INTRODUCTIONThe promoter.[6] On the other hand, actually,

INTRODUCTIONThe legal capacity of a company arises at the time of
its registration and ends at the times of the completion of its liquidation. The
Companies Act 2006 requires a company to register its memorandum of association
through the registrar together with an application for registration and other
required documents.1
Generally, after receiving a certificate of incorporation, as an evidence of
registration a company can start its activities in accordance to statutory
purposes. In spite of this, sometimes companies need to make contracts before
their incorporation, in order to secure a lease contract or buy property with
the intention that a company will further work effectively.2 However,
according to Companies Act 2006 a company that has not become incorporated does
not yet have legal personality and consequently cannot enter to any agreements.3 In
other words, a company cannot exercise the functions of an incorporation
company.4 Such
agreements are called pre-incorporation contracts. Griffiths in his work
pointed that the main factors of origin of pre-incorporation contracts are
‘essentially artificial nature of company’s existence and personality’.5 A
person, who is purporting to act on behalf or as an agent, at the time while
company has not been formed is called a promoter.6 On
the other hand, actually, it is impossible to act on behalf of non-existent
company, therefore agents and promoters are personally liable on these
contracts accordingly.7
However, contract is an agreement between at least two parties, where all of
them should have a capacity to enter such relations. As one would expect the legal position of
pre-incorporation contracts in the UK and Kazakhstan has similarities, even so
there is diverse approach as a matter of different legislations. The legal
system of the Republic of Kazakhstan belongs to Roman-German legal family, in
other words continental.  As an opposite
to Anglo-Saxon common law, where a judicial precedent is the primary source of
the law, continental legal system has hierarchically codified laws. Therefore,
this research will seek to compare and contrast such type of contracts on the
example of two different jurisdictions. It will focus in particular on some
issues of pre-incorporation contracts with a view to examine some differences
and similarities in two diverse approaches.         1.                 
THE UK COMMON LAW APPROACH The first mention of the
pre-incorporation contracts were in the article 7 of the First Company Law
Directive 68/151/EEC. 8 At
that time, they were not yet called pre-incorporation contracts, article 7 reads
as follows:’If , before a company being
formed has acquired legal personality, action has been carried out in its name
and the company does not assume the obligations arising from such action, the
persons who acted shall, without limit, be jointly and severally liable
therefor, unless otherwise agreed.’9 Then this provision was also
included in Directive 2009/101/EC as article 8, and kept the intention to
protect the interests of third parties.10 Moreover,
section 9(2) of the European Communities Act 1972 was a source for the present
section 51(1) of the Company Act 2006:11’A contract that purports to
be made by or on behalf of a company at a time when the company has not been
formed has effect, subject to any agreement to the contrary, as one made with
the person purporting to act for the company or as agent for it, and he is
personally liable on the contract accordingly’.12Therefore, according to the
statutory provision in section 51(1) of the Company Act 2006 it could be
clearly understood that a pre-incorporation contract is an agreement between
one contracting party and the person, who pretend to be a company’s agent and
acts on behalf of it in order to make a contract at a time while a representing
company does not yet exists.13 Thomas
Reith has pointed out that the UK common law has never accepted
pre-incorporation associations as an association ‘sui generis’,14
which means ‘unique’,15
it only exists as partnership16. It
can be erroneously assumed that such contract has signs of tripartite
agreement, however the main point of pre-incorporation contracts is that
promoters and agents represent interests of company, that have not become
incorporated yet.17 It
may be concluded, therefore, that a non-existent company could not be a party
in any agreement, which means that pre-incorporation contracts could be only bilateral.In the UK common law, a
valid contract could be signed between two liable parties, with rights and
obligations. Actually, enforceable contract can be concluded with the person,
who acts on behalf of company, too. However, the main point is an existence of
agent’s authority to take an action in a favor of the company. Otherwise, the contract
that was established by the promoter or an agent, who did not have right to such
actions, will become invalid.18Actually, the Company Act
2006 has not got any statutory provision about the role of the promoter and who
