Thursday, 30 April 2015

Identity crisis: The importance of identifying the correct party to a contract

The importance of identifying the correct party when entering into a contractual arrangement is paramount.

When working as a government lawyer, you can often find yourself in unusual situations, like buying chaff for horses, bullet proof vests for dogs and canned soup for prisoners.  In the context of purchasing goods from local suppliers, knowing who is responsible when the goods are faulty is essential.  Getting this wrong can create significant issues when it comes to disputes and when seeking to enforce terms of the contract.

It is easy to make mistakes and errors can arise in a number of ways:
  • referring to a non-existent company;
  • not referring to the correct individual or correct company; or
  • referring to a business name, rather than the holder of that business name.

Sometimes it is difficult to identify the correct party - there are multiple ways to set up and manage a business and just navigating company searches can be  a challenge. Companies can trade under numerous business or trading names, but it is the holder of that business or trading name that is the legal entity for contracting purposes.

Although courts will strive to ascertain the correct contracting party by applying a test of what a reasonable person would think, it is important to know how to undertake this process correctly from the outset.  Fortunately, post-contractual communications may be of aid to a court that is asked to determine the correct contracting entity.  However, it is preferable not to have to rely on, for example, email chains with a supplier, to overcome an incorrect party name in the contract.

To avoid the risks associated with contracting with the wrong entity, it is important to:
  • have a written contract or written confirmation of an oral contract , not an oral one;
  • confirm the contracting entity by:
    • asking the other party to provide their business details (i.e. ABN/ACN); and
    • undertaking company searches on ASIC (via ASIC Connect) to verify those business details are for the correct entity, 
  • if the entity uses a business name, confirm that the holder of the business name (via ASIC Connect) is the entity listed in the contract; and
  • ensure that signature blocks clearly set out the capacity in which a person signs on behalf of their company, partnership or as a sole trader.

If you are unsure who you are contracting with, please seek legal advice.

Carolyn Doyle
Managing Principal Solicitor
9947 1403

Sanishya Fernando
Solicitor
9947 1439

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