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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Royal Mail Estates Limited v Maple Teesdale Borzou Chaharsough Shirazi [2015] EWHC 1890 (Ch) (02 July 2015) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2015/1890.html Cite as: [2015] EWHC 1890 (Ch), [2016] 1 WLR 942, [2016] WLR 942, [2015] BCC 647, [2015] WLR(D) 290

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		7 Rolls Buildings Fetter Lane London EC4A 1NL
		2 July 2015

MR JONATHAN KLEIN:

1. This is the judgment in the Defendants' summary judgment application against the Claimant by an application notice dated 27th March 2015. The Defendants made the application because they believe that the Claimant has no real prospect of succeeding on the claim and because they know of no other reason why the disposal of the claim should await trial.
2. I am reminded that in I.C.I. Chemicals & Polymers Limited v. T.T.E. Training Ltd. [2007] EWCA Civ 725 Moore-Bick L.J. said:

"12. ...It is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it. The reason is quite simple: if the respondent's case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be. Similarly, if the applicant's case is bad in law, the sooner that is determined, the better.

13. In cases where the issue is one of construction the respondent often seeks to persuade the court that the case should go to trial by arguing that in due course evidence may be called that will shed a different light on the document in question. In my view, however, any such submission should be approached with a degree of caution. It is the responsibility of the respondent to an application of this kind to place before the court, in the form of a witness statement, whatever evidence he thinks necessary to support his case. Where it is said that the circumstances in which a document came to be written are relevant to its construction, particularly if they are said to point to a construction which is not that which the document would naturally bear, the respondent must provide sufficient evidence of those circumstances to enable the court to see that if the relevant facts are established at trial they may have a bearing on the outcome.

14. Sometimes it is possible to show by evidence that although material in the form of documents or oral evidence that would put the documents in another light is not currently before the court, such material is likely to exist and can be expected to be available at trial. In such a case it would be wrong to give summary judgment because there would be a real, as opposed to a fanciful, prospect of success. However, it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction."

3. As I shall explain, this is an application which turns, ultimately, on two issues of construction; of a few words in a contract and of a sub-section of a statute and, in particular, of a few words in that sub-section. On this application there is very limited admissible background evidence. Mr. Ayliffe QC, who appeared for the Defendants, suggested that there might be further evidence but that, if there was, it would favour the Defendants. He urged me to determine the application on the evidence before me. Mr. Jourdan QC, who appeared for the Claimant, did not submit that there was any further admissible background evidence, not before me, which might favour the Claimant. Indeed, as I understood it, his primary position too was that I should determine the application on the evidence before me (or, at least, he did not suggest that I ought not to do so). Having regard to what Moore-Bick L.J. said in I.C.I., that is what I propose to do.

Factual Background

4. The following factual background is not in dispute for the purpose of the application.
5. By a contract ("the Contract") for the sale and purchase of 257/259 Kensington High Street, London ("the property"), dated 19th December 2008, between (1) the Claimant and, purportedly, (2) Kensington Gateway Holdings Ltd. ("the company"), in broad terms the Claimant agreed to sell and it was purportedly agreed that the company would buy the property for £20 million.
6. The particular mechanism by which the Contract provided for the completion of the transaction is complicated and, for the purposes of the application, is not relevant. Nor are most of the contractual obligations relevant. The following Contract terms are relevant, however:

i) "Buyer" was defined as the company;

ii) "Associated Party" was "to have the same meaning as an "associated company" and "control" in section 146 of the Income and Corporation Taxes Act 1988 and "associated persons" in section 227 of the said Act or any person who is a relative of any shareholder or director of the Buyer";

iii) "Registered Agent" was defined primarily as "Jordans of...Tortola, British Virgin Islands...";

iv) By cl.11.6: "the Buyer hereby confirms and agrees that the Seller has full authority to request and receive such information as it reasonably requires from the Registered Agent ..." in order to satisfy the Claimant in relation to compliance with cl.11;

v) By cl.20.5: "the Buyer shall procure a legal opinion from a BVI Lawyer as to the validity and enforceability of the transfer...";

vi) By cl.24.1: "the benefit of this Contract is personal to the Buyer and is not capable of being assigned by the Buyer other than being novated to an Associated Party";

vii) By cl.24.2: "the Seller shall not be required to transfer the property to anyone other than the Buyer, other than to an Associated Party to whom this Contract has been novated or at a price greater than the Price, and except by one transfer at the Price";

viii) By cl.26.9 a pre-emption right in the Contract: "...is personal to the Buyer and is not capable of assignment or other disposal".

