#19858 - Rectification Notes & Cases - Contract Law

Rectification Textbook Notes

Overview:

• Equitable remedy capable of correcting mistakes in written contracts

• No limit to the admissible evidence to establish a mistake – so includes pre-contractual negotiations (unlike in interpretation)

• Need convincing proof a mistake is there before the court will consider altering the language of a formal written document

• Might be granted where both parties share a mistake the written document reflects their prior continuing agreement when it doesn’t

• Might be granted where only one party has made a mistake, as long as the below and such that it would be unconscionable for that party to deny the contract should be rectified

  • Other party knew of mistake

  • Recklessly turned a blind eye

• Discretionary remedy – won’t be granted i.e. if it would damage third parties

As an equitable remedy, rectification is the last resort after common law interpretation and implication. Any evidence can be used to support rectification – not limited by parole evidence rule. Things allowed which aren’t under common law:

Pre-contractual negotiations

• Post-contractual conduct

• Evidence of subjective intentions

Can be used even when there exists an entire agreement clause (clause saying the written agreement is the final and whole one). Rectification can also insert entire missing pages into a document – more powerful that interpretation or implication.

The broader interpretation, the narrower rectification. But there are differences.

Lord Neuberger in Marley v Rawlings said differences are:

1. If interpretation, the document has always had the meaning/effect determined by the courts

2. If rectification, the document is changed to have a new meaning, and the court has jurisdiction to refuse rectification or grant it on terms

Burden of proof in rectification is more formidable, seen as harder to establish than interpretation. But rectification is also better at protecting third parties than common law.

The following are the elements needed. The Court of Appeal authority is Swainland Builders v Freehold Properties, approved by Chartbrook v Persimmon Homes.

(a) Common continuing intention, whether or not amounting to an agreement, (b) outward expression of accord, (c) intention continued until time of written instrument, (d) by mistake the instrument didn’t reflect the common intention.

This prior agreement doesn’t on its own need to be enforceable. If there’s a common intention about particular provisions of the questioned agreement, and that continues to the date of the written contract, rectification is possible. Joscelyne v Nissen – man handed over running of a business to daughter, who was to pay all household bills. Agreed. But in the written agreement the father forgot to include electricity and gas bills. Court held: rectification possible, reflects parties’ prior accord despite the prior accord not being specifically enforceable.

Prior accord needs to continue up until the time of written contract. If a written contract doesn’t reflect the prior accord, this might reflect the parties changed their minds.

In FSHC Group Holdings v Barclays Bank¹, CA said unless the parties had already agreed a prior contract, the emphasis is on subjective intention (this only applies where the prior agreement is non-binding. Where a binding agreement is then reduced to writing, use the objective approach). Why?

1. Principle – there is no reason objective intention of an earlier, informal, unenforceable agreement should trump that of an objective interpretation of a formal written contract later. Equity only to be used when the consciences of the parties are actually affected – both parties being mistaken, but one party looks to take advantage of the mistake.

2. Policy – rectification should be narrower and harder to prove. Presumption of holding up written document.

3. Precedent – comments in Chartbrook where Hoffmann suggested the question should be objective, not subjective, was on shaky ground. Hoffmann relied on his own dissenting judgement from Britoil v Hunt Overseas Oil to support his claim.

FSHC Group Holdings v Glas Trust is now law. Reasserts the need for a common mistake rather than unilateral mistake. Leggatt LJ differentiated between prior contracts being concluded and negotiations being ‘subject to contract’. It matters whether a contract has already been concluded because then rectification may be viewed as a type of specific performance – it ensures prior concluded contract is enforced. But still must be shown parties intended just to record that agreement in writing, and made a mistake.

(b) Outward Expression of Accord

Needs to be a shared intention (Joscelyne v Nissen). The term in question need not have been mentioned, it may have been tacitly agreed to if ‘so obvious as to go without saying’ (FSHC v Barclays).

Rectification only works where the wording doesn’t reflect what the parties agreed, not just what they thought it meant (or one of them thought it meant) – Ted Baker v AXA Insurance Eder J.

In Frederick E Rose v William H Pim, C’s customer wanted a type of horsebean called feveroles. C accepted the order and asked its supplier, D, what feveroles were. D said they were just horsebeans. C and D orally agreed to the sale of horsebeans – that was the word used in the subsequent written contract, not feveroles. C’s customer refused to accept the order as it wasn’t the product they had ordered. C sued D, but the contract provided for the sale of horsebeans, which was what D had supplied. C argued rectification to say feveroles. Failed. The oral contract – the prior written agreement – had also been for horsebeans, not feveroles.

This remedy ensures the document is changed to contain provisions the parties intended, not those they would have intended if the parties were better informed (Khan v Khan). Only granted if it’d represent the true agreement of parties at the time it was executed – if there is any doubt, rectification is withheld (Allnutt v Wilding)

There is no need to establish a previous agreement or common intention: Littman v Aspen Oil. It is about one party knowing of the mistake and not telling the other party

In Thomas Bates v Wyndham’s, there was a lease contract. Provision to review rent every 5 years. Parties agreed if they couldn’t agree rent would be fixed by an arbitrator. But the landlords, by mistake, didn’t include the arbitration clause in the final written document. Tenants spotted the error but didn’t tell the landlord. So – no common mistake, only unilateral mistake by landlord. Rectification granted because tenants tried to take advantage. CA said tenants acted unconscionably.

Unilateral mistake rectification shouldn’t be easily granted – imposes on D a contract he didn’t, and didn’t intend, to make. Relieves the claimant from a contract they made, although they didn’t intend to. Drastic remedy (Slade LJ in Agip SpA v Navigazione Alta Italia. So, CA has demanded knowledge or blind-eye turning to C’s mistake for the conscience to be affected and rectification justified.

Two different potential approaches:

1. In Daventry DC v Daventry Housing, Etherton LJ (obiter) said the main thing was honesty v dishonesty. He quoted with approval Peter Gibson J in Baden v Societe Generale who set out three categories a defendant’s actions must fall into:

   1. Actual knowledge of mistake

   2. Wilfully shutting eyes to obvious

   3. Wilfully and recklessly not making inquiries as an honest and reasonable man would

2. Toulson LJ liked McLauchlan’s approach – only award unilateral mistake rectification where D ought to have been aware of C’s mistake, and C was lead to believe reasonably D was agreeing to C’s interpretation of the bargain. Emphasises previous...