Last time we delved into the importance of ensuring that you have properly identified your enterprise and that of your contracting party in all your business agreements.
This time we’ll look more closely at the special problems created by unincorporated associations and the issues surrounding the signing of contracts.
MICE industry participants, perhaps more so than any other businesses, deal with these particular animals, because often conference hosts are set up that way. Perhaps “not set up” would be a better description, because as we noted in the April edition, an unincorporated association is often little more than a group of individuals with a common goal.
This is the defining feature - the group itself is not a legal entity. So who are you contracting with when your client is an unincorporated association? The answer is…everyone - or maybe… no-one!
By now, I hope that alarm bells are ringing loudly! This is clearly unsatisfactory when the fundamental principle is remembered – “clearly identify your client!”
Let’s assume that Sarah, Percy and Bill want to host the world congress of ornithologists at a venue somewhere in Australia and you have been asked to manage it. They inform you that they do not have a company and that a lawyer friend told them they’d be crazy to be in a partnership.
Keen to get things right, you ask yourself “Who is your client?” The answer may well be that all three are your client – but here is where the problems start. Are all three liable for all of your fee or only one third of it each? Do all three have to sign the agreement? What happens if one of them purports to sign the agreement on behalf of the others? What happens if Percy decides to “fly off” as the event approaches and wants no more part of the whole thing – does he remain liable to you, and what effect does this have on the remaining two?
There are many possibilities and permutations. Where only one (say, Sarah) of many signs the agreement I have seen it argued that only that person was liable and that can be hard to debate. I have also seen it argued that Sarah must have been acting as agent for the others when she signed, so they all must contribute.
Contracting with an unincorporated association is do-able, but it’s easy to get things wrong. The absence of a single legal entity with which to contract makes life complex. You have to deal with all the questions noted above. You have to be very careful that you don’t end up with a contract with a person who vehemently denies any continuing involvement with the event or arguing that he/she never agreed or intended to be liable for the lot.
In every case where a client wants to contract with an unincorporated association I routinely suggest that for a relatively modest cost the group could form a company and that this would make for much greater ease of dealings with third parties. If you need individuals to be on the hook, you can always ask for personal guarantees. This is one tool (of many possible) for helping to ensure that you are not left unpaid by a company with no money - but that is for another article!
One other alternative solution also makes sense, though it is more appropriate from a credit risk perspective where you are dealing with an unincorporated consortium of sizeable companies that are (hopefully) not so much of a credit risk. This sometimes happens when a group of organisations wants to co-host an event. The “solution” is to ask one only of the companies to be the contracting party (lead party) and for the group to work out its own “internal” cost sharing and decision-making arrangements. You then have a contract with one party (whose approaches may be informed by the others) and are spared the hassle of having to negotiate with multiple parties.
This is a topic that causes a great deal of angst and uncertainty and it’s high time we discussed it.
For the sake of clarity, I’ll simply summarise the basic signing rules for companies:
• When a contract is in writing and is being signed by a company or other organisation it should be signed by a person who has actual authority to sign. To take companies as the most common example, it is usually a safe bet to assume that directors have authority to sign – though as noted below, there is only one guaranteed method.
• If you accept a signature from someone down (from director level) the corporate hierarchy, such as a sales manager, you are taking the risk that the person does not have the actual authority to sign and that the company may not be bound. For the contract to be binding, you’ll then need to establish that the individual had the implied authority to sign and bind the other party, perhaps a difficult argument – and the aim is of course always to avoid the need for argument!
• Generally though, companies may find it hard to argue that CEOs, general managers and chief financial officers don’t have authority to sign.
• Witnesses are not essential unless the agreement is in the form of a deed, but witnesses are desirable if there is ever any doubt about the identity of the person who signed.
• The recommended format for a company signing is as follows:
This format gives you the benefit of section 127 of the Corporations Act – which says that so long as the persons who sign are in fact the directors and/or secretary of the company, the law will guarantee that the company has validly signed. This makes it important that you get a search of the ASIC register to confirm that the persons who purport to be directors are in fact registered as such.
There are many more issues that arise, such as where a deed is being signed. Perhaps in a future article we can cover that as well…
For further details contact
Matt Crouch on (02) 8281 7800 or email mcrouch@bartier.com.au.
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