The appellant challenged refusal of rectification of its agreement with the defendant. They asserted either mutual or unilateral mistake. The parties had agreed for the transfer of housing stock and management staff to the respondents. The claimant council sought rectification of a contract by which it transferred its housing stock and the staff employed in its housing department to the defendant company. There was a deficit of pounds 2.4m in the staff pension scheme referable to the transferred employees and the contract provided for the council to fund this deficit. An earlier non-binding document which was agreed in principle and signed during the negotiations, objectively interpreted, provided that the cost of funding the deficit would be shared equally between the parties. This was how the council’s agent understood it (as the company’s negotiator knew) but the company’s negotiator thought that a different interpretation of the document was tenable and told the company’s board of directors that the deal was for the council to fund the deficit.
Held: The appeal succeeded. Though the court accepted Etherton LJ’s analysis of the law, Neuberger and Toulson LJJ disagreed as to the interpretation of the facts.
Toulson LJ followed Chartbrook, but with some reluctance and said: ‘In deciding whether on a fair view there was a renegotiation or a mistake in the drafting of the contract, it is necessary to look at all the circumstances. Have the parties behaved in such a way that they would reasonably understand one another to be involved in a process of seeking to negotiate a different deal from the one originally agreed or as involved in a process of drafting an agreement intended to accord with the deal originally agreed? Where it is suggested that there has been a change in the parties’ position prior to the execution of a written contract, it is necessary to look carefully at all the facts to see whether a reasonable person would have understood himself to be involved in the negotiation of a different deal from the one originally agreed or merely seen himself as involved in a process of drafting an agreement intended to conform with the original deal. If the latter is the case, and if the approval and execution of the written contract are affected by a relevant mistake, rectification should be available. It is, of course, for the party claiming rectification to show that in that process a mistake occurred.’
Etherton LJ, dissenting, said: ‘It is difficult to see how or why, once the conditions for mutual mistake are satisfied, the defendant’s carelessness could justify refusal of rectification. As the facts of the present case show, however, the claimant’s carelessness may preclude relief, not on some general ground of discretion, but because the claimant cannot be allowed to rely on its own carelessness in failing to observe that the defendant objectively no longer, at the date of the instrument to be rectified, continued to adhere to the prior common intention. Agip is, in that very loose sense, a useful analogy. ‘ Nor could it be said that the judge had erred in his conclusions as to the facts.
Toulson LJ pointed out: ‘Notwithstanding the immense respect due to Lord Hoffmann and the other members of the House of Lords, I have difficulty in accepting it as a general principle that a mistake by both the parties as to whether a written contract conformed with a prior non-binding agreement, objectively construed, gives rise to a claim for rectification.’
Judges:
Lord Neuberger MR, Toulson, Etherton LJJ
Citations:
[2011] EWCA Civ 1153, [2012] 2 All ER (Comm) 142, [2012] Pens LR 57, [2012] 1 P and CR 5, [2011] 42 EG 120, [2012] 1 WLR 1333, [2012] Bus LR 485
Links:
Jurisdiction:
England and Wales
Citing:
Cited – Chartbrook Ltd v Persimmon Homes Ltd and Others HL 1-Jul-2009
Mutual Knowledge admissible to construe contract
The parties had entered into a development contract in respect of a site in Wandsworth, under which balancing compensation was to be paid. They disagreed as to its calculation. Persimmon sought rectification to reflect the negotiations.
Held: . .
Cited – Crane v Hegeman-Harris Co Inc ChD 1939
A continuing common intention of the parties to a document alone will not suffice to justify rectification. For rectification to be appropriate, there must be convincing proof that the concluded instrument does not represent the common intention of . .
Cited – Swainland Builders Ltd v Freehold Properties Ltd CA 2002
Swainland Builders Ltd owned the freehold of a block of flats. It had granted 99-year leases at ground rents of all the flats except numbers 11 and 18. It had intended to sell the block subject to the retention of flats 11 and 18 which it initially . .
