Neutral citation: Liberty Mercian Ltd v Cuddy Civil Engineering Ltd & Anor [2013] EWHC 2688 (TCC)

NEC contract topics: Interpretation of “To Provide the Works”, Obligations after termination, performance bonds, parent company guarantees

Form of contract: NEC3 Engineering and Construction Contract, Option A

Main areas of law: Contract formation, enforceability of collateral obligations (bonds and guarantees).

 

The dispute arose from a project involving the construction of a retail development in Cardigan. Liberty Mercian Ltd (“Liberty Mercian”) acted as developer and engaged what was described as the “Cuddy Group” to undertake the works. The contract used was an amended NEC3 Engineering and Construction Contract, Option A: Priced contract with activity schedule.

While “Cuddy Group” was used colloquially and in correspondence, two legal entities were involved: Cuddy Civil Engineering Ltd (CCEL) and Cuddy Demolition and Dismantling Ltd (CDDL). CDDL undertook all the work and invoiced Liberty Mercian, yet the contract signed on 6 July 2010 named CCEL as the contractor.

Following defects in the works and subsequent termination of the contract, Liberty Mercian sought to enforce delivery of a performance bond, a parent company guarantee, and various warranties. The defendants disputed liability, arguing either that no such obligations existed after termination or that the obligations had never validly arisen due to the identity of the contracting party.

 

The key legal issues were:

• When was the contract formed?
• Was the reference to CCEL in the executed contract a misnomer for CDDL?
• Was there a mutual or unilateral mistake justifying rectification?
• Were post-termination obligations (e.g. delivery of warranties, bonds, and guarantees) enforceable?

Mr Justice Ramsey held that the contract was formed on 6 July 2010 and was executed as a deed. He found that although CDDL carried out all the works and invoicing, the contract expressly named CCEL, a dormant company, as the contracting party.

Liberty Mercian’s argument that “CCEL” was a misnomer for “CDDL” was unsuccessful. The court rejected the misnomer claim, finding no mistake on the face of the contract when read in the context of the background known to both parties. Applying the legal principles from Chartbrook v Persimmon Homes (2009), the court concluded that even if CCEL had been inserted due to Liberty’s internal error, the naming of CCEL did not reach the threshold required for judicial correction.

Regarding rectification, the court determined that Liberty Mercian did not demonstrate a mutual or unilateral mistake sufficient to modify the signed agreement. The evidence indicated that Liberty Mercian, through its solicitors, had actively and knowingly inserted CCEL into the documents, possibly due to a misunderstanding. However, there was no evidence that the defendants shared this mistake or understood Liberty to be contracting with a different party.

Mr Justice Ramsey analysed the primary purpose of clauses 20.1 and 90.5 in NEC contracts. Clause 90.5 was found to suspend obligations directly related to “providing the works,” but not collateral or ancillary obligations. The court accepted that the delivery of warranties, bonds, and parent company guarantees did not fall within the NEC definition of “to provide the works” as set out in 11.2(13). As a result, Liberty Mercian’s claims to enforce the obligation to supply the parent company guarantee, bond, and warranties survived the termination.

Ultimately, the court declined to order rectification but recognised the enforceability of the ancillary obligations outside that of “providing the works” under clause 20.1. The court therefore permitted Liberty Mercian’s claim in part, upholding the obligation to supply the ancillary documents.

 

The court’s ruling that obligations such as bonds, warranties, and guarantees are not included in “to provide the works” under clause 20.1 may surprise those managing NEC contracts. People might assume that once X4 or X13 is incorporated into the contract, the obligation to provide a bond or guarantee falls under the description of “…incidental work, services and actions” as stated in clause 11.2(13) and would be terminated accordingly. However, the court’s opinion differed significantly, confirming that these obligations remain enforceable even after termination. The decision was based on the legal interpretation that, although these obligations were not part of “the works,” they constitute enforceable commitments separate from the physical or service-based obligations of the contract.

This decision demonstrates a significant interpretation of the obligations and language used in the NEC contracts regarding termination. It highlights the contrast between NEC’s use of plain language and the more complex legal interpretation involved in termination and dispute resolution.

The judgment also highlights the risks associated with unclear drafting or assumptions about corporate identity. The decision underscores the importance of correctly identifying contracting parties from the outset and monitoring changes in names throughout to final execution. Here, confusion over the “Cuddy Group” name and its connection to two separate entities, CCEL and CDDL, led to unnecessary complexity.