Who is liable for a contract, either the personal signed the contract personally liable or his company?

With reference to Xiao v ACT Commercial Builders Pty Ltd [2023] ACTSC 44

 

It depends on the way they execute the contract.  In case of court proceedings, the court will decide it objectively (NOT subjectively), considering the contract document as a whole and on the basis of admissible surrounding circumstances known to the parties

(Objectively??? Subjectively??; ask me the difference if you don’t know as a comment)

Recently (2023), Mr. Xiao was to be liable for a debit to a builder personally but not by the Company he performed as a director.

Let’s understand the way someone should execute a contract to avoid getting into trouble like Mr. Xiao.

·         Make clear under what capacity you sign the contract (on a personal level or for the Company)

·         Details of your capacity must be clearly and consistently mentioned in the contract

If the contract is executed in the capacity of Director, make it clear with reference to the Corporation Act. See the below example with reference to the Corporation Act in Australia.

 

Executed as an Agreement

Executed by ABC Pty Ltd pursuant to Section 127 of the Corporations Act 2001 (Cth):	} } }
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Signed by Company Secretary/ Director	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Signed by director
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Name	. . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . Name
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Date

 

(Executed as an Agreement??? Executed as a Deed??? What is the difference, let’s ask as a comment so, we can discuss)

 

Now, let’s have a look at how Mr Xiao getting into much trouble.

In the first court, it was held that Mr. Xiao was personally liable for the builder. So, he appealed to the appellate court.

In the subject contract, following were identified and considered by the court when taking the decision:

· Mr Xiao did not write that he was authorised to sign on behalf of another or invoke section 127 of the Corporations Act 2001 (Cth)

·         None of the other directors of the company added their signature to the contract,

·         Even though he wrote down the company address, it was also his personal address.

·         Even though he wrote down the company ABN, he did not identify that number as the company's ABN.

·         He did not even name the company anywhere on the contract,

 “Mr Xiao’s submissions as to the evidence overlooked the objective theory of contract.  The first matter relied upon was the fact that Mr Xiao gave evidence that, when he signed the contract, he understood that he was signing it on behalf of BBSJ Partners Pty Ltd.  In fact, what he said was that he understood he was signing on behalf of “the business”, which is quite different.  In any event, his understanding is irrelevant.  The test is objective.”

 

Case: https://courts.act.gov.au/supreme/judgments/xiao-v-act-commercial-builders-pty-ltd

Note: The article was also published on www.aact.lk

IChemE introduced a standard condition of contract for the Construction Management procurement method.

Among the well-known procurement methods, Management types, i.e., Management Contracting and Construction Management, are two different procurement methods. In the Management Contracting type, there is no contractual link between the Client and Package contractors; the Management Contractor has contracts with each package contractor. In contrast, the Client has a direct contractual link with package contractors in the Construction Management procurement method.

 

What are the standard conditions of contract you can use with the Construction Management procurement method? FIDIC Yellow book suits Design and Build procurement methods, the Red book suits Separated procurement methods, and the Silver book suits EPC/Turnkey procurement types, but there is no book published by FIDIC specifically for the Construction Management procurement method. Even not by NEC. Anyway, the JCT has developed a standard form of contract for the procurement method. Construction Management Contract | RIBA Books

 

The Institution of Chemical Engineers (IChemE) introduced a new standard condition of contract to suit engineering, procurement and construction management (EPCM) or, in other words, suit for the Construction Management procurement method.

Under an EPCM contracting arrangement (or in our term Construction Management procurement method):

• The Client has a direct contractual link with package contractors

• The Client appointed EPCM contractor (in our term Construction Manager) is appointed to provide engineering and design services, manage the procurement of the package contractors and later manage the package contractors during the construction stage.

• The EPCM contractor (in our term, Construction Manager) does not actually do any construction work itself.

Even though the prime aim of Blue Book is to be used with process plants and manufacturing facilities, it is also suitable for a range of performance-related projects such as nuclear power production, water desalination, tunnelling and high-voltage distribution.

The View-only PDF version is available on a 12-month license.

 

The Blue Book, EPCM Contract, 1st Edition, 2023, View Only PDF | IChemE

Note: The article was also published on www.aact.lk

 

 

Product Liability Provision in Construction Contract

It is typical to ask for Product and Public Liability Insurance in a construction contract. This is to manage the associated risk (e.g., during the construction, if a client’s property was damaged).

Also, getting an indemnity from the contractor for liabilities related to the product is recommended. The advantage of having an indemnity clause is that it provides certainty for who is liable for losses without having to prove fault.

For example, the indemnity clause could state that:

·         The Contractor shall indemnify the Client from and against any liability in respect of:

o    damage to the Company’s property;

o    injury or death of any person;

o    breach of any statutory duty or regulation; and

o infringement of any intellectual property rights.

The law associated with product liability is covered by:

·         Law of tort (Negligence);

·         Contract; and

·         Related consumer protection legislation (Australia - Competition and Consumer Act 2010).

You can recover the loss under the contract if there is an indemnity clause. In the absence of such a provision, you can still recover under the law of tort or under the respective consumer protection legislation.

As the Client QS who is drafting the contract, you must try to get indemnity for all the potential risks/liabilities identified in your risk assessment exercise. On the other hand, as the Contractor QS, you must try to avoid giving indemnities during your contract review exercise (but agree to any fair indemnities). Specifically, you should not agree to indemnify generally or too broadly (e.g., indemnify liability with respect to breach of contract - this is too broad) but agree only for specific losses (e.g., indemnify liability with respect to any negligence - this is narrow).

 

Note: The article was also published on www.aact.lk