7. The buyer's part of the Contract was signed "for and on behalf of the Buyer" as follows: "Maples Teesdale pp Buyer".
8. At the time of the Contract the company had not been incorporated. The company was incorporated on 19th February 2009. Nevertheless, as Mr. Ayliffe accepts for the purpose of the application, the Defendants signed the Contract purportedly on behalf of the company. Indeed, this is something apparently conceded for the purposes of the claim by para.28 of the Defence.
9. It also seems to be uncontroversial that neither the Claimant nor the Defendants knew, at the time of the Contract, that the company had not been incorporated. Indeed, any other scenario would be highly improbable. As Mr. Jourdan pointed out, for example if the Claimant had known that the company had not been incorporated at the time the Contract was drafted and made, the wording of the Contract and the fact that it was purportedly made with the company would be very strange indeed.
10. By the claim the Claimant contends that the Defendants were party to the Contract and were in repudiatory breach of it. The Claimant further contends that, on 21st June 2012, by letter it accepted the Defendants' repudiatory breach. The Claimant claims the deposit due under the Contract from the Defendants; the Claimant contending that the Defendants' liability to pay it had arisen before the termination of the Contract. The Claimant claims additionally (and, as to its debt claim in relation to the deposit, alternatively) damages for what it contends is the Defendants' repudiatory breach. The total principal sum claimed is £5.1 million.
11. It can be seen that the whole of the Claimant's case is predicated on the contention that the Defendants were party to the Contract. The Claimant relies, for this purpose, on Section 36C(1) of the Companies Act 1985 ("Section 36C"), which 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."

12. The Defendants raise a number of defences to the claim. They advance only one of those defences for the purpose of the application; namely, that, on the assumption that Section 36C otherwise applied to the Contract (which they accept or can be taken to accept for the purpose of the application), there was an "agreement to the contrary" for the purpose of Section 36C. They argue that, properly construed, principally clSection 24.1 and 24.2 of the Contract, and in particular the words in cl.24.1 "the benefit of this Contract is personal to the Buyer", constitute a contrary agreement. (They pray in aid the further Contractual provisions I have identified above). In the result, as I summarise below, they contend, on the application, that the claim is bound to fail because it is predicated on Section 36C, which does not apply because of what they say is a contrary agreement, and so the claim should be summarily dismissed.
13. I should add, at this point, that the Third Party took no part in the application. I understand that a default judgment for damages to be assessed has been obtained against him by the Defendants.

The genesis of Section 36C

14. To better understand the Defendants' contentions I have to say something about the genesis of Section 36C.
15. Section 36C had its origins ultimately in Art.7 of the First Council Directive of the Council of the European Communities (68/151/EEC) ("Art.7") by which directive it was recited that "the protection of third parties must be ensured by provisions which restrict to the greatest possible extent the grounds on which obligations entered into in the name of the company are not valid". Art.7 provided:

"If, before a company being formed has acquired legal personality, action has been carried out in its name and the company does not assume the obligations arising from such action, the persons who acted shall, without limit, be jointly and severally liable therefor, unless otherwise agreed."

16. On the UK's entry into the EEC, effect was given to Art.7 by Section 9(2) of the European Communities Act 1972 ("the 1972 Act"), which was substantively to the same effect as Section 36C. Section 9(2) of the 1972 Act was re-enacted as Section 36(4) of the Companies Act 1985 and, by Section 130 of the Companies Act 1989, that sub-section was replaced by Section 36C. Section 36C was made to apply to foreign companies by the Foreign Companies (Execution of Documents) Regulations 1994.

