For the purposes of section 36C(1) of the Companies Act 1985 a contrary agreement was established if, construed objectively, the parties intended that the contract would not take effect as one made with the “agent”.

Jonathan Klein, sitting as a deputy judge in the Chancery Division, so held when dismissing the summary judgment application by the defendants, Maple Teesdale (a firm) and Borzou Chaharsough Shirazi, against the claimant, Royal Mail Estates Ltd. By a contract for the sale and purchase of property between the claimant and, purportedly, Kensington Gateway Holdings Ltd (“the company”), the claimant agreed to sell and it was purportedly agreed that the company would buy the property. Clause 24.1 of the contract provided that “The benefit of this contract is personal to the buyer”. By the claim the claimant alleged that the defendants were party to the contract and were in repudiatory breach of it.

Section 36C(1) provides: “A contract which purports to be made by or on behalf of a company at a time when the company has not been formed has effect, subject to any agreement to the contrary, as one made with the person purporting to act for the company or as agent for it, and he is personally liable on the contract accordingly”.

JONATHAN KLEIN said that the defendants argued that, properly construed the words “the benefit of this contract is personal to the buyer” constituted a contrary agreement. In the result, they contended that the claim was bound to fail because it was predicated on section 36C(1), which did not apply because of what they said was a contrary agreement and so the claim should be summarily dismissed. His Lordship referred to Phonogram Ltd v Lane [1982] 1 QB 938 and Braymist Ltd v Wise Finance Co Ltd [2002] Ch 273. Although the application was presented as an exercise of contractual construction, there was a prior question, namely, properly construed what were the requirements for a contrary agreement for the purpose of section 36C(1). In answering that question, it was necessary always to have in mind what was the effect of section 36C(1) if the subsection applied and there was no contrary agreement. In those circumstances the contract “has effect … as one made with the person purporting to act … as agent for” the company (“the section 36C effect”). The parties presented two possibilities. One possibility was that there was a contrary agreement when there existed a contractual provision, which, if given its widest interpretation, was inconsistent with a consequence which flowed from the section 36C effect. The words “the benefit of this contract is personal [to the company]” were inconsistent literally with the benefit of the contract being enjoyed by the defendants, as they would enjoy that benefit if the section 36C effect occurred. In that possibility, those words would, or at least could, amount to a contrary agreement. That was the construction contended for by the defendants. A second possibility was that there was only a contrary agreement if it was established that, by the relevant words construed, objectively the parties intended that the contract would not take effect as one made with the “agent”. Put another way, there was only a contrary agreement, if there was found to be an agreement between the parties by which they intended to exclude the section 36C effect. The second possibility was the correct construction. The words “the benefit of this contract is personal to [the company]”, properly construed, did not amount to a contrary agreement for the purpose of section 36C(1).