Do you know who you’re dealing with?

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In the last issue of Disputes Matter we reviewed a case where the Court of Appeal had to ascertain whether an individual or his company was a contracting party. The position is often further complicated, and confusion and mistakes arise, when one of the contracting parties is part of a corporate group.

In Liberty Mercian Ltd v Cuddy Civil Engineering Ltd & Anor [1] the claimant (Liberty) had negotiated with a construction business known as the Cuddy Group for the construction of a new retail plateau which would, in time, house a supermarket. When it came to drafting the relevant contract, Liberty’s solicitor undertook a Companies House search and identified one of the Cuddy Group’s companies, Cuddy Civil Engineering Limited (CCEL). The solicitor wrote to the Cuddy Group’s representatives requesting that contractual references should be changed from ‘Cuddy Group’ to ‘CCEL’. The representatives did not challenge this; references were altered accordingly, and the contract was completed between Liberty and CCEL. When problems later arose with the construction project and Liberty sought to terminate the contract, it realised that CCEL was a dormant company and the contracting party should have been another Cuddy Group company, Cuddy Demolition and Dismantling Limited (CDDL).

The High Court had to decide who was the correct contracting party and, if there had been a mistake, whether it could be corrected via the contractual construction principle of misnomer (as opposed to via the more exacting requirements of the equitable remedy of rectification).

In line with the House of Lords case of Chartbrook v Persimmon Homes [2] the court found that for a simple misnomer correction to be made:

  • on an objective analysis, but taking into account the background, context and intention of the parties, there had to be a clear mistake in the contract
  • it must be clear exactly what correction ought to be made.

Here, whilst CCEL was a dormant company, it was a real and existing entity which was capable of contracting. The high threshold set by Chartbrook, that no reasonable person could have understood the parties as wanting to contract with CCEL, was not met and Liberty so could not establish clear mistake. As such, the construction principle of misnomer could not assist Liberty to change the party with whom it had contracted. (If Liberty had been able to establish clear mistake, the doctrine would then have helped, because it was clear on the evidence that the party to be substituted should be CDDL.) With requirements for rectification being even higher still, that potential remedy was not available to Liberty either.

The case serves as a stark reminder, for businesses and legal representatives alike, that it is absolutely essential to ascertain, from the outset, the correct contracting parties. Mistakes cannot necessarily be easily or quickly corrected and the consequences, which can include being contractually bound to impecunious entities, can be devastating.

[1] [2013] EWHC 2688 (TCC)
[2] [2009] 1 A.C. 1101