can be a company’s promoter. Generally, any person who purports to act on
behalf and deals with all the affairs of the company before its incorporation
can be called promoter.  However, case
law have some meanings and the courts has made a big difference in the concept
of the term.19
According to Thomas Reith the Lord Bowen J in Whaley Bridge Calico Printing Co
v Green (1979) proposed the best definition: ‘The term promoter is a term
not of law, but of business, usefully summing up in a single word a number of
business operations familiar to the commercial world by which a company is
generally brought into existence’.20Therefore, it could be
concluded that the main role of the company’s promoter is to deal with all
preliminary actions, which precede the time of company’s incorporation.
Pre-incorporation contracts are one of these types of actions. Mayson, French
& Ryan propose two potential situations: ‘(a) that it was intended that the contract
should be between the contractor and the person who was acting in anticipation
of incorporating the company, in which case the contract would exist and the
person who apparently acted as an agent for non-existent principal would be
liable on the contract; and  (b) that it was intended that the contract
should be between the contractor and the company in which case, the company
being non-existent, there was no contract at all and no one was liable on it’.21However, John McMullen
asserted that an existence of the promoter’s personal liability depends on the
variety of facts and can be different in any other case.22 Kelner v Baxter was the
first case where the court of England held that person who is purporting to act
on behalf of the non-existent company is wholly and personal liable and bound
by such contract.  In Kelner v Baxter23
promoter made an agreement and acted in anticipation of company’s
incorporation, that would further provide a invalid contract between this
parties. However, court held that the company could not have any rights and
obligations due to the fact that this promoter had no duty to sign any
agreement on behalf of a company, which had no principal existing at that time.
Moreover, company that have been just incorporated is a completely new legal
entity and cannot be bound by actions that was held before. This case confirmed
that company can not ratify the contract, that was concluded at the time, when
company had not got a legal personality. Furthermore, Kelner v Baxter case laid
a groundwork for the provision in section 51(1) of the Company Act 2006 that
‘the person purporting to act for the company or as agent for it personally
liable on the contract’.24 Newborne v Sensolid25
case is the second type of the potential situation that could occur with
pre-incorporation contracts. In this case Mr Newborne signed a contractual
document behind the company’s signature and it means that the party of this
agreement is company, not Mr Newborne. Then it was found that a company
registered after the time of agreement and defendant refused to follow
obligation. The court held, that contract is void, because first of all,
non-existent company can not be a party in any contracts and secondly, Mr
Newborn just confirm the company’s signature. As a result, contract that was
signed by the non-existent company is invalid and can not make any obligations.
The distinction between Kelner v Baxter and Newborne v Sensolid cases is that
in first case promoter purported to act as company’s representative and signed
the contract, while in the second case Mr Newborne have never been a future
director of the company and had not got an aim to make an agreement as an
agent.26 Consequently,
it is clear that the contract was made with non-existent company and it means
that Mr Newborne has no authority to sign it, which proves that there was no
contract.27
In Black v Smallwood28 case
Black entered into contract with company in order to sale a land.  The directors of this company signed the
contract on its behalf. However, then it was found that company was not
incorporated at the time when contract was concluded. However, Black wanted to
contract with the company not directors. For this reason, directors also could
not have any authority as agents, because non-existent company can not appoint
any agents before incorporation. The court in Black v Smallwood followed
Newborn v Sensolid case decision because defendants signed the contractual
documents as directors and did not know that a company have not been
incorporated yet and Black had intention to conclude a contract with company
not directors. ——————————————————————————————————————— Section 51(1) of the Company Act 2006 also gives an opportunity to
person, who acts as company’s promoter avoid a personal liability in a case if
he have agreement to the contrary. In other words, it is a way to protect
himself in order not to be bounded by the contract. Mr Lane in Phonogram Ltd v
Lane29
signed the contracts as agent of the company that was not incorporated and was
personally bound by the contract. The court held that it is insufficient for
the agreement to the contrary. Also, in Royal Mail Estates Ltd v Maple Teesdale
