Rectification was sought of an escalation clause in a charter-party which provided for a base figure in US dollars to be increased by reference to Italian inflation. The plaintiffs claimed that an accord had been reached that the base figure should be in lire rather than dollars, but that when the defendants prepared a draft charter-party, they put the base figure in dollars.
Held: The claim failed. The effect of allowing rectification for unilateral mistake was to impose on the defendants a contract which, at the time of its execution, they did not intend to make. In the absence of estoppel, fraud, undue influence or a fiduciary relationship between the parties, the authorities did not in any circumstances permit the rectification of a contract on the grounds of unilateral mistake, unless the defendant had actual knowledge of the existence of the relevant mistaken belief at the time when the mistaken plaintiff signed the contract. The authorities required actual knowledge by the defendant of the existence of the plaintiff’s mistake. There could be a case of an implied misrepresentation that a proffered draft gave effect to an accord and of a resultant estoppel if it was intended or reasonably foreseeable that the representation would be relied on and if the representee relied on that representation. On the facts those conditions were not satisfied. It had not been shown that the defendants intended or foresaw that the plaintiff would rely on any such representation when the defendants could have reasonably assumed that the plaintiffs would have read the escalation clause for themselves and would have noted any objection when discussing the clause with the defendants. The greater the degree of the carelessness in not detecting the error, the more unrealistic it became for the plaintiffs to assert that the reliance on the representation was foreseeable. The plaintiff’s witnesses did not attempt to blame the defendants for their mistake. The court was unpersuaded that there had been sharp practice by the defendants or that it would be inequitable to allow them to resist the claim for rectification. ‘As the law stands, the conditions which must be satisfied if rectification is to be granted on the grounds of common mistake may, in my opinion, be summarized as follows: First, there must be a common intention in regard to the particular provisions of the agreement in question, together with some outward expression of accord. Secondly, this common intention must continue up to the time of the execution of the instrument. Thirdly, there must be clear evidence that the instrument as executed does not accurately represent the true agreement of the parties at the time of its execution. Fourthly, it must be shown that the instrument, if rectified as claimed, would accurately represent the true agreement of the parties at that time . . The standard of proof required in an action of rectification to establish the common intention of the parties is the civil standard of balance of probabilities. Nevertheless, parties who append their signature to a written instrument prima facie indicate, by the very fact of their signatures, their assent to all the terms contained in it. In these circumstances’
Slade LJ (with whom Oliver and Robert Goff LJJ agreed) summarised the requirements in this way: ‘First, there must be a common intention in regard to the particular provisions of the agreement in question, together with some outward expression of accord. Secondly, this common intention must continue up to the time of execution of the instrument. Thirdly, there must be clear evidence that the instrument as executed does not accurately represent the true agreement of the parties at the time of its execution. Fourthly, it must be shown that the instrument, if rectified as claimed, would accurately represent the true agreement of the parties at that time . . ‘
Judges:
Slade, Oliver and Robert Goff LLJ
Citations:
[1984] 1 Lloyds Law Reports 353
Jurisdiction:
England and Wales
Cited by:
Cited – FSHC Group Holdings Ltd v Glas Trust Corporation Ltd CA 31-Jul-2019
Rectification – Chartbrook not followed
Opportunity for an appellate court to clarify the correct test to apply in deciding whether the written terms of a contract may be rectified because of a common mistake.
Held: The appeal failed. The judge was right to conclude that an . .
Lists of cited by and citing cases may be incomplete.
Equity, Contract, Estoppel
Updated: 15 July 2022; Ref: scu.216652