Phonogram Ltd. v. Lane [1982] 1 QB 938

17. In Phonogram the Court of Appeal had to consider the effect of Section 9(2) of the 1972 Act.
18. In that case a collateral contract was entered into purportedly with a company which had not then been incorporated under which an advance by Phonogram to support an intended new pop group was repayable by the company if a recording contract was not entered into within one month. The collateral contract was signed "for and on behalf of" the company by Mr. Lane. Both parties knew, at the time of the collateral contract, that the company had not been incorporated. At first instance Phillips J. held Mr. Lane responsible for the return of the advance and the Court of Appeal dismissed Mr. Lane's appeal.
19. Lord Denning M.R., with whom Shaw and Oliver L.J.J. agreed, said, at p.943F-944B:

"This is the first time the section has come before us. It will have much impact on the common law. I am afraid that before 1972 the common law had adopted some fine distinctions. As I understand Kelner v. Baxter (1866) LR 2 CP 174 it decided that, if a person contracted on behalf of a company which was nonexistent, he himself would be liable on the contract. Just as, if a man signs a contract for and on behalf "of his horses," he is personally liable. But, since that case was decided, a number of distinctions have been introduced by Hollman v. Pullin (1884) Cab. & Ell. 254; Newborne v. Sensolid (Great Britain) Ltd. [1954] 1 Q.B. 45 and Black v. Smallwood (1965) 117 C.L.R. 52 in the High Court of Australia. Those three cases seem to suggest that there is a distinction to be drawn according to the way in which an agent signs a contract. If he signs it as "agent for 'X' company" - or "for and on behalf of 'X' company" - and there is no such body as "X" company, then he himself can be sued upon it. On the other hand, if he signs it as "X" company per pro himself the managing director, then the position may be different: because he is not contracting personally as an agent. It is the company which is contracting.

That distinction was disliked by Windeyer J. in Black v. Smallwood. It has been criticised by Professor Treitel in The Law of Contract, 5th ed. (1979), p.559. In my opinion, the distinction has been obliterated by section 9(2) of the European Communities Act 1972. We now have the clear words, "Where a contract purports to be made by a company, or by a person as agent for a company, at a time when the company has not been formed..." That applies whatever formula is adopted. The person who purports to contract for the company is personally liable."

20. The Master of the Rolls continued, at p.944B-E:

"There is one further point on section 9(2) which I must mention. In the latest edition of Cheshire and Fifoot's Law of Contract, 9th ed. (1976), after reciting section 9(2), it says, at p.462:

"How far it in fact does so will depend on the meaning given to the words 'subject to any agreement to the contrary' since it could be argued that words showing that A signs as agent express an agreement that he is not to be personally liable. If this were correct Newborne v. Sensolid (Great Britain) Ltd. [1954] 1 QB 45 would still be decided the same way. But it may be suspected that the courts will try to give more content to the subsection."

We certainly will. The words "subject to any agreement to the contrary" mean - as Shaw L.J. suggested in the course of the argument - "unless otherwise agreed." If there was an express agreement that the man who was signing was not to be liable, the section would not apply. But, unless there is a clear exclusion of personal liability, section 9(2) should be given its full effect. It means that in all cases such as the present, where a person purports to contract on behalf of a company not yet formed, then however he expresses his signature he himself is personally liable on the contract."

21. Oliver L.J. said this, at p.946A-C:

"...any such subtle distinctions which might have been raised are rendered now irrelevant by section 9(2) of the European Communities Act 1972 in a case where a contract is either with a company or with the agent of a company. It has been suggested that an agreement to the contrary may still be inferred by the fact that the contract was signed by a person acting as agent so as to exclude the section. That I am bound to say seems to me to be wholly unarguable when the section itself in terms provides "Where a contract purports to be made ... by a person as agent for a company," and to interpret it in the way suggested would defeat the whole purpose of the section."

