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Debacle Over £4 Million Contract with Dormant Company

ConstructionIn a resounding warning to those engaged in drafting contracts that it is essential to correctly identify the parties to an agreement, a company found itself embroiled in costly litigation after entering into a £4 million construction contract with an engineering company that turned out to be dormant.

The contract for construction of a retail plateau for a prospective supermarket had been terminated following a disagreement relating to alleged delays in completion. The parties named on the face of the contract were company A and company B, a company which had at all material times been dormant.

In a preliminary hearing, Company A argued at the High Court that, in reality, the company with which it had contracted was company C, a leading engineering firm with substantial assets which was alleged to be company B’s parent. Company A argued that the wrong company had been named in the contract and asked the Court to rectify the agreement accordingly.

However, the Court dismissed company A’s arguments that company B had been identified as a contracting party as a ‘misnomer’ for company C. In the absence of clear evidence of mutual or unilateral mistake, there was also no room for the exercise of the Court’s powers of rectification.

In a further blow to company A’s case, the Court found that company B was not obliged to provide a parent company guarantee from company C. Despite having shareholders and directors in common, company C had no dominant influence or control over company B and could not be viewed as its parent company.

Company B was, however, under a contractual obligation at the date of termination to provide company A with a performance bond and certain warranties. The Court adjourned for further submissions regarding company A’s claim for specific performance of those obligations. The Court will also further consider the impact on those obligations of its ruling that company B had no parent company.