduct is admissible on the question of whether a contract was formed.
  14. [1932] All ER Rep 494.

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