Sunday 11 January 2015

A Case of Mistaken Identity?

A Case of Mistaken Identity?



The claimant, Liberty Mercian, entered into a contract with Cuddy Civil Engineering Ltd (“CCEL”) for a development project at Bath House, Cardigan. When a dispute arose, Liberty Mercian sought a declaration that, in actuality, Cuddy Demolition and Demolishing Ltd (“CDDL”) was the contracting party.




In both the initial exchanges and in the tender documents, the contractor was named as “Cuddy Group”, a reference to the trading name of CDDL. In January 2010, Liberty Mercian sent “Cuddy Group” a letter of intent and CDDL subsequently commenced work on site.


In early February, the solicitor acting on behalf of Liberty Mercian, or his secretary, carried out a Companies’ House website search in relation to CCEL and accessed the Cuddy Group website. Mr Mundy then wrote to Mr Philip Baker of Lawrence Graham LLP, solicitors for Sainsbury’s who were to operate the supermarket on the site, regarding the warranty to be entered into between the contractor, Liberty Mercian and Sainsbury’s. He enclosed a copy of a draft warranty which named the contractor as “Cuddy Group” and said: “I believe the Contractor will be [CCEL] – not Cuddy Group.” Mr Baker amended the warranty to state that the contractor was CCEL. This amended warranty was subsequently executed as a deed.


Mr Baker also recommended Liberty Mercian that the contractor, as stated in the draft contract documents, should be listed as CCEL, not Cuddy Group. The contract was thus amended and executed by both parties, naming Liberty Mercian and CCEL as the parties to it.


The issue with naming CCEL as the contracting party was that CCEL was a dormant company. Consequently, when problems arose under the contract, Liberty Mercian argued that CCEL was a misnomer for CDDL, or alternatively that a mistake had been made in the identity of the contracting party.


Was CCEL a misnomer for CDDL?


 Liberty Mercian argued that, by taking into account the admissible background evidence, it was clear that, as a matter of construction, the parties intended the contractor to be CDDL and that reference to CCEL in the contractual documentation amount to a “misnomer”. The defendants contended that where the contract names a party, CCEL, which is a proper existing party, the name of the party cannot be changed by using extrinsic evidence to construe one party as another party, citing Shogun Finance Ltd v Hudson [2003] UKHL 62 in support of this. However, Ramsey J distinguished that case from the present facts.


Liberty Mercian relied primarily upon Nittan v Solent Steel [1981] 1 Lloyd’s Rep 633 in which a dormant company, Sargrove Electronic Controls Ltd, was named in an endorsement to a product liability insurance policy. The Court of Appeal held that what was intended was Sargrove Automation, the relevant trading name of Solent Steel Fabrications Ltd. Lord Denning stated:


“It seems to me – reading the correspondence, as I have – that it must have been plain to the parties and to everybody that the words ‘Sargrove Electronic Controls Ltd’ were used just as a name to describe the concern called Sargrove Automation, which was a division of Solent Steel Fabrications Ltd. … The words ‘Sargrove Electronics Ltd’ were just a misnomer: and the correct description was well-known to all to be ‘Sargrove Automation’ …“


In coming to this decision, the Court of Appeal looked at extrinsic evidence in the form of correspondence between the parties to prove that it was indeed “well-known to all” that the words ‘Sargrove Electronic Controls Ltd’ was a reference to ‘Sargrove Automation’.


In Dumford Trading AG v OAO Atlantrybflot [2005] 1 Lloyd’s Law Rep 289 Rix LJ in the Court of Appeal said:


“It seems to me that the doctrine of misnomer is of uncertain width. It is clearly a doctrine of construction, but it is not plain to what extent it permits reference to extrinsic evidence. Davies v Elsby Brothers would suggest that where there are two possible entities, the rule is a strict one… If, however, there is only one entity, then it is possible to use extrinsic evidence to identify a misdescribed party. It is arguable that Nittan v Solent Steel falls into the latter category.”


