Contracting Essentials – Who is your Contract With?

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There are a few fundamental questions we ask our clients about every potential contract dispute that comes our way.

One that’s nearly at the top of the list is this: who is your contract with?

Now that might sound like a silly question to some, but in a world with sole traders, partnerships, trusts, companies, joint ventures, associations and bodies corporate – it can start to get more complicated than you think.

And while we understand that this sounds like a straightforward issue, it’s also one that catches even experienced business people off guard, and sometimes that comes with the added problem that we can’t reliably figure out who to pursue for your legal rights.

So in this article we’re going to set out some fundamental principles to help you understand who are you getting into business with. That way, at the very least, you know who to get in touch with later if something goes wrong.

An Easy Start – Sole Traders

A sole trader is just a person in business.

They don’t have a company. They don’t have a partnership. It’s just them.

They might, however, have a business name or a trading name.

So if you get a quote or a draft contract, a sole trader is going to look something like this:

  1. Simon Simple’s Silly String;
  2. Simon Simple trading as Silly String;
  3. Simon Simple.

Most quotes or contracts will usually also have an Australian Business Number (ABN) on them in this case. The best thing you can do is check that ABN to make sure the details that show up match the person you think you’re dealing with.

But here it’s pretty easy – if something goes wrong or there is a dispute, it’s with Simon Simple.

Partnerships

The best way to think of partnerships is like it’s two or more sole traders (above) who decided to go it together, rather than alone.

Otherwise the details are usually similar, but there will be more names.

Also, when you check the ABN it will probably say “partnership”.

Now in a proper partnership, all the partners are responsible for the decisions of the others. So if you have to sue someone later, you’re usually suing all of them together (even if you only ever dealt with one of them).

Companies

A basic proprietary company is probably the most common business vehicle in Australia.

Unless the last two categories, a company is technically a legal person.

That means your contract is with the company, NOT with the people who own the company or manage its affairs.

A company’s going to look something like this:

  1. Silly String Pty Ltd
  2. SSSS Pty Ltd
  3. SSSS Pty Ltd trading as Silly String

So a company, much like a sole trader, can have a trading name that is different from its actual name.

The main distinguishing feature about a company is that you should be given an Australian Company Number in addition to an Australian Business Number.

This allows you to verify the company’s details at ASIC should you choose to do so, but it also helps you know for sure who your contract is with.

Trusts

Trusts tend to be where things go wrong.

That isn’t because trusts are particularly awful or dangerous, but rather because people don’t think to ask the right questions. What those questions are and how detailed you want to get are going to depend on the value and risk of the contract in question.

For this article though we’ll stick with the fundamentals.

You’ll recognise a trust because it looks something like this:

  1. The Frank Farlow Enterprise Trust
  2. Frank Farlow atf The Farlow Family Trust
  3. FF Pty Ltd as trustee for the Farlow Trust

The number one most important rule for you to know is this: a trust is NOT a person. You cannot make a contract with a trust, you cannot sue a trust.

Where a trust is involved, you need to know who the “trustee” is. In our examples above, (1) we can’t tell, (2) is Frank Farlow and (3) is FF Pty Ltd.

The trustee is the actual person you are doing business with.

The reason this matters is because if you don’t know who the trustee is, there’s absolutely no way of finding out later unless you get lucky. There’s no register of trustees that will help you find out.

So if you’re contract is with the Smith Family Trust and you have to sue them for defective work down the track, it’s going to be an expensive up-front mission just figuring out who you had a deal with in the first place.

So, where a trust is listed make sure there is also an associated person or company that is the actual party to your contract or deal. Just the name of a trust is not good enough.

Owners Corporations

Owners Corporations are best thought of as a special type of company.

Much like companies they can own property, enter into contracts, sue people and be sued by people.

They are a separate legal “person” for those purposes.

Always Address Confusion First

So let’s say you’re in the process of signing up a new client, and in the “customer name” field they write “The Beaufort Trust trading as Huegenburg Horns”.

Here, you have:

  1. A trust; and
  2. A trading name.

Neither of these things are a legal “person” you can enter into a contract with, so if you’re going ahead then you’re doing it mostly blind.

The best bet is to address anything confusing like this by simply asking the question or running some searches to see if you can figure it out. But either way in an ideal world the contract documents will have the correct legal entities named on them.

Correct Contracting Saves Time Later

While it sounds simple enough, issues relating to identifying parties to a contract occur all too regularly. It makes any later dispute more expensive (and sometimes more difficult), and is easily avoided through a few checks and balances before you do your next deal.

If you need help with this kind of business system, don’t hesitate to reach out and we can get you sorted.

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Raea Khan Circle
Director Lawyer
Raea Khan

Raea is Managing Director and Principal Lawyer for PBl Law Group. Raea assists clients with major projects, property developments, construction and strata law.

He has worked in Western Australia and Queensland assisting with expansion projects in the energy and resource sector and now predominately advises clients in Strata and Community Association matters.

He is a member of the Australian College of Strata Lawyers where majority of his work is advising developers and owners corporations with dispute related minor and major defects, strata governance and common property litigation. He is proficient at leading negotiations and meetings.

Raea has a particular interest in the commercial aspect of any dispute and always tries to weigh up the risk, reward and benefit of legal proceedings at each different stage.

Raea enjoys all forms of competitive sport, including Crossfit and actively participates in Triathlons, representing Australia as an age group athlete. He was a member of Red Head Surf Lifesaving club.

  • Strata Law
  • Construction & Major Projects
  • Commercial and Business Law
  • Planning & Environment Law