The names used in a contract tie the transaction to the parties named in it. So one of the most basic rules of contract drafting is to ensure that the parties are clearly and correctly identified in their contracts.
Seafood Shack Ltd v Darlow [2019] EWHC 1567 (Ch) concerned a lease of premises in Cardiff city centre for a term of 25 years. The tenant named in the lease was Seaford Shack UK Ltd, but the company that took possession of the premises and began trading from them was Seaford Shack (Cardiff) Ltd. When the company went into liquidation and its liquidators disclaimed the lease, the landlord changed the locks and found another tenant.
The parent company of the tenant, Seafood Shack Limited, protested. It claimed that the tenant had been wrongly identified in the lease and that it should have been named in the lease instead. Given that it is not readily accepted that people have made mistakes in formal documents, could the court construe, or rectify, the lease so that it named the parent company as the tenant in place of the company that had been liquidated?
When considering applications to correct mistakes by construction, the court must consider what a reasonable person having all the background knowledge which would have been available to the parties would have understood the parties to have meant: Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38. In addition, there must be a clear mistake on the face of the instrument, and the correction needed to cure it must be equally clear: East v Pantiles (Plant Hire) Ltd [1982] 2 EGLR 111.
On the facts of this case, the judge decided that it was not possible to say that a reasonable person would take the parties to have meant to name either Seafood Shack Limited or Seaford Shack (Cardiff) Ltd. A search at Companies House would have revealed that Seaford Shack UK Ltd was not registered there, but that Seafood Shack Limited and its wholly owned subsidiary, Seaford Shack (Cardiff) Ltd, were. However, that would not assist a reasonable person to understand which of the companies was meant to be the tenant. So it was not permissible to construe the lease differently by substituting one name for another.
The conditions for rectification on the ground of common mistake were set out in Swainland Builders Ltd v Freehold Properties Ltd [2002] 2 EGLR 7. As applied to the facts of this case, the parties must have had a common continuing intention as to the identity of the tenant and there must have been an outward expression of that accord. And, although the sole director and shareholder of the parent company may have intended the parent company to be the tenant, neither the landlord nor his agent knew about its existence before completion of the lease. So rectification was not available because the parties had not shared a common intention and there was no outward expression of that accord.
Consequently, when Seaford Shack (Cardiff) Ltd went into possession, it was likely that it had nothing more than a tenancy at will – which the liquidators had disclaimed. So Seafood Shack Ltd was not entitled to possession of the premises.
Allyson Colby, property law consultant
