With reference to Xiao v ACT Commercial Builders Pty Ltd [2023] ACTSC 4
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, Mr Xiao had 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 (in a personal level or for the Company)
· Details of your capacity must clearly and consistently mention in the contract
If the contract executes 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 as a Deed??? What is the different, let’s ask as a comment, so, we can discuss)
Now let’s have a look how Mr. Xiao getting to a such trouble.
In the first court it was held that Mr. Xiao is personally liable for the builder. So, he appealed to the appellate court.
In the subjected contract, followings were identified and consider 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 he wrote down the company address, it was also his personal address.
· Even he wrote down the company ABN, he did not identify that number as being the ABN of the company.
· 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
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