Braymist Ltd. v. The Wise Finance Co. Ltd. [2002] Ch 273

22. In Braymist there was an agreement, dated 28th January 1993, between purportedly (1) Braymist Ltd. and (2) The Wise Finance Co. Ltd., for Wise to buy land adjoining the A380 in Devon. At the time of the agreement William Sturges & Co., solicitors, had purported to act for Braymist, although, in fact, Braymist had not been incorporated. The solicitors had signed the agreement as agents and solicitors for Braymist. At first instance Etherton J held that the solicitors had been capable of rescinding and had rescinded the agreement, that the contractual deposit was forfeit to the solicitors and that Wise was liable to pay the solicitors damages for breach of contract. That decision as upheld by the Court of Appeal.
23. The majority (Latham and Judge L.J.J.) held that the effect of Section 36C was to allow the "agent" to whom the sub-section applied to enjoy the benefit of the contract (subject to any common law rules, not applicable in the present application, which might give rise to a different result).
24. Latham L.J. said this, at [73]:

"It is common ground that section 36C of the Companies Act 1985, and its predecessor, was enacted in order to give effect to article 7 of the First Council Directive (68/151/EEC) already referred to by Arden L.J. in her judgment, and in particular to reverse the decision of this court in Newborne v. Sensolid (Great Britain) Ltd. [1954] 1 QB 45. It also put to rest any doubts that there might have been as to the liability of a person who purports to act as an agent in such a situation..."

25. Judge L.J. explained to effect of Section 36C thus, at [79]:

"...The purported contract, otherwise a nullity, "has effect", not as one made with the unformed company but as one made with the purported agent, who is "personally liable" to [the other party] on the contract."

26. Judge L.J., who ultimately favoured what was described as "the broad view", continued, at [80]:

"My difficulty is created by the concluding words of the subsection, "and he is personally liable on the contract accordingly". If the contract "has effect" as one made with the purported agent of the company, B [the "agent"] would become personally liable on the contract without the concluding words of the subsection. The contract "has effect". The language of section 36C(1) reflects the broad thrust of the First Council Directive (68/151/EEC), first implemented domestically in its predecessor, section 9(2) of the European Communities Act 1972 . The recital twice refers to "protecting" third parties...

If the broad view is correct, the statute has gone much further than the creation of new protection for A [the other contracting party]. Plainly, as a matter of statutory construction, section 36C(1) may have extended beyond simple compliance with the Directive. Nevertheless the concluding words add something: if surplusage, they would not be there. Their presence provides a clear indication that the highlight of section 36C(1) is protection for A."

27. It may be that Latham L.J. took the view that the concluding words were surplusage but, for the purpose of the application, nothing turns on this difference of view in my opinion.
28. Judge L.J. continued, at [83]:

"In principle, the identity of the other party to a contract often matters, sometimes very much indeed. A might happily contract with C, but not with either B, or even D, even if identical terms were available. He may have a complete antipathy to being beholden to or under any legal obligation personally to B, or indeed anyone other than C. There are, of course, well understood exceptions to the principle that an individual is free to decide whether and with whom to enter or not to enter, a contract (for example, the legislation in relation to discrimination on the grounds of sex or race). But I may illustrate the difficulties by considering a contract of employment, underlining that so far as unformed companies are concerned, there are no limits to the contracts to which section 36C(1) applies: it applies to them all. A may welcome the opportunity of employment, as, say, an office manager for a particular company, with which he is contracting. If the company is unformed, is he bound to accept similar employment on identical contractual terms, with B? Or become liable to B for breach of contract if he refuses or fails to do so? Surely not. The answer however is not that the contract is automatically deprived of the "effect" which section 36C(1) has created, but rather, that just as section 36C(1) is not apt to exclude considerations such as illegality, or misrepresentation, or other incidents of a contract, it is equally inappropriate to exclude relief on the basis of the identity of the contracting party, if relief would be available on ordinary contractual principles."

