Date 23 July 2010
Before entering any contract it is essential to know who you are entering into that contract with. This may seem like common sense or to some second nature; but it is surprising just how many disputes we see where the client is uncertain about who they have contracted with.
The reality is that it is all too easy to take the information given to you by your customer at face value, without carrying out even the most basic of checks. You want the business that a new customer provides and certainly do not want to upset them by asking difficult questions.
If you want to protect your position in the event of non payment or a dispute, it is vital to carry out some basic checks so that you know exactly who it is that you are dealing with. The first question to ask is what is the legal status of your customer? For example, is it a limited company, a partnership, a sole trader/individual? It is important to have this information at the outset, because it will be required if you need to enforce any of their obligations under the contract, in particular payment.
Once you know the legal structure, there is certain key information that can be taken to further protect your position.
Companies
If your customer is a company, make a note of its company number. This will remain the same, even if the company changes its name and will provide certainty as to who you are dealing with. In one case that I was involved in recently, two group companies essentially "swapped" names. Without the company number, it would have been almost impossible to know which company to pursue. It is also sensible to take a note of the registered office of the company. This can be established free of charge on the Companies House website. Finally, for extra security, take a note of the names and addresses of the directors of the company. This can also be established at Companies House by paying a small fee.
Partnerships
If you are dealing with a partnership, find out the names of all of the individual partners. These are most commonly found on the organisations website. In most circumstances the partners will be jointly and severally liable for the debts and obligations of the partnership. Although it may not be practicable in every case, where possible try to obtain the personal addresses of each of the partners.
Individuals
If you are entering a contract with a sole trader, they will often try to deal with you under a trading name, for example 'Joe Blogs' trading as 'Joe's Autos'. It is in these circumstances that it is most important to know the name of the individual that you are dealing with. If you enter a contract with only a trading name it could prove very difficult, if not impossible, to find out who you are dealing with when things go wrong.
It is also worthwhile finding out the home address of the individual, as this will make it far more straightforward to enforce their obligations.
Credit Checks
There are a plethora of companies which offer credit reports on your potential customers. However, choose carefully as some have much more reliable and up to date data than others. The cheapest supplier may not always be the best. If you use a credit report service make sure you understand the data, and make sure you stick to the limits suggested by the report. If you are advised to offer a credit limit of £10,000 that customer should never owe you more than that and if they end up owing you £100,000 before insolvency hits you cannot say that you weren’t warned.
Guarantees
If you are not happy with the credit status of a company, partnership or individual, or they do not have enough trading history for you to make an informed decision about them, it is perfectly acceptable to ask for a guarantor to ensure that the obligations under the contract (and payment in particular!) are guaranteed. The guarantee could be given by a director, a parent company or another individual.
Location
It is not always obvious from a company’s name whether they are based in England & Wales or further afield. For example, companies based in Gibraltar, Australia and some other Commonwealth countries also abbreviate private companies as “Ltd”. Therefore, it is always worthwhile checking on the Companies House website to ensure that the company you are dealing with is registered in England & Wales. If it is not, you know at the outset that it may be harder to enforce any obligations and you can take appropriate steps to protect your position. Such steps might include demanding proforma payment or an upfront deposit, providing some security over any assets that are in jurisdiction or nominating an address for service.
It is also important to consider what law may apply to any contract with a company based outside of England & Wales, and it is sensible to have a clause that specifies that deals with the choice of law and jurisdiction.
Authority?
You also need to consider the authority of the individual you are dealing with. Specifically if your customer is a limited company, it is sensible to take instructions from a director, and for a small charge you can perform checks to see if they really hold the position that they say they do. If this is not possible, you should try to deal with another senior employee or manager. This will strengthen your position should there be a dispute and the company states that the person who you dealt with did not have authority to bind the company.
Agency?
The company or an individual that you are face to face with may not be the legal body that you are dealing with. For example, they may be an agent entering a contract on behalf of their principal. The identity of that principal may not be disclosed to you, but if you suspect that you are dealing with an agent it is sensible to find out who the principle is at the outset.
If you would like more information or advice relating to a specific matter, please do not hesitate to contact Robert Griffiths on 01727 798024 or by email at robert.griffiths@salaw.com or any member of the Commercial Dispute Resolution team.
© SA LAW 2010
Every care is taken in the preparation of our articles. However, no responsibility can be accepted to any person who acts on the basis of information contained in them. You are recommended to obtain specific advice in respect of individual cases.