The Case of Albion Housing Society Limited v Active Air Conditioning Limited is a reminder to parties to a contract to ensure that they accurately reflect the designation of the party with whom they are contracting. This article considers the details of the case and the implications of its decision.
In 2009, Albion Housing Society Limited (Albion) entered into a contract with Rok Building Limited (Rok) for the construction of 23 houses and flats at Beauly. Rok engaged a subcontractor for the installation of heat pumps and associated works. A subcontractor Collateral Warranty was entered into in favour of Albion. The issue that arose in this case was the identification of the company that granted the Collateral Warranty.
The Collateral Warranty purported to be between Albion and a company called Active Sustainable Energy Solutions Limited (with registered number SC 323476). The Pursuer raised proceedings in the Court of Session seeking rectification of the Collateral Warranty under the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 (the 1985 Act) by substituting the Defender’s name (Active Air Conditioning Limited) as the grantor of the Warranty.
Active Air Conditioning Limited (AACL) was a limited company trading under the name Active Sustainable Energy Systems. Its managing director was Mr Ian Nicoll. AACL had a subsidiary whose name was Active Sustainable Energy Systems Limited with company number SC323476 (“ASESL”). At the time that the Collateral Warranty was entered into, ASESL was dormant and had never traded. ASESL had the same registered office as AACL and Mr Nicoll was also a director. ASESL has subsequently been placed into liquidation and there was no company in the group with the name Active Sustainable Energy Solutions Limited.
Judgment of the Court of Session
The Court held that, on the basis of the available documentation, at the time when the Collateral Warranty was granted it was the parties’ common intention that the Collateral Warranty would be granted by the party which was subject to the sub-contract with Rok, i.e. AACL.
In order to fall within the scope of section 8(1)(a) of the 1985 Act it is necessary for the parties to the document in respect of which rectification is sought (the Collateral Warranty) to be the same as the parties to the alleged prior agreement. The pursuer argued that it was obvious that the common intention was that the Collateral Warranty would be granted by the party who had contracted to carry out the sub-contract works.
The defender argued that references had been made to ASESL in correspondence and its company number had been used in the Collateral Warranty, therefore the parties to the sub-contract were Rok and ASESL.
There was limited material available for the Court to examine. The Court focused on the question as to what entity was a party along with Rok to the subcontract. There was no sub-contract produced. However, the Pursuer set out, with vouching, circumstances which strongly indicated AACL as the party to the sub-contract. That vouching included the provision of a completed health and safety questionnaire in the name of AACL, interim applications for payment in the name of AACL and the carrying of insurance by AACL and not ASESL, which was a requirement under the sub-contract.
In addition ASESL was a dormant company at the material time and had never traded. On the other hand AACL had traded at the material time and it traded under the name Active Sustainable Energy Systems.
Having concluded that the subcontract was in the name of AACL, it was a short step for the Court to conclude that the Collateral Warranty must also have been granted by AACL. In particular, nothing was produced that indicated that the Collateral Warranty would be granted by any other party other than the true subcontractor.
Whilst the Pursuer in this instance was successful in seeking rectification of the Collateral Warranty, it acts as a reminder to parties to ensure that they have scrutinised the details of the contracting party. In particular, in the instance of a Collateral Warranty, parties should ensure that the entities are consistent with that stated in any subcontract and that their full designation is accurately completed.