and Borzou Chaharsough Shirazi30
case promoters included a clause that supposed to be an agreement to the
contrary. It is reads as follows: ‘the benefit of the contract is personal to
the buyer’. However, the court held that it is not enough to release the
solicitors from the personal liability.31Moreover, another way for promoter to release from personal liability is
to create a new contract between incorporated company and the second party in
the same terms as the previous contract.32  According to the UK legislation the
pre-incorporation contracts could not be ratified and enforced due to the fact
that at the time when the contract was signed company was not incorporated.
Besides, even after incorporation these contracts would have no effect. Novation
obligates original parties to sign the same contract with the same rights and
obligations after incorporation of the company and should be done clearly.33
For instance, in Re Northumberland Avenue Hotel Co34
case company after its incorporation wrongly believed that contract had an
effect and have done actions according to this. However, it is not enough to
follow pre-incorporation contract after formation of the company because new
contract is crucial point in the process of novation.  One should note here that Section 51 of the Company Act 2006 also has
limitations. Nowadays, there are some agencies who provide selling ready
companies ‘off the shelf’. Promoters, who want to start their business as
faster as possible can buy one from such agency.  First of all, when ‘promoters make contracts before buying a company off
the shelf’35
they should be sure that they act on behalf of this company and then Section 51
does not apply. In Oshkosh B’Gosh Inc v Dan Marbel Inc & Craze36 a
firm changed its name, however in this case it makes no difference and it was
held that due to the fact that the company was incorporated before the contract
section 51 would not suit to this situation and contract could be enforceable.
In contrast, in Cross v Aurora Group Ltd37 Mr
Cross first made a contract purporting to act on behalf of ‘Cross Property
Management Ltd a company currently being formed’. However, the point is that
after that he bought company off the shelf and changed its name to ‘Cross
Properties Management Ltd’, which means that this contract is valid, because at
the beginning Mr Cross contracted on behalf of the company that is not
incorporated yet and is in process of formation. Consequently, company that he
bought off the shelf was already incorporated. Also, Section 51 does not apply
in the case, where company was contracted with incorrect name as in Badger Hill
Properties Ltd v Cottrell.38   2.                 
KAZAKHSTAN CIVIL LAW APPROACH The legislation of the UK is based on judicial precedent, while in
Kazakhstan legal norms are established by legislature, i.e. Parliament.
Actually, the basic concepts and principles are very similar, given the fact
that many things has been borrowed from civil code of Russia. Due to the fact
that Kazakhstan is a completely new state, unlike the UK, laws are still being
formed. The main weakness of the law study in Kazakhstan is that there are not
so many scientists who make research in contract law. However, at the moment
situation becoming better.First of all, it should be noticed that in the legislation of the
Republic of Kazakhstan there is not any direct provision that controls
pre-incorporation contracts. Generally, the Civil code of Kazakhstan does not
specify the exact form of the contract and consequently contract may be
concluded in any form in the framework of the legislation.39
However, as well as in the UK legislation according to Kazakhstan Civil code
any contract could be concluded only with company, which has legal capacity. According
to article 1 of the law ‘On state registration of legal entities and
registration of branches and representative offices’ organization, which is not
in the National Register of Business Identification Numbers could not be a
party in any contract.40
This applies both to the case when parties contract before company’s
incorporation, and if the company already has been excluded from the register.
The pre-incorporation contract is void on the basis of articles 157, 158 of the
Civil code regardless of whether it was performed in fact, or not, because this
action does not confirm the legal status of the company.41 Restorative obligations in such invalid contract could arise only
between those parties, who actually signed the contract, namely between the
person, who acted on behalf of the non-existent company and its counterparty.
However, it should be noticed that the right to claim for recognition of the
contract void has only counterparty, but not the person, who purported to act
on behalf of the non-existent company. By signing the agreement on behalf of
the company, which was not incorporated at that time, the promoter knew that
this legal entity is not registered. It is clear that promoter acted in a bad
faith in order to obtain a contract and to avoid personal liability, which is
