Who’s who? What to do when a party’s identity or capacity is in dispute

Posted: 08/11/2013

Anna Brooks-Gallerani examines recent case law on misnomer – the use of a wrong name or term – and capacity:

Establishing the identity of the parties to a contract is essential as, without certainty, the contract may fail. Recent judgments from the Court of Appeal and the High Court set out useful guidance on the extent to which principles of construction can be used to clarify the identity and capacity of a party to a contract, where these are unclear.

In Derek Hodd Ltd v Climate Change Capital Ltd [2013] EWHC 1665 (Ch), an expenses reduction consultant (Mr Hollywood) had prepared a letter of engagement for a client who he described in the letter as the Climate Change Group Limited (“Limited”). This was an error - Limited was a dormant company - albeit that the signature block stated that the letter was signed “For and on behalf” of Limited by the financial director of the Climate Change Capital group of companies.

Henderson J found that there were two plausible contenders for the client: either Climate Change Holdings Limited (“Holdings”), which employed staff and paid for most of the expenses, or its main operating subsidiary, Climate Change Capital Limited (“CCC”).

The claimant, a consultant company who had been assigned the benefit of the contract by Mr Hollywood and was seeking unpaid fees from CCC, argued that references to Limited were obvious misnomers which should be corrected, as a matter of construction, to CCC.

Henderson J found this was not strictly a case of misnomer – where a party knows to whom he wishes to refer but mistakenly attaches the wrong name to that person. Mr Hollywood’s naming of Limited in the contract was “little more than a shot in the dark”, as he had admitted in evidence that he didn’t know which was the correct company to specify and thought it was for the CCC group to identify the appropriate counterparty.

The correct approach for determining the party was to look at the parties’ intention, judged objectively and in the light of the relevant factual background known to both parties. Following this classic approach to construction which was summarised by Lord Hoffman in Investors Compensation Scheme v West Bromwich Building Society [1997] UKHL 28, Henderson J concluded that as a matter of construction, CCC was the correct counterparty. It managed the whole group’s investment funds and was the obvious company to take a lead in trying to curb expenditure.

Henderson J found that in cases of misnomer, the Court is entitled to take into account the same evidence of the relevant factual background as would be admissible for the purpose of interpreting the contract. In other words, all the relevant background information which would have been reasonably available to the parties when the contract was made but excluding the parties’ previous negotiations and declarations of subjective intent.

These findings on what evidence is admissible for identifying the correct party to an agreement in misnomer cases sets straight an inconsistency in the authorities. Henderson J declined to follow Rix LJ’s finding in Dumford Trading A.G v OAO Atlantrybflot [2005] EWCA Civ 24 that where there were two possible entities which could be construed as the party to the contract, no extrinsic evidence was admissible for the purposes of identifying the mis-described party but that such evidence was admissible where there was only one possible entity. Henderson J did not see any logical grounds for distinguishing between cases where there were two possible entities and cases where there was one.

The guidance given in Derek Hodd echoed obiter comments made by the Court of Appeal in Muneer Hamid (t/a Hamid Properties) v Francis Bradshaw Partnership [2013] EWCA Civ 470, delivered one month earlier. But in Hamid, the issue was one of capacity rather than identity.

Dr Hamid was the director and sole shareholder of Chad Furniture Store Limited (“Chad”) which traded under the name “Moon Furniture”. He negotiated with Frances Bradshaw Partnership LLP (“FBP”) over the provision of engineering services on land which he owned and on which he wanted to build a showroom for Chad.

The contract with FBP was partly oral and partly written, with the pricing contained in a letter headed “Moon Furniture” and signed by Dr Hamid above his typed name, which appeared above the name “Moon Furniture”.

When Dr Hamid sued FBP for inadequate work, FBP tried to escape liability by arguing that the contract was agreed with Chad rather than Dr Hamid personally. There were potential tactical advantages to this argument: Chad did not own the property in question so it could have suffered no loss and Dr Hamid’s claim would fail.

The judge at first instance did not agree and concluded that FBP had contracted with Dr Hamid personally. As the letter contained no indication that Moon Furniture was a limited company and Dr Hamid did not describe himself as a director, it was reasonable to infer that Moon Furniture was not a limited company. A reasonable person analysing the letter objectively would conclude that Moon Furniture was Dr Hamid and that he used the pronoun “we” when writing as Moon Furniture.

Crucially, the judge at first instance distinguished the case law on misnomer. Where the question is whether someone contracted personally or as agent, it is not appropriate to impute knowledge which a party does not have. This meant that extrinsic evidence which existed to show that Moon Furniture was the trading name of Chad, but which was not known to FBP, was irrelevant.

On appeal, FBP argued that objectively it appeared that Dr Hamid signed the pricing letter on behalf of Moon Furniture, so the contract was formed with whatever entity traded under the name Moon Furniture – in other words, Chad. FBP argued that although it did not know that Moon Furniture was the trading name of Chad, they could have found this out, and that extrinsic evidence was admissible to establish the identity of the contracting parties.

The Court of Appeal unanimously dismissed the appeal.  The crucial question, it found, was whether Dr Hamid was (a) contracting personally or (b) signing the letter as director of, or agent for, Chad. The starting point was that Dr Hamid had signed the letter and unless he qualified his signature or otherwise made plain that the contract did not bind him personally, he was the contracting party. The mere reference to Moon Furniture, without an indication that this was the trading name of a limited company, was not an effective qualification.

Allegations of mistaken identity are likely to keep recurring as a tactical device to try to escape liability or pin it on another party. Whilst these cases provide useful guidance on the Courts’ approach where mistakes have been made, clearly defining the parties to a contract at the outset should minimise the risk of costly satellite litigation.

This article was published in Insolvency Intelligence in October 2013.

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