What's in a name?

We all make mistakes. Sometimes these mistakes are easily rectified and at other times they are not. A surprisingly common mistake is to use the wrong name for a party to a contract. This is known as a misnomer. Often, the courts will be asked to correct a mistake through the rules of construction; that is, by looking at the contract in question and deciding whether it is obvious which of a number of possible meanings should be used or that in fact the parties must, for whatever reason, have used the wrong words or syntax.

This is one of those areas where various tensions come into play. What the court cannot do is to start digging into all of the negotiations between the parties to try and work out what the parties really meant. Running through a number of cases in this area is the idea that certainty of contract depends upon the bargain between the parties being defined solely by the contract itself and that the law should not call on extrinsic or background evidence to contradict that contract.

If you enter into a contract that is clear on its face and which reflects what you expected at that time, the courts are very reluctant to interfere

In Liberty Mercian Limited vs Cuddy Civil Engineering Limited and Cuddy Demolition and Dismantling Limited [2013] EWHC 2688 (TCC), the court reviewed the law in relation to misnomer. Liberty Mercian negotiated a contract with the Cuddy Group for the construction of a retail plateau for a supermarket. The solicitor for Liberty Mercian needed to find the correct name for the company trading as the Cuddy Group. The solicitor identified Cuddy Civil Engineering Limited (CCEL) and assumed that it would be the contracting party. He therefore wrote to the Cuddy Group requesting that the references in the contract to the Cuddy Group as the contracting party should be changed to CCEL. The Cuddy Group did not object to this change and the contract was signed with CCEL as the contracting party.

In fact CCEL was a dormant company and “Cuddy Group” was the trading name of the operating company, Cuddy Demolition and Dismantling Limited (CDDL).

Problems arose on the project and eventually Liberty Mercian purported to terminate the contract. It sought, among other things, a declaration that the contract was entered into by CDDL and not CCEL. The court therefore had to consider whether CCEL or CDDL was the contracting party under the contract and, second, if the contracting party was CCEL, was that a misnomer for CDDL?

The court held that CCEL rather than CDDL was the relevant contracting party and that the identity of the contractor could not, as a matter of construction of the contract, be changed from CCEL to CDDL by relying on the principle of misnomer. The court followed the decision of the House of Lords in Chartbrook Limited vs Persimmon Homes Limited [2009] UKHL 38 where it was said that in order to succeed on a claim for misnomer two conditions have to be satisfied:

• There must be a clear mistake on the face of the document. In deciding whether there is a clear mistake the court is not confined to reading the document without regard to its background or context. The exercise is part of the single task of interpretation and the background and context must always be taken into consideration.
• It must be clear what correction ought to be made in order to cure the mistake.

Earlier cases that restricted the use of background or extrinsic evidence are now probably doubtful in the light of Liberty Mercian. Applying the principles laid down in Chartbrook, the court looked at the background to the signing of the contract between Liberty Mercian and CCEL and came to the conclusion that it could not in these circumstances see how the reference to CCEL on the face of the contract could be characterised as a clear mistake. What proved fatal for Liberty Mercian was that it wrote to the Cuddy Group asking for the identity of the contracting party to be changed from Cuddy Group to CCEL. A mistake had clearly been made by way of the assumption that CCEL was the party that was carrying out the work, but that is not of itself enough to satisfy the legal threshold. There was no mistake in the context of the bargain the parties expected to enter into at the time the contract was made.

Liberty Mercian is important for practitioners because it shows that the courts will permit extrinsic or background evidence to demonstrate that something has genuinely gone wrong with the choice or naming of a party. If there is a genuine error the courts will do what they can to correct it and deal with ambiguities in the contract so that its commercial purpose can be realised. If, however, you enter into a contract that is clear on its face and which reflects what you expected at that time, the courts are very reluctant to interfere.

Simon Lewis is a partner in the Construction and Engineering team at Bond Dickinson