Legal notes A dispute over the correct identity of the contractor carrying out enabling works should prove a boon to law students for years to come. Stuart Pemble does a spot of revision
Key points
• Parties should ensure that they enter into contract with the correct party.
• While a range of clever arguments exist if this does not happen, a recent case has shown how difficult it can be to persuade a court to rectify a contract.
At its heart, Ramsey J’s decision in Liberty Mercian v Cuddy Civil Engineering Ltd and another [2013] EWHC 2688 (TCC) is a welcome reminder of the importance of ensuring the correct party signs up to a contract. However, in order to decide the case, the judge had to consider a whole variety of legal concepts – misnomer, common mistake, mutual mistake, rectification, estoppel and specific performance. It is this breadth of legal principle, combined with the judge’s comprehensive review of the relevant case law, which make the judgment worthy of more detailed analysis.
The Cuddy Group
Liberty Mercian (Liberty) had agreed to develop a new store for Sainsbury’s and that the “Cuddy Group” would carry out enabling works at the site. On 9 January 2010, Liberty sent a letter of intent – addressed to the Cuddy Group – instructing it to start work in accordance with an amended NEC3 (option A) form of contract at a price of £4.2m. The contract was subsequently dated on 6 July 2010.
Between the issuing of the letter of intent and the signing of the contract, the solicitors acting for Liberty and Sainsbury’s (which was being provided with a collateral warranty) had discussed the correct identity of the contractor. Confusion was caused because Liberty’s solicitor had found two companies with the Cuddy name registered at Companies House – Cuddy Civil Engineering Ltd (CCEL) and Cuddy Demolition and Dismantling Ltd (CDDL). Liberty’s solicitor had not noticed that CCEL was dormant and, when he asked for CCEL to be the named party to the contract, Sainsbury’s and the Cuddy Group agreed. This was despite the fact that all invoices were received from, and payments made to, CDDL, the company within the group that was actively trading and which actually carried out the work.
By December 2011, Liberty’s project manager was complaining of defects and, on 5 January 2012, purported to terminate the contract. It was only then that Liberty realised that it had entered into contract with a dormant company. The range of issues covered in the judgment shows the legal ingenuity it then adopted to get around that fact.
Ramsey J’s initial decision was that, on the facts leading up to the contract being signed, the parties had expressly agreed that CCEL (and not CDDL) was the correct party.
Misnomer
Liberty’s first creative suggestion was that CCEL being named in the contract was simply a misnomer for CDDL. After a comprehensive review of the judicial precedents, the judge held (having concluded that he was bound by the decision of the House of Lords in Chartbrook v Persimmon Homes Ltd [2009] AC 1101) that the correct test for assessing misnomer had two components: (i) is there a clear mistake in the contract when it is read with regard to its background or content?; and (ii) is it clear what correction ought to be made to cure the mistake?
The judge found against Liberty on the first limb. There was no such mistake, Liberty had asked for the contract to be in CCEL’s name, and the Cuddy Group had agreed. Although the judge did acknowledge that the second limb would have been satisfied since the necessary correction – a change of name to CDDL – was obvious. The judge was unwilling to attach any specific importance to the fact that CCEL was dormant because “it was a real and existing party and all that was needed was for it to commence trading”.
The judge also considered an alternative possible test for misnomer ?(as set out by the Court of Appeal in Dumford Trading AG v OAO Atlantrybflot [2005] 1 Lloyds Rep 289) for cases where there could be only one possible entity entering into the contract. The judge was unsure whether Dumford remained good law following Chartbrook but, even if it did, it was of no help to Liberty since this case involved two possible entities – CCEL and CDDL.
Mistake
Liberty raised an argument for mutual mistake centred on an assertion that both parties intended the contact to be with the party doing the work – CDDL. However, Ramsey J stressed that the test for mutual mistake had four distinct elements to be satisfied: (1) a common continuing intention; (2) an outward expression of agreement; (3) that intention continued at the time the contract was signed; and (4) as a result of the mistake, the contract did not reflect that intention. While the judge accepted that the initial intention had been to contract with CDDL, he held that everyone agreed to change the contracting party to CCEL. There was no continuing intention, and no mutual mistake.
As an alternative, Liberty reasoned that it had made a unilateral mistake. It needed to show that the Cuddy Group had “actual knowledge… [of the mistake]… or wilfully shut their eyes to the obvious or wilfully and recklessly failed to make enquiries which an honest and reasonable person would make”.
Once again, Liberty failed. The judge accepted that the Cuddy Group just wanted to ensure continuing payment. A director gave evidence that, at the time, he thought he would start CCEL trading or would continue with CDDL acting on behalf of CCEL. Crucially, the judge felt that evidence to be honest and did not “consider that their conduct moved into an area which could be described as ‘sharp practice’ or categorised as dishonest”.
The other arguments
In the light of the judge’s findings on misnomer and mistake, most of the rest of Liberty’s case was dismissed relatively easily. There was no mistake to rectify; nor were there any grounds sufficient to establish an estoppel. CDDL was not estopped from denying that it was a party because there was no common subjective intention that it should be.
Nevertheless, there was one small victory (by way of specific performance) for Liberty. The judge held that CCEL’s parent company did have to provide a bond and some collateral warranties. These may well give Liberty contractual recourse against a trading company with assets. However, and whatever the long-term benefit of those documents, the suspicion remains that it would have preferred to enter into a contract with the correct company in the first place.
Stuart Pemble is a partner at ?Mills & Reeve LLP
