Who’s Whose Company at Companies House? A Costly Mistaken Identity
You would think that businesses and their lawyers would double check the names of all parties intended to be bound under a commercial contract are accurate and correct. If there is an error, the risk is costly litigation – not to mention the practical implications of non-performance of the contract or late performance. Unfortunately, a business has found this out to its cost1 – with important lessons for other businesses.
What’s the background?
The claimant company entered into a contract for the construction of a new retail plateau for the future construction of a supermarket in Cardigan. A dispute arose, and a key issue was whether the contract was entered into by a construction and civil engineering contractor (the defendant) – or a similarly named, but dormant company.
In tender documents, the contractor was identified as ‘Cuddy Group’ (a trading name of Cuddy Demolition and Dismantling Limited (CDDL)) and a subsequent letter of intent was sent to Cuddy Group. CDDL subsequently commenced work on site and was paid accordingly.
However, when the claimant’s solicitors did a Companies House search for ‘Cuddy Group’ – they found Cuddy Civil Engineering Limited (which turned out to be dormant but with the same directors and shareholders as CDDL). A warranty was then executed - in which the name of the contractor was amended to CCEL.
Problems arose on the project and, to muddy the waters further, some correspondence was sent by the Cuddy directors in the name of ‘CCEL’. CCEL went on to accept the claimant’s purported termination of the contract as a repudiatory breach.
When the error in the name became apparent, the claimant asked the court for a declaration that CCEL was obliged to deliver the parent company guarantee, performance bond and deeds of warranty. It later amended its claim to say there had been a ‘mistake’ in CCEL’s identity and that CCEL should be amended to CDDL. A key was whether the contractor was CDDL or CCEL for the purposes of the contract.
Who’s who?
The judge concluded that there had not been a ‘misnomer’ in inserting CCEL. The misnomer principle means the substitution of the correct term/name in place of an inaccurate one.
Nor was there a mutual or unilateral ‘mistake’ so as to pave the way for rectification. It was an internal mistake on the part of the claimant and a reasonable and objective observer, on the facts known to the parties, would conclude there had been no mistake.
As for the potential liability of the ‘parent company’ – the facts showed that there wasn’t a parent company. The relationship between CDDL and CCEL did not satisfy any of the definitions of ‘parent companies’ under the Companies Act 2006. Neither CCEL nor CDDL had a parent company, therefore CCEL was not obligated to provide a parent company guarantee from CDDL.
The issue puts both the parties in a difficult position and judgment is now awaited as to whether the court will order specific performance by the contractor, CCEL, of its contractual obligations.
What does this mean?
The ruling is a salutary reminder of the need to correctly identify and name the contracting parties and this means doing your research properly to avoid the risk of identifying the wrong business. If you make an internal error such as in this case, the financial and operational cost to the business could be substantial.
1Liberty Merician Limited v Cuddy Civil Engineering Limited and Cuddy Demolition and Dismantling Limited [2013] EWHC 2688 (TCC)