29. It seems to me that Latham L.J. (at [75]) held a similar view.
30. Although Arden L.J. disagreed that the effect of Section 36C was to allow the "agent" to whom it applied to take the benefit of the contract, her Ladyship did say, at [57], [59]:

"...Parliament has deliberately provided that the contract should take effect as a contract with the agent and the court must give effect to that wording...

...the contract imposed by statute is to take effect not with...the agent as if he were the principal and had been the principal all along but on the footing that "the person purporting to act for the company or as agent for it" is the contracting party."

31. The Court of Appeal had to consider a related issue, summarised as follows by Arden L.J.:

"11. The third issue before the judge (and the second on this appeal) was whether the execution of the agreement by Sturges "as solicitors and agents" for Braymist satisfied section 2(1) and (3) of the Law of Property (Miscellaneous Provisions) Act 1989. Section 2 provides:

"(1) A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each...

"(3) The document incorporating the terms or, where contracts are exchanged, one of the documents incorporating them (but not necessarily the same one) must be signed by and on behalf of each party to the contract."

12. The judge held that it did not matter that Sturges signed as agents for Braymist. The effect of section 36C(1) was that they were deemed to be vendors even though they had signed as agents. Otherwise, section 36C(1) would be useless in the case of all contracts for the sale or other disposition of land. The statutory purpose of section 2 of the 1989 Act would not be served by that construction. Accordingly, the provisions of section 2(1) and (3) of the 1989 Act were satisfied."

32. On this second issue on the appeal Arden L.J. (with whom Judge L.J. agreed) said, at [67]:

"Section 2 of the 1989 Act refers to signature "by or on behalf" of a party. In my judgment, having concluded that Sturges is a party to the agreement by virtue of section 36C and that there is no common law bar to enforcement of the contract by Sturges, in my judgment Sturges is properly to be treated as having signed the agreement on its own behalf for the purposes of section 2. I reach this construction in order to make both sections work properly together. Otherwise, Sturges having shown that it is entitled to enforce the contract under section 36C would be unable to do so because of over-literal construction of section 2 of the 1989 Act. I agree with the judge that this cannot be the policy of section 2. My interpretation does no violence to the language: Sturges did sign the contract. Because it renders sections 36C and section 2 more efficacious, in my view the judge's consideration is to be preferred."

33. At first instance (reported at [2002] BCC 514), Etherton J. had said of this issue:

"30. Mr Blackett-Ord submits that the Agreement is invalid and unenforceable under those statutory provisions since the Agreement nowhere stated that William Sturges were the vendors nor did they sign as vendors. Although they signed the Agreement, they did so expressly as agents for Braymist and not as principal. In my judgment, Section 2 of the 1989 Act is not to be so narrowly construed. William Sturges did, in fact, sign the Agreement, and the effect of Section 36C(1) of the 1985 Act is that they are deemed to be the vendors, even though they signed as agents. If Mr Blackett-Ord's argument is correct, it would make the provisions of Section 36C(1) entirely useless in the case of all contracts for the sale or other disposition of land. In relation to all those contracts, it would deprive parties to pre-incorporation contracts of the protection intended to be given effect by the Directive. Nor is the purpose of sub-sections 2(1) and (3) of the 1989 Act served by such a remarkable result. The purpose of sub-sections 2(1) and (3) of the 1989 Act was broadly similar to that of Section 40 of the Law of Property Act 1925, namely to prevent reliance upon or enforcement of oral or informal contracts for the sale of land. The Agreement, however, is a comprehensive written contract signed by the statutory deemed vendors.

31. Construing the 1989 Act against the background of Section 36C(1), and giving sub-sections 2(1) and (3) a purposive construction for this purpose, I consider that the provisions of sub-sections 2(1) and (3) of the 1989 Act are to be regarded as satisfied in the present case."

The basis of the application

34. The basis of the application is summarised succinctly in para.31 of Mr. Ayliffe's skeleton argument:

"...the Contract makes clear that no one other than [the company] is to acquire any benefit under it. This is contrary to Section 36C because...s.36C operates not only to make the agent liable but also to give him the benefit of the Contract. Having excluded the possibility of anyone other than [the company] having the benefit of it, the clauses of the Contract referred to above must be regarded as a contrary agreement ousting Section 36C."

