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Precision is Paramount - Identity of Contractual Partners - 6th January 2014 - Click for larger version Precision is Paramount - Identity of Contractual Partners - 6th January 2014

For any company, contracts are essential ingredients in achieving their mission to generate success and deliver profits to the shareholders.

The contractual document regulates the commercial relationships that companies enter into with customers and suppliers, making provision both for when the relationships go smoothly and when things go wrong. However, the importance of one of the most basic considerations when drafting the contract – designating the parties correctly – can sometimes be underestimated. It is essential that due care and attention is devoted to ensuring that the names and addresses of the parties are accurately recorded in the agreement.

This fundamental concept is particularly pertinent in relation to the corporate entity which engages in the contract, as a failure to include the intended company or other entity as a party to the agreement can have serious ramifications.

In transactions involving limited companies there is potential for confusion. If a company entering into a contract forms part of a group of companies, all with similar names, then mistakes can be made when determining the correct name of the company who will become a party to the contract. A recent English case provides a clear illustration of this point. In Liberty Mercian Limited v Cuddy Civil Engineering Limited [2013] EWHC 2688, Liberty Mercian Limited entered into a construction contract with Cuddy Group. The contract listed Cuddy Group as the contractor, Cuddy Group constituting the trading name of Cuddy Demolition and Dismantling Limited. The solicitors for Liberty carried out a Companies House search in order to obtain the name of the company under the contract as opposed to the trading name.

Following the search, the solicitors erroneously determined that Cuddy Civil Engineering Limited (CCEL) was the name of the company to be inserted into the contract. Cuddy Group agreed to this change and the contract was amended to show CCEL as the contractor. However, CCEL was a dormant company, creating problems for Liberty when they attempted to discontinue the contract.

Although this was an English case, the salient point emerging from the facts has universal application to all contract drafters, namely that the exercise of ascertaining the name, registered number, registered office, trading status and other details of a company should not be approached with haste. Companies House is a useful source of company information, but the information available should be examined diligently to avoid the possibility of the wrong company being identified. For example, if you are seeking to recover a debt and there is uncertainty surrounding the company you have contracted with, then the possibility of the company disputing that they are indeed the company indebted to you becomes a real risk. You may then need to resort to the courts in order to recover the sums due, which can prove to be an expensive and time-consuming matter. As in the case of Liberty, you could only have a dormant company to pursue.

In short, the correct designation of the parties in a commercial contract cannot be overlooked. One simple but effective piece of information which helps ensure that the details of the correct company are included in the contract is the company number. While the name of the company may change throughout its lifespan, the company number cannot. If you are dealing with one company from a group, the company, along with the other group members, will each have their own unique company number to enable you to distinguish between them and you should ensure that company numbers are included in every contract you enter into.

Of course, you may also enter into contracts with:

• A sole trader, who should be named in the contract as the individual ‘trading as……’;

• A Partnership, which should be designated as the name of the partnership followed by ‘formed under the Law of Scotland with a place of business at……’; or

• A Limited Liability Partnership (LLP), which are a hybrid of a partnership and a company and which also have their own unique registration numbers.

If you have any doubts or concerns about the exact nature of the other party when entering a contract, please contact David Beveridge (db@macdonaldhenderson.co.uk) or Louise Hamilton (louise@macdonaldhenderson.co.uk).

Last updated: 1.31pm, Monday 6th January 2014

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