Bircham Dyson Bell offer their advice on post Christmas blues; a testing time for relationships

Author

UK Business Angels Association

07 January 2014

The tree has come down, mince pies have been devoured and you survived another Christmas with the in-laws.

Christmas can be testing times for relationships and the New Year often kicks-off with reflecting on the past year. The first Monday of the New Year, with the accumulation of rain, debt and rocky relationships, is famously known as ‘Blue Monday’; the most depressing day of the year.

Businesses go through Blue Monday too. Forecasting for the year ahead, they will review their contracts to see if existing relationships are working out. But what if the other side are not the people who you thought they were?

Before parties to an agreement commit to each other, it’s important for both sides to ascertain the precise identity of the other. For example its name, registered number and registered address (all of which are available at Companies House).

But what if the parties, falling head over heels, rush into signing the contract without much thought as to the identity of each other?

Such was the issue in a recent High Court case where two parties entered into a development contract. A number of issues with the development led the claimant to bring proceedings against the first defendant, the named party to the contract. It quickly transpired that the first defendant was the dormant subsidiary company (i.e. non-trading) of the second defendant who was not a party to the contract.

Negotiations leading up to the execution of the contract had always being between the claimant and the second defendant. However details of the dormant company (i.e. the first defendant) were mistakenly inserted as the contracting party which the second defendant did not object to.

The claimant requested the court to use its discretion to rectify the mistake (i.e. to replace the first defendant with the second defendant). The court was asked to consider whether there was a clear mistake on the face of the agreement. Based on the facts and information available to the claimant at the time when the contract was entered into, the courts could find no evidence that a clear mistake was made.

As the courts could not find a mistake to rectify, the claimant’s claim was against the dormant company, an entity with no real assets to cover the damages sought under the development agreement.

This case is a useful reminder to conduct the necessary due diligence before entering into contracts. Start-ups and SME’s are fast paced and it’s all about ‘now, now, now’, overlooking some of the intricate details. There is little value in a contract with clauses which protect a party if the other side has no means to pay for damages. Therefore it is important to identify the party with whom the contract is been entered into and to check the financial strength of the contracting party.

To ensure your business doesn’t suffer from Blue Monday in 2015, commit to a New Years resolution to conduct due diligence on all your customers and suppliers before entering into a legal relationship with them.

For assistance with your New Years resolution, contract formation, corporate due diligence and general corporate advice, please contact either Guy Vincent ([email protected]) (Partner) or Youichi Iisaka (Youi[email protected]) (Solicitor) at Bircham Dyson Bell LLP on 020 7227 7000.

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