The misnomer screen: can a defendant hide behind a provision misdescribing the party to a contract?

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.

Shot in the dark

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.

Inconsistency fixed

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 [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 misdescribed 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.