Tayside Contracts contracted with D Geddes (Contractors) Limited for the purchase of crushed stone for the purpose of the resurfacing of various roads. Tayside Contracts' position was that the stone was not of satisfactory quality and as a result, they incurred substantial losses when resurfacing the roads. Tayside Contracts raised an action against D Geddes in the Court of Session seeking damages in respect of these losses. D Geddes defended the action on the basis that Tayside Contracts did not have separate legal personality and were therefore legally unable to raise the action against them.
The question the court was being asked to decide was, were Tayside Contracts able to raise legal proceedings against D Geddes on the basis of the contract between the parties? Tayside Contracts is a joint committee of Dundee City Council, Angus Council and Perth and Kinross Council. The ability of Scottish councils to form such committees for certain types of joint trading dates from the Local Government (Scotland) Act 1973. Joint committees are not, however, separate companies or partnerships. Indeed, they are not one of the usual types of "bodies corporate" having a separate "legal personality" that we encounter in the UK. Indeed, the statute expressly says they are not to be a "body corporate". Nonetheless, statute makes clear that they are able to enter into contracts in their own right and the court confirmed that it therefore follows that Tayside Contracts must be able to sue and be sued on the basis of such contracts. To decide otherwise, held the court, would leave them to enter into contracts which would ultimately be legally unenforceable.
The court accordingly decided that the case raised by Tayside Contracts against D Geddes was competently raised and allowed the case to proceed to the next stage of the action.
What does this mean for you?
This case highlights the importance of knowing who you have contracted with and the correct designation of parties in a contract or court action. Consortium arrangements like Tayside Contracts are increasingly used by local authorities to provide services to local areas and the case will give Scottish councils more confidence in contractual disputes. The case does not fully answer what happens if a joint committee is sued. Lord Malcolm suggests that all three councils would have potentially been pursued in any debt recovery (and not just for the assets being used by the joint committee).
With such new types of public sector trading, it may be difficult to work out the origin of an entity, or who is behind them, on the basis of their name alone. As with any agreement, due diligence should always be undertaken prior to entering into a contract in order that you are fully aware of who the other party are and what type of entity they trade as, because you never know when such information may be needed in the case of a dispute. The issue is especially relevant where you are considering invoice finance, as you and your funder will need to know who the debt is to be payable by and any special arrangements for recovery of the debt.
This has all proved an expensive lesson for D Geddes (Contractors) Limited who seem to have been content enough with Tayside Contracts' capacity to contract when they were purchasing the stone, until Tayside Contracts communicated their dissatisfaction with the material supplied and embarked on court proceedings against them.
If you are ever in doubt as to who you may be about to enter into a contract with, require any assistance with entering into contracts or recovery as a result of breach of contract, please do not hesitate to contact us.