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The Importance of Names

We’ve all suffered that momentary panic when bumping into someone whose name we ought to know but cannot, no matter how hard we try to bring that name to mind… or the terrible realisation that you have been blithely referring to someone by the wrong name.

These are socially awkward and embarrassing situations, but not likely to cost us large sums of money. On the other hand, identifying the wrong contracting party or simply being unclear as to which party you are contracting with can be a very costly mistake to make.

Despite this and despite the apparent simplicity of identifying contracting parties, errors and confusion abound. It is something I have had to address for clients in disputes on numerous occasions and which I am particularly careful about when advising on non-contentious transactions. Often these situations are the result of carelessness or innocent mistakes, however in some cases, unscrupulous individuals may purposely enter into contract under the wrong party name (e.g. a dormant group company instead of the active group company). They might also avoid formally recording the contract, use a variety of company letterheads or email addresses and/or ask you to bill a specific company for the work which may or may not be the company you believe you are entering into contract with.

The consequences of such errors or lack of clarity can include:
1. The contract being completely void;
2. Unintentionally contracting with a dormant or insolvent company;
3. Expensive court proceedings for rectification of the contract or proceedings about construction of the contract under the doctrine of misnomer;
4. Delay or impossibility of taking action legal action against what you thought was the other party to the contract;
5. Certain actions being made too risky by the possibility of confusion over the contracting parties (e.g. expensive winding up proceedings which may be struck out for being against the wrong party)

How to avoid this
There are some very simple steps which can be taken to avoid confusion or errors over the identity of the party you are contracting with:
• Wherever possible, ensure that your contract is recorded in a single document (with appendices if necessary)
• In contract documents, check each party name, company number and address using Companies House and ensure that the signatories are authorised signatories
• Where you cannot avoid entering into less formal agreements and particularly where you are dealing with a company director who is a director of multiple companies or a company that is one of several in a group, ensure that you record in writing to the other party exactly which party you intend to enter into contract with (ideally setting out the company name, number, registered address and correspondence address)
• If you are asked to invoice a party that is not the contracting party, invoice the contracting party and mark the invoice “Payable by [insert paying party name]” and make it clear to the contracting party that it remains liable for the sums due.

When things have gone wrong
A lack of clarity or an error as to the contracting parties will normally be discovered because you have or are about to become involved in a dispute with the party you believed you were contracting with. If you find that there is a lack of clarity or that the wrong party has been identified, you should seek legal advice straight away. This may have an impact on how you deal with the dispute from a tactical standpoint and will certainly mean that you need to deal with the confusion or error before taking any legal action such as issuing proceedings, referrals to adjudication or issuing a statutory demand. It may also affect the validity of payment applications, contractual notices, invoices and payment notices.

Doctrine of misnomer
If there is an error in the company name, the Court may order that the correct company name can be substituted under the doctrine of misnomer. This is used in cases where the error is considered to be merely ‘clerical’ or ‘typographical’. To do so is to construe the contract by examining the intentions of the parties.

In Liberty Mercian v (1) Cuddy Civil Engineering Limited and (2) Cuddy Demolition and Dismantling Limited [2013] EWHC 2688, the Court refused to correct a company name under this doctrine and stated that there were two conditions to such a correction being allowed. Those are that (1) there must be a clear mistake on the face of the document and (2) the correction required must be clear.

Substitution of the correct name was allowed in another 2013 case: Derek Hodd Limited v Climate Change Capital Limited [2013] EWHC 1665 (Ch). In that case, one party incorrectly (and ill-advisedly) “guessed” the group company name to be used in a contract. Strictly speaking, misnomer only occurs where a party knows the correct name but makes an error. However, the Court in this case considered that the parties’ intentions were sufficiently clear to allow the error to be corrected.

Rectification
The equitable remedy of rectification is one which is extremely difficult to achieve. The Courts require very clear evidence of a common mistake (where both parties held a common intention, but by mistake this was not reflected in the agreement between them) or unilateral mistake (where one party makes a mistake and the other is aware and takes advantage of it). Even where such evidence is available, the remedy is at the Court’s discretion and other factors (such as equitable defences – coming to the Court with “clean hands”, etc.) may mean that the rectification is not granted.

The remedies of misnomer and rectification may or may not be appropriate and legal advice on a case-by-case basis is necessary in such situations. Factors to be considered will include whether there is a dispute between the parties, the value of any dispute or potential dispute, whether the other party is aware of the error or confusion and if so, what the other party’s stance is.

This is a reminder to be careful to clearly identify parties that the reader’s business is entering into contract with in order to avoid potentially costly errors.

Ensuring accuracy and clarity when entering into contract as to who the other contracting party is and seeking legal advice where there is confusion over the identity of a contracting party or where the wrong party has been identified in a contract.

 

These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.

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