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