High Court confirms that general principles of contractual construction apply to misnomer principle
In Liberty Mercian Limited v (1) Cuddy Civil Engineering Limited (2) Cuddy Demolition and Dismantling Limited1 the High Court considered the ‘misnomer’ principle and the circumstances in which a contract, which on its express terms is made with a one company, can be construed as having instead been made with a different company.
The claimant, Liberty Mercian Limited (Liberty) entered into a standard form building contract with a contractor for the construction of a retail plateau. The contract named the first defendant, Cuddy Civil Engineering Limited (CCEL), as the contractor. Following problems with the project, Liberty commenced proceedings against CCEL to obtain an outstanding parent company guarantee, performance bond and warranties.
In fact, CCEL was a dormant company which had never traded. Having realised this, Liberty subsequently contended that a mistake had been made in naming CCEL in the contract and amended its claim to allege that the contract was in fact made with the second defendant, Cuddy Demolition and Dismantling Limited (CDDL), which was an active trading company. The two companies had, in large part, common directors and shareholders.
The early correspondence between the parties, the tender documents and the pre-contract letter of intent for the project referred to the contractor as Cuddy Group, which the parties agreed was the trading name of CDDL. After the letter of intent had been issued, CDDL commenced work on site at the start of February 2010.
It appeared from the evidence that shortly after the work had commenced Liberty’s solicitors, who were instructed to prepare the suite of formal contracts, carried out a search on the Companies House website for the corporate entity underlying the trading name Cuddy Group. They identified CCEL, rather than CDDL. Liberty’s solicitors subsequently requested the insertion of the name CCEL in place of Cuddy Group in the draft of the main building contract, which was executed on 6 July 2010, and the ancillary contacts. All invoices prior to execution of the contract and the one subsequent invoice were issued by CDDL.
The defendants’ evidence, which the judge accepted, was that they were content for CCEL to be the contracting party on the basis that that was what Liberty had requested. At the time the request was made they were anxious for the contract to be executed and did not give the identity of the contracting party much thought.
Liberty’s principal claim was that, by looking at the admissible background evidence relating to the formation of the contract, it was plain that, as a matter of construction, the parties intended CDDL to be the party to the contract and the references to CCEL in the contract therefore amounted to a misnomer and in fact meant CDDL.
Liberty also claimed, in the alternative, that the contract should be rectified to name CDDL in place of CCEL and, finally, that CDDL was in any event estopped from denying that it was a party to the contract.
The misnomer principle
The misnomer principle is part of the wider doctrine of contractual construction ie the process by which a court determines the meaning and legal effect of a contract. Generally, a contract should be construed objectively, by considering the language used to ascertain what a reasonable person in the position of the parties, and with all the background knowledge which would reasonably have been available to the parties, would have understood the parties to the contract to have meant by its terms.
In the present case, the defendants sought to rely on the decision of Dumford Trading v OAO Atlantrybflot2 as limiting the admissibility of extrinsic evidence, such as the background knowledge that would reasonably have been available to the parties, in the application of the misnomer principle. In that case, the Court of Appeal found that where there were two or more real companies which were candidates to be the true contracting party, for example where one company was expressly named in the contract but it was contended that the name should be read as referring to a different company, then the misnomer principle would only apply if it was clear from “the four corners of the document”, and without recourse to extrinsic evidence, that the parties must have intended to refer to the second company. Only if the express terms did not name a real company and there was only one candidate to be the true contracting party was extrinsic evidence admissible to identify that party.
The judge doubted whether, in the light of the decision of the House of Lords in the Chartbrook v Persimmon Homes3, the rule in Dumford continued to apply to the application of the misnomer principle in contracts.
In Chartbrook, the House of Lords reviewed the principles applicable to the correction of mistakes in contracts through the rules of construction and found that two conditions must to be satisfied:
- First, there needed to be a clear mistake in the contract when read with regard to its background or context; and
- Second, it needed to be clear what correction ought to be made in order to cure the mistake.
The judge considered that these principles would apply to the application of the misnomer principle, which was simply the correction of particular type of contractual mistake. Accordingly, it was not clear that Chartbrook left any scope for the Dumford restriction on extrinsic evidence in misnomer cases involving more than one candidate entity.
In seeking to distinguish Dumford, the judge noted that the decision relied primarily on two earlier decisions relating to the misdescription of parties in writs (now known as Claim Forms), rather than bilateral contracts. The judge suggested that different issues may arise in the construction of a name in a unilateral document such as a writ, where the relevant question was what a reasonable person in receipt of the document would take the name to mean, compared with in a contract, which has generally to be construed by reference to the background known to both parties when they entered into it. The judge also noted that in Dumford, the Court of Appeal was determining the issue in the context of an application for summary judgment, rather than at trial.
The judge found that there was “nothing to show that on an objective analysis of the position taking into account matters known to both parties that the request for the Contract to be in the name of CCEL was a mistake.” Applying the first limb of the test from Chartbrook, there was therefore no basis on which the naming of CCEL in the contract could be characterised as a “clear mistake”. Although CCEL was dormant, it remained in existence and “all that was needed was for it to commence trading.” There had been no discussion between the parties as to the reason for the insertion of CCEL in the draft contract in place of Cuddy Group and, from the defendants’ perspective, Liberty had made an unequivocal request to make that change. There was therefore not, as would be required, “a strong case to persuade the court that something has gone wrong with the language”.
Liberty’s alternative claim for rectification and that CDDL was estopped from denying that it was a party to the contract also failed. Accordingly, the judge went on to determine the remaining issues on the basis that CCEL was and remained the party to the contract.
Although binding on the High Court, the judge evidently felt that the decision of the Court of Appeal in Dumford could not be reconciled with the general principles of contractual construction, and in particular their application to correct mistakes, as set out by the House of Lords in Chartbrook. It is doubtful whether the Dumford restriction on the admissibility of extrinsic evidence in misnomer cases involving multiple candidate parties remains good law.
This case also serves as a reminder that principles of construction can be invoked to remedy mistakes in contracts only where it is the language, and nothing more that has gone wrong. Where, as in this case, the mistake has occurred at an earlier stage in the drafting process, which then flows through into the language of the contract, a party cannot invoke principles of construction to save itself from its mistake.