Stephen Brown and Sappho Dias consider the implication of terms into a contract. They conclude the five-part series with some drafting tips derived from the principles under consideration.
Rectification is concerned with putting right a drafting mistake. There are two categories of rectification:
- Rectification for common mistake where, by mistake, the parties create an instrument which fails to record their actual agreement or common intention at the time they executed the instrument. The action arises because one party seeks to take advantage of that mistake after the instrument has been executed; and
- Rectification for unilateral mistake where one party makes a mistake to the knowledge of the other who allows the first to continue in that error. One party therefore knows at the time the instrument is executed that it does not record the actual agreement but nonetheless signs as it works to his benefit.
This article considers only the former.
In Swainland Builders Ltd v Freehold Properties Ltd , Peter Gibbson LJ said:
"The party seeking rectification must show that:
the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified;
there was an outward expression of accord;
the intention continued at the time of the execution of the instrument sought to be rectified;
by mistake, the instrument did not reflect that common intention."
The critical point is that rectification is not about subjective intentions, any more than is the construction of contracts. Rectification is about giving effect to the parties' agreement, just as is construction. It would be anomalous if a written agreement reflecting the parties' intentions had to be construed without reference to subjective intention but where it was alleged that the accord had been mis-recorded, ascertainment of the underlying agreement could be influenced by reference to subjective intention.
In Chartbrook v Persimmon, the parties had recorded in a letter their agreement over a formula for profit sharing on a property development. That agreement did not change up to the signing of the contract. The written instrument finally executed did not reflect that agreement as objectively manifested in the letter. The defendant's evidence was that the written instrument did accord precisely with how it had understood the agreement in the letter to work. Hoffmann LJ rejected this, stating that the agreement with which the written instrument had to accord was that contained in the letter. The defendant's evidence that the written instrument reflected its understanding of the prior agreement in the letter was irrelevant.
Another illustration of this occurs in George Cohen Sons & Co Ltd v Docks and Inland Waterways Executive . In that case, a 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 proposal but the new lease made the tenant liable for repairs whereas the old lease had made the landlord liable. In response to a claim for rectification the landlord said that the new lease reflected what he had understood to be the effect of his offer. The Court of Appeal said that this was irrelevant. What mattered was the objective meaning of what the landlord had written.
From a commercial perspective, what do we take away from all of this? It really does go without saying that when drafting a contract, one should seek clarity and to cover all eventualities but in practice that is not always achievable. The Courts have recognised that sometimes businessmen deliberately keep the language ambiguous because they think that may work in their favour later.
The key point is that once the document is signed there can be no appeal later to what a party subjectively considered it to mean. It will be viewed through the eyes of a reasonable person with the information available to him that was available to the parties at the time. To avoid that reasonable person (the judge) concluding that the contract means something other than what one had intended consider the following:
- if something is important background to an agreement, consider setting it out in the introduction (formerly known as "recitals");
- ensure that any term that is given a specific meaning is defined in the agreement;
- be alive to ambiguity. If the wording can have two meanings, redraft it so that it only has the meaning one wants;
- avoid complex sentence structures. One sees some very tortuous drafting, presumably as a result of the parties amending and re-amending a traveling draft. It pays to stand back when that happens and ask if the meaning is clear and unambiguous. If it is not, try writing it again so that it is. A judge would have to decide between two competing meanings and it should therefore be possible to draft in the first instance the intended meaning;
- get the syntax and grammar right – it really can make a difference to what something means. "The voice of him that crieth in the wilderness: prepare thee the way of the Lord" has a very different meaning from, "The voice of him that crieth: in the wilderness prepare thee the way of the Lord";
- drafting that is deliberately ambiguous to hedge one's bets can be an easy hostage to fortune. If it needs hedging because the client may need room for manoeuvre, it is also likely the other party will dispute it;
- stand back from the drafting and consider whether the process it is attempting to describe actually works in practice. It is surprising how unworkable, either at law or in fact, some agreements can be, either because they are contradictory (e.g. arbitration and exclusive court jurisdiction) or simply miss out an important step in the process;
- do not be tricky if you think the other side has missed something obvious – you may be handing them a ground for rectification;
- do not change the applicable law clause without considering very carefully the affect this will have on the way a contract will be construed.
- If an agreement ultimately ends up being disputed, then ensure the case is adequately pleaded. As a general rule, unless something can be identified as being purely a matter of construction or purely a matter of rectification, both cases should be pleaded. It would probably be too late to bring a new claim in the alternative having lost at trial on the other due to the rule that one has to bring all claims in the same proceedings .
Also in this series:
- Did I agree that?!.
- The interpretation of contracts.
- The role of business common sense.
- The implication of terms into contracts.