35. In fact the Defendants' argument is made in a number of stages:

i) Braymist is authority for the proposition that the effect of Section 36C, when the sub-section fully operates, is to permit the "agent" to take the benefit of a contract and to compel him to take the burden of the contract. Mr. Ayliffe described this effect as a statutory novation (as the Revenue had done in Hepburn v. H.M.R.C. [2013] UKFTT 445 (TC));

ii) It is possible to exclude this effect of Section 36C, when it might otherwise occur, by agreement;

iii) Any agreement, if it effectively excludes any part of this effect of Section 36C, excludes it entirely;

iv) In this case, on the proper construction of, in particular, cls.24.1 and 24.2 of the Contract, the Contract excluded part of this effect of Section 36C (by preventing the Defendants enjoying the benefit of the Contract), so there was an agreement to entirely exclude it which is a contrary agreement.

36. At this point I should record that the Defendants were prepared to go somewhat further in the fourth stage of their argument. In a footnote in his skeleton argument Mr. Ayliffe said (and he repeated in his oral submissions):

"If necessary, D would...argue that, by precluding any transmission of benefit to another party, the clauses relied upon also have the effect of precluding the transmission of burden to another party. Properly construed, the clauses were stipulating that the Contract (both benefit and burden) was to be with [the company] alone."

37. Mr. Jourdan submitted that, properly construed, in particular cls.24.1 and 24.2 of the Contract do not amount to a contrary agreement. He had said this in his skeleton argument:

"...neither clauses 24.1 and 24.2, nor the fact that the benefit of the pre-emption right conferred by clause 26 cannot be assigned to the Buyer...constitute an agreement that the Defendant is not to be personally liable on the Contract in the event that [the company] is not incorporated at the date of the Contract...

In summary...only an express, clear, provision in a contract that B [the "agent"] is not to be liable will constitute an "agreement to the contrary". There was no such provision here."

Discussion

38. There are two preliminary points with which I ought to deal.
39. In argument I canvassed with Mr. Ayliffe the possibility that he could not pray in aid the words "the benefit of this Contract is personal to the Buyer" and, in particular, that those words could not be read as an agreement that "the benefit of this Contract is personal to [the company]". I wondered if, instead, properly construed, they should be read as "the benefit of this Contract is personal to the buyer" whomever s/he or it is.
40. I think that Mr. Ayliffe was correct when he suggested that the approach I canvassed was wrong. It does not seem to me that, in the case of a written contract, the contrary agreement contemplated by Section 36C has to appear in the written contract. Although, if there is an express contrary agreement it is likely, in practice, to appear in the written contract, that does not seem to me to be a requirement of Section 36C. On reflection I do not see why the court cannot look outside the four corners of a written contract to see if, in fact, the "agent" and the other contracting party have reached a contrary agreement.
41. It follows therefore that the words "the benefit of this Contract is personal to the Buyer" may have been capable of serving two purposes and should be so understood. First, they were capable of serving a contractual purpose; for example, to restrict the ability of the company or, indeed, the buyer whomever s/he or it was, to assign the benefit of the contract. Secondly, they may be capable of amounting, in a free-standing way, to a contrary agreement for the purpose of Section 36C.
42. I am also prepared to accept, most favourably for the Defendants, that cl.24.1 should be read in two parts as Mr. Ayliffe contended; so that: "the benefit of this Contract...is not capable of being assigned by the Buyer other than being novated to an Associated Party" is only one consequence of the agreement that "the benefit of this Contract is personal to the Buyer". I confess that I have real reservations that that is the correct construction of the clause; particularly when it appears in a two clause part of the Contract, headed "No Assignment", in which, by way of a separate clause, cl.24.2, further restrictions on third party involvement are addressed. I see real force in the submission that cl.24.1 was intended only to impose restrictions on assignments of the benefit of the Contract.
43. The question then that I must answer is whether the words "the benefit of this Contract is personal to [the company]", properly construed, amount to a contrary agreement for the purpose of Section 36C.
44. Mr. Ayliffe properly focused on these words. I think that he was right to do so. If he cannot succeed on the application by reference to these words then the other provisions on which he relies, which are more limited or peripheral in their effect, cannot assist him.
45. Although the application was presented as an exercise of contractual construction and, in particular, one which required me to construe the words I have identified, I believe that there is a prior question; namely, properly construed what are the requirements for a contrary agreement for the purpose of Section 36C?
46. In answering this question, it is necessary always to have in mind what is the effect of Section 36C if the sub-section applies and there is no contrary agreement. In these circumstances the contract "...has effect...as one made with the person purporting to act...as agent for..." the company. I shall call this "the Section 36C Effect".
47. In argument the parties presented, as an answer to this question, in effect two possibilities.
48. One possibility is that there is a contrary agreement when there exists a contractual provision which, if given its widest interpretation, is inconsistent with a consequence which flows (or the consequences which flow) from the Section 36C Effect.
49. The words "the benefit of this Contract is personal to [the company]" are 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 this possibility, those words would, or at least could, amount to a contrary agreement.
50. This was the construction of Section 36C contended for by the Defendants it seems to me.
51. A second possibility is that there is only a contrary agreement if it is established that, by the relevant words properly construed, objectively the parties intended that the contract would not take effect as one made with the "agent". Put another way, there is only a contrary agreement, in this possibility, if there is found to be an agreement between the parties by which they intended to exclude the Section 36C Effect.
52. I have come to the conclusion that this second possibility is the correct construction of Section 36C for the following reasons:

