Rectification of Business Contracts

In order to obtain the equitable discretionary remedy of rectification, the written contract between the parties must fail to reflect the actual agreement that was reached. It is the mistake in the recording of a contract with which the courts are concerned, not the faults in the making of the agreement.

In the case of Frederick E Rose (London) Ltd v William H Pim Jnr & Co Ltd [1953] 2 QB 450, the Claimant was asked to supply buyers with ‘Moroccan horsebeans called feveroles’. When asked what feveroles were, the defendants stated that they were horsebeans.

As a result of this, the contract referred to the supply of ‘horsebeans’. It later transpired that feveroles were a more expensive variety of horsebean. The Claimant sought to have the contract rectified with the insertion of the word ‘feveroles’. The Court held that the words used in the contract reflected the agreement of the parties and as such, rectification was refused.

Rectification of Mistakes

Courts have demonstrated a willingness to grant rectification orders in disputes to correct mistakes in contracts that meet certain legal requirements.

Firstly, a claimant must be in a position to adduce ‘convincing proof’ that the contract document did not record the true intention of the parties: Joscelyne v Nissen [1970] 2 QB 86. There is a high standard of proof is required to prevent the doctrine of certainty being undermined. Simply put, courts dislike exercising their power to change a contract to which the parties have freely agreed between themselves.

Secondly, the document must fail to record the intention of both parties; Riverlate Properties v Paul [1975] Ch 133. However, where one party mistakenly harbours the belief that the contract does reflect the common intention reached, but in reality it does not and the other party are aware of this mistake, rectification is available: A Roberts and Co Ltd v Leicestershire County Council [1961] Ch 555.

In Commission for the New Towns v Cooper (GB) Ltd [1995] Ch 259, 280, the defendant was acted unconscionably and an order for rectification was awarded. Stuart-Smith LJ gave an example of what would constitute unconscionable conduct:

“…where A intends B to be mistaken as to the construction of the agreement … [and] ... he diverts B’s attention from discovering the mistake by making false and misleading statements and B makes the very mistake that A intends, then notwithstanding that A does not actually know, but merely suspects that B is mistaken and it cannot be shown that the mistake was induced by any misrepresentation, rectification may be granted.”

Thirdly, the document in question must have followed a concluded contract or a ‘continuing common intention’. In Joscelyne v Nissen, a `father and daughter agreed that she would purchase his business and in return pay all the expenses of his home. The formal contract did not explicitly mention the daughter’s obligation to pay her father’s household expenses. The Court found that there was evidence of a continuing common intention and thus rectified the contract.

Where a claimant delays seeking an order for rectification the opportunity to obtain a court order to correct the mistake will be lost. Furthermore, it will not be granted against a bona fide purchaser for value without notice.

Rectification

When rectification is granted, the court will give effect to what was proved to have been the concurrent intention of parties at the moment of executing the contract. Rectification will usually involve the deletion and/or insertion of clauses.

In A Roberts & Co v Leicestershire CC [1961] Ch. 555 [1961] 2 W.L.R. 1000, there was a mistaken belief that a specific term had been included, when in fact it had not. Where there is ambiguity, extraneous evidence may be used to identify the correct intention.

Therefore, the court granted rectification by inserting the correct date into the document and deleting the mistaken date. In Joscelyne v Nissen, the court inserted various terms to give rise to the ‘continuing common intention’ that had been proved to exist between the parties. If there is a clerical error, or a mistake is evident when reading the document as a whole, the courts will rectify the document by deleting the errors and replacing them in accordance with the agreement reached before the document was drafted.

Correcting Mistakes

Courts are able to rectify contracts even if a mistake does relate to one of the conditions of contract. Claimants are required to show that he was at no way at fault. Further, a claimant must act promptly - time runs from the date of the contract and not when the mistake was discovered. A court exercising its equitable jurisdiction may:

1. grant the remedy of rescission on terms that it sees fit;
2. refuse relief to the mistaken party and grant an award of damages; or
3. rectify a written document so that it reflects to the common intention of the parties as at the date of the agreement.