unacceptable by virtue of the article 158(3) of the Civil code.42
In such case, a claim from promoter about the invalidity of the contract would
have no legal value.In fact, the Kazakhstan legislation have not got a term ‘promoter’ as
the UK law. Instead of that the Civil Code provide representatives, as a people
who legally introduce someone’s interest according to power of attorney. As a result, the
rights and obligations in contract where representative signed on behalf of the
representing company arise directly from the company. However, as well as in
English law representative (promoter) could not act on behalf of the company in
the pre-incorporation contract due to the fact, that this company is
non-existed, in other words has no legal capacity. There was a case where a person signed a contract on behalf of the company
‘Forus Group’, but such company did not exist and in register, there was a
company that was registered with the same name. However, this company’s name
was registered in Russian language as ‘?????-?????’, which means
that it is completely another company. In addition, real company did not mentioned in the
contract and did not participate on any court sessions. In the same way, the
agreement does not have any guidance regarding the authority of a person, who
signed a contract on behalf of the company. The court held, the person on his
behalf concluded this agreement and therefore, he is personally bound by this
contract, specifying a non-existent company had no legal value.43The article 390 of the Civil code defines the preliminary contract as
the contract under which the parties undertake to conclude the contract in the
future including terms stipulated in the preliminary contract. The weakness of
this provision is that there is given no explanation of what kind of parties
can conclude such contract.44
Theoretically, promoter can make an agreement with another party in order to
secure business relations in advance. Critics have also argued that according
to this provision a representative of the company, which is in a forming
process could sign the contract on its behalf with the condition that the
company will make an agreement after its incorporation.45In accordance with article 372 of the Civil Code the obligation shall be
terminated by agreement of the parties – novation.46
The UK law also has such process, however in fact a new contract has to include
same terms. In contrast, in Kazakhstan Civil Code novation should be done only by
agreement of the parties on replacement of the initial obligations by another
between the same parties and providing subject or method.47
However, the point is that if the first agreement is invalid, the obligation
arising from the novation is recognized as void. The party, which contracted with non-existent company could seek to preserve
the invalid contract. In accordance with article 165 of the Civil code when
promoter is lack of authority to act on behalf of the company or excess of such
power the contract considered concluded in behalf of and in the interest of the
person, who signed it.48 However,
this article is valid only if further the company, in whose interests promoter
acted will accept this contract. The approval of the terms of the contract can
be evidenced by various circumstances, for example, the actual execution of
contract, provided with relevant actions. Besides, the actual receipt of money
by the beneficiary, with awareness of the company about the payment details and
a failure to reject the contract by another party will be regarded by the court
as evidence of approval of the contract and the occurrence of the relevant
legal relations between parties. In fact, approval of the contract can be
understood as any actions from the content of which it is clear that
represented party agree with its terms. Otherwise, in the absence of evidences
of approval of contract by the represented company, the rights and obligations
on it arises from the person, who signed the contract.   According to the article 8(6) of the Civil Code no one has the right to
derive an advantage from their own unlawful or bad faith conduct and therefore,
such illegal interest is not subject to judicial protection.49
However, the injured party can instead of recognizing the contract as invalid
claim execution on it with reference to the fact that the relevant legal
relations arose between them and the person who signed the contract on behalf
of the non-existent company.  Conclusion.It is clear that according English law person
purporting to act on behalf of the non-existent company can not sign any contract,
because principal should exist in order to appoint person as agent or promoter.
In the same way, as if the contract is signed on behalf of the company that was
not incorporated at the time when contract concluded. The legal position of
pre-incorporation contracts in Kazakhstan is very similar to the UK approach,
however has differences too. As well as in the UK, companies in Kazakhstan can
execute functions of the legal entity only after its incorporation and
registration in Register.

