Will the Court Correct a Mistake?

Following on from our recent article “Contracts: Who are you contracting with? Is it the right company? What’s in a name?”, which highlighted the perils of incorrectly naming a contracting party in the contract, this article discusses the recent case of Liberty Mercian v Cuddy Civil Engineering Ltd and whether the Courts can, and more importantly, will, provide a remedy where the wrong party has been named in a contract.

In Liberty Mercian v Cuddy Civil Engineering Ltd, the Court considered whether the Contractor named in the Contract could be substituted for the party who actually undertook and carried out the work using the principles of general contractual construction.

Background

Liberty negotiated a contract for the construction of a new retail platform for a supermarket with an entity called Cuddy Group, a trading name of Cuddy Demolition and Dismantling Ltd (“Demolition”). Tender documents and various other documents were exchanged recording Cuddy Group as the proposed contracting party. The draft Contract also referred to the Contractor as the Cuddy Group. However, aware that “Cuddy Group” was merely a trading name, Liberty conducted a quick company search on the internet and found the company name Cuddy Civil Engineering Ltd (“Engineering”). Liberty then wrote to Cuddy Group requesting that all reference in the contractual documentation to be change from Cuddy Group to Engineering. This was not opposed and the Contract was signed by Engineering. Before the Contract was signed, a letter of intent was entered into and a collateral warranty was provided in the name of Engineering. Unbeknown to Liberty, Engineering was, in fact, a dormant company.

Whilst the Contract named Engineering as the Contractor, all correspondence relating to the works came from Demolition, the insurance documents were in the name of Demolition, invoices were printed on Demolition letterhead and payments were made into a bank account held by Demolition. Ultimately, the works were carried out by Demolition.

A number of problems arose and Liberty terminated the Contract. Liberty subsequently commenced proceedings and sought a declaration from the Court that the Contractor was in fact Demolition – attempting to recover costs from Engineering, a dormant company with no limited or no assets, was presumably not an attractive option.

Liberty contended that it was clear that the parties had intended the contracting party to be Demolition and that the reference to Engineering in the Contract was a simply a mistake.

The Decision

The parties named in the Contract were Liberty and Engineering, so the question before the Court was: is the reference to Engineering a misnomer for Demolition?

A “misnomer” is a wrong or inaccurate use of a name or term which can be corrected using the principles of general contractual construction. A misnomer as to the identity of a contracting party is often a simple typographical or clerical error. The Court explained that “if, in all the circumstances of the case, and looking at the documents as a whole, [the intended contracting party] would say to himself: “of course it must mean me, but they have got my name wrong,” then there is a case of mere misnomer. If, on the other hand, he would say: “I  cannot tell from the document itself whether they mean me or not and I shall have to make inquiries,” then it seems that one is getting beyond the realm of misnomer”.

The Court has acknowledged that the doctrine of misnomer is of uncertain width and it is unclear to what extent it permits reference to extrinsic evidence in determining whether or not there has been a misnomer.

Engineering argued that where there is a written agreement which clearly and unequivocally identifies real parties, it is not possible to contradict such express provisions of the Contract by using background evidence.

In a previous decision in Dumford Trading v OAO Atlantrybflot, the Court considered that it was not permissible to take into account the factual background in determining whether a mistake as to the identity of the contracting party had been made where there were two possible entities and it was not possible to determine from the contract that it must have been intended to refer to one entity rather than the other.

However, in this case, the Court held that relevant factual background could be taken into consideration and that, in order to allow a contract to be corrected using the principle of misnomer, the following two-part test must be satisfied:

1. when the document is read by reference to its background or context, there must be a “clear mistake”; and

2. it must be clear what correction ought to be made in order to cure the mistake.

A “clear mistake”, the Court held, is where such mistake made “commercial nonsense” or where something had clearly “gone wrong with the drafting of the document”.

In applying the first strand of the two-part test, the Court considered that in order for the true identity of the contracting party to be construed as Demolition, “a strong case” is required “to persuade the court that something had gone wrong with the language in naming Engineering and not Demolition as a party to the Contract.” The reference to Engineering, on the face of the Contract and taking into account background information and context, cannot be characterised as a clear mistake. The parties had not only referred to the Contractor as Engineering in the Contract but also in the collateral warranty, and furthermore the parties had accepted a signature placed alongside a reference to Engineering.

Liberty’s explanation that the error was a typographical error was insufficient – Liberty had made a positive step to change the contracting party’s details from Cuddy Group to Engineering. The Court held that the mistake was that Liberty entered into the Contract with Engineering, a dormant company who did not carry out the works, when they intended to enter into the Contract with Demolition, trading as Cuddy Group, the company who carried out the works. On an objective analysis, there was nothing to suggest that the request for the Contract to be in the name of Engineering was a mistake. There was an unequivocal request to make that change from Cuddy Group to Engineering.

The fact that Engineering was a dormant company did not alter the Court’s position – the Court held that it was sufficient that Engineering was a real and existing company, and ultimately it could have been reinstated to a live company.

Even though the party named in the Contract was Engineering, both parties operated as if the Contractor was Demolition. However, it is important to note that the parties did not treat Demolition as if it were Engineering. The Judge noted that “in fact neither party, it seems, applied their mind seriously to the difference between the contracting party named and the party who was carrying out the work and performing the other’s contractual obligations.”

The Court held that, having regard to the background of the case and the knowledge of both parties, a clear mistake had not occurred – the parties to the Contract were Liberty and Engineering. Despite being the entity that actually carried out the Works, Demolition was simply not the Contractor named under the Contract.

Discussion

This case sheds some light on the scope of the doctrine of misnomer, providing useful guidance as to when a mistake will be remedied. It also provides a precedent for allowing factual background and circumstances leading to the mistake to be taken into account when determining whether a genuine mistake has been made. However, it is clear that the Courts will take a strict approach and only allow a mistake to be changed where there is a “clear mistake” on an objective analysis of the facts of the case.

Avoid the need for costly litigation to determine such a basic element of a contract as the identity of the parties and ensure that the entity you intend to contract with is clearly, and correctly, identified in the contract before you sign it. Take the case of Liberty Mercian v Cuddy Civil Engineering Ltd as a lesson well learnt – beware of trading names, do your research and don’t simply rely on a quick internet search to determine the identity of the other party.