i) Section 36C, read alone, requires that the contrary agreement negatives the stated effect of the sub-section which is that the contract "has effect...as one made with the person purporting to act for the company or as agent for it". Section 36C, read alone, does not say that it is enough that there is an agreement which is inconsistent with one of the consequences (such as that the "agent" would benefit from the contract) which would occur if the contract was one made with the "agent";

ii) A primary purpose of the sub-section is to give effect to Art.7 and so one of the sub-section's primary purposes is to protect the other contracting party (in this case, the Claimant). That purpose is less likely to be achieved if, when parties do not have in mind Section 36C and/or believe that the company in question is incorporated, by a side-wind the Section 36C Effect is excluded because there is a contractual provision which, if given its widest interpretation, would be inconsistent with a consequence of the "agent" being a contracting party. A contrary agreement has to be a clear agreement. It is hardly a clear agreement if it is enough for the "agent" to point to a contractual provision which is apparently inconsistent with one of the consequences of the Section 36C Effect where that contractual provision was agreed when no-one had turned their minds to Section 36C or the possibility that the company in question had not been incorporated;

iii) Although this may be a different way of articulating my second reason, it was clearly in the mind of the court in Phonogram and Braymist that Section 36C (and its predecessors) swept away the fine common law distinctions which had previously applied, leaving it very much the general rule that an "agent" is a party to a pre-incorporation contract and making it unusual or, indeed, exceptional that an "agent" is not. The second possible construction of Section 36C is more consistent with that general approach, in my view, than the first possible construction.

53. There may be further support for my favoured construction of Section 36C, although this was not canvassed in argument and is not a basis for my conclusion on the point.
54. Chitty on Contracts (31st ed); para.19-054 explains:

"The benefit of a contract is only assignable in:

"...cases where it can make no difference to the person on whom the obligation lies to which of two persons he is to discharge it."

It is to be noted that the question whether an assignment makes any difference to the debtor must be decided by the court on objective grounds, having regard to the nature of the contract and of the subject-matter of the rights assigned..."