1
Companies Act 2006, s.9

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2
Boyle & Birds’ Company Law, 9th edition, 2014, p. 108

3
Companies Act 2006, s. 1

4
Companies Act 2006, s.16

5
A Griffiths, “Agents without principals: pre-incorporation contracts and the
section 36C of the Companies Act 1985” (1993) 13 LS 241

6
Companies act 2006, s. 51

7
Companies act 2006, s. 51

8
First Company Law Directive 68/151/EEC, 9 March 1968, Art. 7

9
First Company Law Directive 68/151/EEC, 9 March 1968, Art. 7

10
Mayson, French & Ryan on Company Law 34 edition 2017-2018, p.630

11
Mayson, French & Ryan on Company Law 34 edition 2017-2018, p.630

12
Companies Act  2006, s.51(1)

13
Companies Act 2006, s.51(1)

14
Thomas Reith, ‘The effect of pre-incorporation contracts in German and English
company law’

15
Oxford Dictionary 2017, Oxford Press

16
Thomas Reith, ‘The effect of pre-incorporation contracts in German and English
company law’

17
Mayson, French & Ryan on Company Law 34 edition 2017-2018, p.631

18
Andrew Griffiths, Agents without Principals: Pre-Incorporation Contracts and
Section 36C of the Companies Act 1985, 13 Legal Stud. 241, 253 (1993)

19
Thomas Reith, ‘The effect of pre-incorporation contracts in German and English
company law’ 5 ???.

20
Whaley Bridge Calico Printing Co v Green, Queen’s Bench Division, 1879, 5
Q.B.D. 109

21
Mayson, French & Ryan on Company Law 34 edition 2017-2018, p.631

22
Preliminary Contracts by Promoters, John McMullen, The Cambridge Law Journal, Vol.
41, No. 1 (Apr., 1982), pp. 47-50, p.48

23
Kelner v Baxter 1866 LR 2 CP 174

24
The Company Act 2006, s. 51(1)

25 Newborn v Sensolid  1954 1 QB
45

26
Boyle & Birds’ Company Law, 9th edition, 2014, p. 110

27
Mayson, French & Ryan on Company Law 34 edition 2017-2018, p.629

28 Black v Swallwood, 2015 EWHC 1890 (Ch).

29 Phonogram Ltd v Lane, 1981 3 WLR 746

30 Royal Mail Estates Ltd v Maple Teesdale and Borzou Chaharsough
Shirazi, 2015 EWHC 1890 (Ch)

31
Royal Mail Estates Ltd v Maple Teesdale and Borzou Chaharsough Shirazi, 2015
EWHC 1890 (Ch)

32
Mayson, French and Ryan on Company Law 34 ed., p. 631

33
Bagot Pneumatic Tyre Co v Clipper Pneumatic Tyre Co 1902 1 Ch 146

34
1886, 33 ChD 16

35  Mayson, French and Ryan on Company Law 34
ed., p. 630

36 1989,
BLCL 507

37 1988, 4
NZCLC 64, 909

38 1991, BCLC 805

39
Civil Code of the Republic of Kazakhstan, article 378

40
The law ‘On state registration of legal entities and registration of branches
and representative offices’ of the Republic of Kazakstan, article 1

41
Civil Code of the Republic of Kazakhstan, article 157,158

42 Civil Code of the Republic
of Kazakhstan, article 158(3)

43 Court of appeal, 2016, 4319-17-00-2/10722

44 Atabayev A., ‘Practical
questions of the conclusion of preliminary contracts’, 2007,????? ??? 4, 2?, ?????? ??

45 Butenko A., ‘preliminary
contracts’, ‘vestnik’, 1997, n.7.p91

46 The civil code, art 372

47 ‘novation in the Kazakhstan
civil law’, tagazhaeva Aigul, 2016, 5p, 4p, adilet

48 ??. 165

49 The civil code, art. 8(6)

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