Cited – Lovell and Christmas Ltd v Wall CA 1911
The written contract contained a restrictive covenant limiting the defendant’s freedom to carry on the business of a ‘provision merchant’ other than on behalf of the plaintiff company. On the facts found, the parties in their discussions before the . .
Cited – George Cohen Sons and Co Ltd v Docks and Inland Waterways Executive CA 1950
The landlord negotiating a new lease proposed to the tenant that ‘the terms and conditions contained in the present lease to be embodied in the new lease where applicable.’ The tenant accepted this offer, but the new lease as executed made the . .
Cited – Frederick E Rose (London) Ltd v William H Pim Jnr and Co Ld CA 1953
Denning LJ said: ‘Rectification is concerned with contracts and documents, not with intentions. In order to get rectification it is necessary to show that the parties were in complete agreement on the terms of their contract, but by an error wrote . .
Cited – Britoil plc v Hunt Overseas Oil Inc CA 1994
After the failure of the attempt by the Texan oil tycoon, Nelson Bunker Hunt, in the 1970s to corner the world silver market, his fortune collapsed and his companies were forced to sell off assets. In 1979 two of those companies (the defendants in . .
Cited – Carmichael and Another v National Power Plc HL 24-Jun-1999
Tour guides were engaged to act ‘on a casual as required basis’. The guides later claimed to be employees and therefore entitled by statute to a written statement of their terms of employment. Their case was that an exchange of correspondence . .
Cited – Cambridge Antibody Technology v Abbott Biotechnology Ltd and Another Patc 20-Dec-2004
Rectification of an agreement was sought.
Held: Laddie J rejected a submission that evidence of the subjective state of mind of one of the parties contained in statements which had not been communicated to the other party (‘crossed the line’) . .
Cited – Thomas Bates and Sons Ltd v Wyndham’s Lingerie Ltd CA 21-Nov-1980
An application was made for rectification of a rent review clause in a lease. When executing the lease, the tenants’ officer, Mr Avon, noticed that the rent review clause in the lease drafted by the landlords was defective in not including a . .
Cited – George Wimpey UK Ltd v VI Construction Ltd CA 3-Feb-2005
A land purchase contract had been rectified by the judge for unilateral mistake. A factor had been dropped from a formula for calculating the price.
Held: The judge’s conclusion that the circumstances existed to allow a rectification was . .
Cited – Britoil plc v Hunt Overseas Oil Inc CA 1994
After the failure of the attempt by the Texan oil tycoon, Nelson Bunker Hunt, in the 1970s to corner the world silver market, his fortune collapsed and his companies were forced to sell off assets. In 1979 two of those companies (the defendants in . .
Cited – George Wimpey UK Ltd v VI Construction Ltd CA 3-Feb-2005
A land purchase contract had been rectified by the judge for unilateral mistake. A factor had been dropped from a formula for calculating the price.
Held: The judge’s conclusion that the circumstances existed to allow a rectification was . .
Cited – Commission for the New Towns v Cooper (Great Britain) Ltd, (Formerly Coopind UK Ltd) CA 4-Mar-1995
The trial judge had dismissed a claim for rectification on the basis that the defendant hoped and suspected, but did not know, of the relevant mistake by the plaintiff.
Held: Rectification was ordered because the defendant had sought to . .
Appeal from – Daventry District Council v Daventry and District Housing Ltd ChD 30-Jul-2010
The parties had negotiated for the transfer to the defendant of the claimant’s housing stock, the associated management team, and the pension and other related assets and obligations. The claimant sought rectification of the agreement to reflect . .
Cited – Smith v Hughes QBD 6-Jun-1871
Blackburn J said: ‘I apprehend that if one of the parties intends to make a contract on one set of terms, and the other intends to make a contract on another set of terms, or, as it is sometimes expressed, if the parties are not ad idem, there is no . .
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.
Contract, Equity
Leading Case
Updated: 27 November 2022; Ref: scu.445632