55. Further, it is my understanding that, at common law, the benefit of an employment contract cannot be assigned from one employer to another (see, for example, Nokes v. Doncaster Amalgamated Collieries Ltd. [1940] AC 1014, 1026).
56. In the case of an employment contract, at common law at least, if full force is given to its terms, their effect would be that a third party could not obtain the benefit of the employee's employment. It may be said that, in effect, the benefit of the employee's employment is personal to the named employer. That would represent a state of affairs which would be inconsistent with one of the consequences of the Section 36C Effect; namely, that, where Section 36C otherwise applied, the "agent" would be deemed to be the employer. It will be recalled that, in Braymist, Judge L.J. rejected the proposition that the "agent" would become the employer by the operation of Section 36C but, in doing so, Judge L.J. prayed in aid the common law rules. He would not have needed to do so if an employment contract itself always amounted to a contrary agreement. It will be recalled that Judge L.J. said: "...the contract is [not] automatically deprived of the "effect" which section 36C(1) has created...". Yet, it seems to me, an employment contract would amount to a contrary agreement on the first possible construction of Section 36C. It would not on the second.
57. I note too in passing that there is some academic support for a restrictive approach to what is a contrary agreement.
58. The authors of Gower & Davies' Principles of Modern Company Law (9th ed) say, of Section 51 of the Companies Act 2006 (which is the successor to Section 36C), at p.122:

"The aim of this provision, in line with that of the First Company Law Directive, is to increase security of transactions for third parties by avoiding the consequences of the contract with the company being a nullity. This protection is provided by giving the third party an enforceable contractual obligation...against the promoter unless the third party explicitly agrees to forgo that protection..."

59. In the last edition of the book written by Prof. Gower himself, the 5th edition, a more robust view was expressed at pp.307-8:

"...Phonogram...also established that "subject to any agreement to the contrary" means an express agreement and not one that can be inferred. Such an "agreement" could presumably be either (a) a term in the contract itself expressly negating any liability on the part of the promoter [footnote 73] or providing that the promoter's liability would cease if the company, when formed, entered into a contract in similar terms or (b) by a subsequent agreement releasing the promoter from liability."

60. Footnote 73 read as follows:

"That, however, ought to be effective only if the other party knew that the company did not exist. If he thought it had been formed he could reasonably assume that it was no more than an express statement of the legal position of an agent who acts for a disclosed principal."

61. As I have indicated, the question I have to consider therefore is whether, on the construction of Section 36C which I favour, the words "the benefit of this Contract is personal to [the company]", properly construed, amount to a contrary agreement for the purpose of Section 36C?
62. Having regard to all the evidence before me, I am not satisfied that those words amount to a contrary agreement for the purpose of Section 36C.
63. I accept that the words in question, if they operated to their fullest extent, would have the effect of preventing (or at least restricting) a third party stepping into the company's shoes and, for example, taking a transfer of the property as an assignee of the benefit of the Contract. I accept too that this would be inconsistent with one of the consequences of the Section 36C Effect. Following Braymist, the Defendants would be entitled to a transfer of the property (if the Section 36 Effect occurred). However, I cannot derive, from the words in question, an intention on the part of the Claimant and the Defendants to exclude the Section 36C Effect. Bearing in mind that neither the Claimant nor the Defendants apparently knew that the company had not been incorporated, I cannot accept, on the evidence before me, that they had in mind Section 36C when they agreed the words in question. The words are more apt to and were, in fact, in my view, intended to prevent (or restrict) a third party, say the Defendants, becoming in effect third party purchasers by way of assignment or sub-sale in circumstances where the original contracting party was the company. As the court has explained in Braymist, assignment or sub-sale are not the Section 36C Effect. The Section 36C Effect is that the Defendants became the original contracting party. Put simply, I am not satisfied on the evidence before me, on the proper construction of the words, that the parties ever had Section 36C in mind, that they ever had in mind that the Defendants might be a contracting party, or that they ever intended to exclude the Section 36C Effect.
64. To be clear, for the same reasons I am not satisfied that any of the other provisions of the Contract relied on by the Defendants give rise to a contrary agreement for the purpose of Section 36C.
65. It follows therefore that the application must be dismissed.