The next case referred to was Gastronome (UK) Ltd v Anglo Dutch Meats (UK) Ltd [2006] EWCA Civ 1233. The Court of Appeal referred to the decision in Egan v Static Control Components (Europe) Ltd [2004] EWCA Civ 392 in which the court applied Investors’ Compensation Scheme Ltd v West Bromwich Building Society (& ors) [1998] 1 WLR 896. Tuckey LJ stated:


“The question which the court posed for itself in that case was: what meaning would the guarantee convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties at the time it was given? I think that this was the right question to ask in our case.” He further noted: “[I]f it is to be considered as a case of misnomer the extrinsic evidence could be used to identify the claimant as the misdescribed party. None of this involves re-writing the contract; it is simply the result of the enquiry as to what the parties must have intended.”


Ramsey LJ noted that cases dealing with misnomer must be considered in the light of the House of Lords decision in Chartbrook v Persimmon Homes [2009] UKHL 38. First, there must be a clear mistake on the face of the instrument when the document is read by reference to its background or context. Second, it must be clear what correction ought to be made to cure the mistake.


Looking at the first requirement, Ramsey LJ stated that, when looked at objectively and taking into account matters known to both parties, there was nothing to show that the request for the contract to be in the name of CCEL was a mistake. It was made clear in Chartbrook that there must be a strong case to persuade the court that a mistake has been made in naming the contracting party. Although CCEL was a dormant company, it was a real and existing party and all that was needed was for it to commence trading. Furthermore, a warranty naming CCEL had already been signed by the parties.


Accordingly, Ramsey LJ held that Liberty Mercian could not rely on the principle of misnomer to change the identity of the contracting party from CCEL to CDDL.


Was there a common mistake in respect of the contracting party?


With the principle of misnomer ruled out, the court went on to consider rectification on the basis of mutual mistake.


Ramsey LJ referred to Chartbrook as the starting point for the relevant principles, citing Peter Gibson LJ in Swainland:


“The party seeking rectification must show that: (1) the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified; (2) there was an outward expression of accord; (2) the intention continued at the time of the execution of the instrument sought to be rectified; (4) by mistake, the instrument did not reflect that common intention.”


Liberty Mercian contended that there was a common continuing intention up until the contract was entered into that the contracting party would be Cuddy Group, that is CDDL. This would require the change from “Cuddy Group” to CCEL to be interpreted objectively as a mistake. However, Ramsey LJ held that when viewed objectively, a hypothetical reasonable observer, aware of the facts known to both parties, would conclude that there had been no mistake. The correspondence between the parties advising that the contractor should be listed as CCEL and the amendment of the contract would be enough for the hypothetical reasonable observer to conclude that it was the intention of the parties that the contracting party should change from “Cuddy Group” to CCEL.


Objectively there was therefore no mistake as the prior common intention to enter into a contract with Cuddy Group had been changed.


Was there a unilateral mistake in respect of the contracting party?


In the alternative, Liberty Mercian submitted that the defendants had knowledge of Liberty Mercian’s subjective mistake as to the identity of the contract such that there was a unilateral mistake.


Ramsey LJ laid out the test for unilateral mistake as set out in Daventry District Council v Daventry & District Housing Ltd [2011] EWCA Civ 1153 which cited Buckley LJ in Thomas Bates & Son Ltd v Wyndham’s Lingerie Ltd [1981] 1 WLR 505:


“For this doctrine… to apply I think it must be shown: first, that one party A erroneously believed that the document sought to be rectified contained a particular term or provision which, mistakenly, it did contain; secondly, that the other party B was aware of the omission or the inclusion and that it was due to a mistake on the part of A; thirdly, that B has omitted to draw the mistake to the notice of A. And I think there must be a fourth element involved, namely, that the mistake must be one calculated to benefit B.”


In Daventry it was further stated that the necessary state of mind of the defendant must be “(1) actual knowledge; (2) wilfully shutting one’s eyes to the obvious; and (3) wilfully and recklessly failing to make such inquiries as an honest and reasonable person would make.”


Although Liberty Mercian erroneously believed that CCEL was the same party as, and could be substituted for, Cuddy Group, Ramsey LJ was unable to find sufficient evidence that the defendants either had actual knowledge or wilfully shut their eyes to the obvious or wilfully and recklessly failed to make such inquiries as an honest and reasonable person would make.