Company or Unincorporated Firm? The Distinction Can Be Vitally Important!

A limited company has a legal personality all of its own, but an unincorporated firm does not. As a High Court ruling in respect of a domestic building dispute showed, that distinction can in some cases be a crucial one.

A couple who were to move into a new home entered into a contract with a building firm, which was not a limited company, to perform renovation works. The project did not run smoothly and they subsequently claimed that they had been excluded from the site on bogus grounds, that they had been charged grossly inflated prices for works done and that the builders had eventually withdrawn from the site, leaving defective and incomplete works behind them.

After the couple submitted the dispute to an adjudicator, the firm was directed to pay them about £80,000. In seeking to enforce the award, the couple took action against three members of the same family who traded in the name of the firm. One of them put in no formal defence to the claim, but the other two argued that the adjudication was defective in that those proceedings had been brought against the firm, rather than themselves as individuals.

In ruling on the matter, the Court noted that the family members had chosen to contract with the couple in the name of their firm. The firm had had a solicitor acting for it throughout the adjudication, but had at no point during those proceedings indicated that they might be technically defective. In those circumstances, the two family members' defence to the couple's claim was wholly without merit.

In reality, the family members and the firm were one and the same, and the former were merely scrabbling around for some reason why the adjudicator's award should not be enforced. The Court entered a default judgment against the family member who had not defended the claim. The couple were also granted summary judgment against the other two in the full amount of the award.