Practical Law

I have not seen cases about inserting the wrong name in a contract for ages. They must be like London buses. None come along for ages and then two come along in quick succession. That is exactly what has recently happened. Over the summer we’ve had Henderson J’s decision in Derek Hodd Ltd v Climate Change Capital Ltd and then Ramsey J’s decision in Liberty Mercian Ltd v Cuddy Civil Engineering Ltd.

Both cases concerned the not uncommon mistake of using the wrong name from a group of companies when drafting the contract. It may appear obvious but it is clearly essential to correctly identify the parties to a contract, otherwise there will be no valid contract to enforce. These cases both raise questions about “misnomer” where there is the wrong or inaccurate use of a name or a term (misnomer allows the court to substitute the correct name for an incorrect one, but the test is not an easy one).

Taking into account relevant factual background

In Derek Hodd and Liberty Mercian, the court also grappled with the question of whether it was possible for it to take into account the factual background when deciding the question of misnomer. The problem was that Rix LJ in the Court of Appeal (in Dumford Trading AG v Oao Atlantrybflot) had previously held that it was not possible in all cases:

• Where there were two possible entities and it was not possible to tell from the four corners of the contract that it must have been intended to refer to one entity rather than the other, the court could not take into account background evidence when deciding the question; or
• Where there was only one possible entity, one could look at the background facts to identify the mis-described party.

In both cases, the court relied on the House of Lords’ decision in Chartbook v Persimmon Homes Ltd (as well as other cases and leading texts) that they could take into account the relevant background facts known to the parties at the time of entering into the contract. There were no longer any special rules as to misnomer.

Derek Hodd v Climate Change

The claimant submitted that the name of the contracting party should be corrected as a “misnomer” but Henderson J did not think that this was the right approach. A misnomer, while referring to a wrong or inaccurate use of a name or term, is where a party knows who it wishes to refer to but, by mistake, attaches the wrong name to that entity.

Henderson J said the choice of X Ltd (a dormant company) was clearly a mistake but it was not a misnomer, as it was not a mistake about the identity of a particular counterparty. Rather, the evidence showed that neither party had directed their mind to who should be the contracting party. The defendant was content to sign a document which referred four times to a non-existent group company; if anybody spotted the error, nobody said anything about it.

Therefore, looking at the matter objectively, Henderson J concluded that the “natural intention to impute to the parties” was that the contracting party was to be the chief operating company within the group, namely Y Ltd. Henderson J accepted that if it was impossible to identify a party to a contract as a matter of construction, taking into account the factual background as known to the parties, the contract had to fail for uncertainty, unless it was possible for it to be rectified.

It was clear that the choice here was more than simply a clerical error. Henderson J thought that as soon as the court had decided, as a matter of construction, that the parties intended the contracting party to be Y Ltd, there was no good reason why the error could not be corrected as a matter of construction. Henderson J said that if he was wrong in his view that he was entitled to take into account the factual background, he could rectify the contract and replace X Ltd with Y Ltd, as there was clearly “a common intention” but the mistake in the contract did not reflect the common intention.

The question is what an objective observer would have reasonably thought was the common intention of the parties. Consequently, Derek Hodd was ultimately successful in negotiating the hurdle of the “wrong name”.

Liberty Mercian v Cuddy

In summary:

• The tender was signed by the Cuddy Group.
• The letter of intent was in the name of the Cuddy Group.
• Invoices were submitted in the name of Cuddy Demolition and Dismantling Ltd (Demolition).
• Liberty was provided with Demolition’s bank details.
• Liberty made payments to Demolition.
• A collateral warranty was drawn up identifying Cuddy Civil Engineering Ltd (Engineering) as the contracting party.
• Liberty was provided with Demolition’s insurance details.
• Correspondence concerning the works was written on Demolition’s notepaper.
• The contract originally named the Cuddy Group as the contracting party.
• Liberty asked for the contract to be amended to show the name Engineering as the contracting party, not the Cuddy Group.
• The revised contract named Engineering as the contracting party.

Unbeknown to Liberty, Engineering was a dormant company.

Problems arose under the contract and Liberty issued proceedings. In those proceedings, Liberty argued that the parties intended Demolition to be the contracting party; reference to Engineering was a misnomer.

After carefully reviewing the authorities, Ramsey J held that in order to correct the mistake on the basis of construction:

• It must be clear on the face of the document that there was a mistake. Was it commercial nonsense for the party actually named to be the contracting party?
• In order to correct the mistake, it must be clear to a reasonable person what correction should be made. Is it clear what the parties really intended?

Ramsey J preferred Chartbrook over Dumford Trading and held that Liberty entered into a contract with Engineering, a dormant company, when it intended to enter into a contract with Demolition, which traded as the Cuddy Group and which carried out the work. However, on an objective basis, there was nothing to suggest that the request for the contract to be in the name of Engineering was a mistake. Engineering was a real and existing company, all that was needed was for it to start trading.

Further, on the face of the contract and having regard to the relevant factual background, the reference to Engineering could not be categorised as a mistake. One needs a strong case to persuade a court that something has gone wrong with the language in the contract in naming Engineering and not Demolition as a party to the contract. There must have been an intention which a reasonable person would have understood the parties to have had. Here, the fact that there had been no discussion regarding the change of name could indicate a mistake, but the factual background included an unequivocal request for the change to Engineering to be made. This was not a case where there was a mistake.

While it was unnecessary to go on and review the point, Ramsey J considered that if Liberty had passed the first test, it would have also got past the second test as it was clear what correction ought to have been made to correct the mistake.

Where does this leave us?

Both cases doubted the Court of Appeal’s approach in Dumford that it was not possible for the court to take into account the background facts when deciding whether to correct the name of one of the parties to the contract, when there were two or more possible entities. They did not believe it sat happily with what is considered to be the modern approach as to how a court should construe or interpret a contract.

As a result, it should now generally be accepted that, when considering whether something has genuinely gone wrong with the naming of one of the parties to a contract, it is possible to take the background facts into account. However, as in Liberty Mercian, if a positive decision or choice is taken by one party to specifically request the name of the other party to the contract, do not expect the court to come to the aid of that party.

Postscript

It’s those London buses again…

Since writing this, the Court of Appeal has handed down its judgment in Genesis Housing Association Ltd v Liberty Syndicate Management Ltd, which demonstrates the perils of incorrectly naming a party in an insurance policy. However, that is, as they say, a story for another day!