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Rectification of Contracts

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Rectification of Contracts
If a written document does not reflect the
actual agreement that the parties have
reached, the court may be willing to rectify
the contract, that is to substitute the original
text with corrected wording to give effect to
the parties' true intentions. This guide gives
an overview of the legal principles under
English law relating to the remedy of
rectification.
Topics covered include:

What is rectification?

Alternative remedies

If alternative remedies will not suffice,


what do you need to demonstrate to the
court to secure a rectification?

Unilateral mistake

Proof - can the court look beyond the


contract itself?

What are the defences to a claim for


rectification?

Special cases

This publication is not intended to be a comprehensive review of all


developments in the law and practice, or to cover all aspects of
those referred to. Readers should take legal advice before applying
the information contained in this publication to specific issues or
transactions. For more information please contact us at Ashurst
LLP, Broadwalk House, 5 Appold Street, London EC2A 2HA
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Ashurst LLP 2012 Ref: 9091710 July 2012

Rectification of Contracts

Rectification of Contracts
1.

What is rectification?

If, due to a mistake or oversight, a written document does not reflect the actual agreement the parties to a
contract have reached, the court may be willing to order rectification of the written instrument reflecting their
agreement. Rectification involves the court modifying the document by substituting the whole or part of the
original text with corrected wording to give effect to the parties' true intentions. 1 In rectifying the document the
court is aiming to put the parties in the position in which they would have been had the mistake or oversight not
occurred. 2

The court's discretion


Rectification is an equitable and therefore, discretionary, remedy. So even where valid grounds for rectification
exist (see below), the court may refuse to grant it. The usual equitable defences apply and so, for example, the
court may refuse the order on the basis that the claimant has not come to the court "with clean hands" or has
failed to convince it that the alternative formulation the claimant proposes more accurately reflects the parties'
agreement.

Can rectification be used to remedy a bad bargain?


Rectification is the correction of the written expression of the parties' agreement, not the correction of the
agreement itself: 3
"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 them down wrongly." 4
This is an important distinction. The court will not allow changes to reflect what the parties would have agreed if
they had considered the point more or had better information. Therefore rectification does not help parties who
failed to include a particular term simply because they gave no thought to the matter. 5 This is so even if, had
they done so, they would have included the term: 6
"It is not the function of the court, when exercising its jurisdiction to grant rectification, to re-write
documents for parties or to fill gaps about matters to which they have given no thought." 7
Neither will the courts intervene to relieve a party of a bad bargain: "it is ordinarily no part of equity's function to
allow those who do make such bargains to escape from them". 8

From when does rectification take effect?


If rectification is granted the order has retrospective effect, so the rectified document will be read as if it had
originally been drawn up in its rectified form. This can have unexpected implications for the parties for instance
with regard to retrospective tax liability.

1
2
3
4
5
6
7
8

Lovell and Christmas Ltd -v- Wall (1911) 104 LT 85.


Walker -v- Armstrong (1856) 8 De GM & G 531.
Racal Group Services -v- Ashmore [1995] STC 1151. See also Allnutt and another -v- Wilding and others [2007] EWCA Civ 412.
Frederick E. Rose (London) Ltd -v- William H. Pim Jnr. & Co. Ltd [1953] 2 QB 450.
See Harlow Development Corporation -v- Kingsgate (Clothing Productions) (1973) 226 EG 1960.
Tucker -v- Bennett (1888) 38 Ch D 1, per Lopes LJ at 16.
Bidwell -v- Little [2002] EWHC 2869.
Clarion Ltd -v- National Provident Institution [2000] 1 WLR 1888.

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Rectification of Contracts

2.

Alternative remedies

Rectification is a remedy of last resort. The court will grant it in limited circumstances. Before considering
rectifying an instrument, the court will expect the parties to have considered other options. It is therefore
important to bear in mind the range of other remedies at the court's disposal.

Correction of the error by construing the document as it is written


The first thing the court must try to do is to interpret the wording of the text as it stands, 9 i.e. that as a matter
of construction of the actual words used, it means X rather than Y. Typographical or grammatical errors can be
corrected in this way without the court resorting to rectification. For example correcting misnomers, supplying
obviously missing words, substituting antonyms by ignoring an erroneous ''not'' or reading 100 as 100.
(For a summary of the law relating to the construction of contractual wording see the Ashurst Quickguide
Interpretation of Contracts under English Law.)

Finding a collateral contract


The court may take the view that the terms the claimant wishes to insert in the document are in fact already
enforceable between the parties by means of a collateral contract, the effect of which is to vary the terms of the
main contract. 10

Voluntary rectification
The parties may have already rectified the instrument on a voluntary basis. If this is the case, it is not
appropriate for the court to order rectification. For example in Whiteside -v- Whiteside 11 the court refused
rectification of a deed because the parties had already voluntarily rectified the issue in dispute by drawing up a
supplemental deed. There was therefore no longer a "substantial issue between the parties" on which the claim
for rectification could be based. Even though an order for rectification would have achieved tax advantages for
one of the parties, there was no evidence that the parties had both intended this benefit to be secured.

3.

If alternative remedies will not suffice, what do you need to


demonstrate to the court to secure a rectification?

The criteria for rectification


Rectification can be granted for a common mistake (where both parties were mistaken) or unilateral mistake
(where only one side was mistaken).

Common mistake
There are four essential requirements for rectification based on common mistake.
There must have been an "outward expression of accord"

There must have been, demonstrably, some prior agreement between the parties before the document
was drawn up. 12 A contract does not actually have to have been agreed but there must be something that
objectively demonstrates a common intention, for example heads of terms, correspondence, a travelling
draft or oral evidence of a meeting of minds. Such common intention must relate to the particular matter
in respect of which rectification is sought. Rectification cannot be used to incorporate into the document
matters about which the parties had no intention at all.

9
10
11
12

Sloggett & Perry Ltd -v- Stroud CA (unreported) 25 May 2000.


For example in Walker Property Investments (Brighton) Ltd -v- Walker (1947) 177 LT 204.
[1950] Ch 65.
Joscelyne -v- Nissen [1970] 2QB 86 and Munt -v- Beasley [2006] EWCA Civ 370.

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Rectification of Contracts

In ascertaining the common intention where a company is concerned, the relevant decision makers must
be identified. This will be determined by the court objectively and the court may consider both an
individual's actual and ostensible authority. 13

There must have been a continuing common intention


There must have been no change of heart. The common intention must have continued right up to the
time at which the instrument was drawn up and executed. 14 Whether or not there is a continuing common
intention will be judged objectively by the court. 15 If the difference between the document and the terms
previously agreed is down to one or both of the parties having changed their minds, then rectification will
not be ordered.

By mistake, the document as executed did not represent the common intention
The evidence must show clearly that there is a disparity between the language of the agreement reached
and the language of the written document intended to record that agreement. However, if the contract is
so fundamentally flawed and unsuitable to the transaction, the court will not be able to rectify the
agreement, because to do so would be to create an entirely new contract. 16

The rectified document would accurately reflect the true agreement


The discrepancy must be capable of being cured by the proposed correction so that the rectified document
would then give effect to the parties' agreement.

Unilateral mistake
The circumstances where rectification will be granted for unilateral mistake are generally more limited.
Rectification for unilateral mistake may be granted in circumstances where one party (A) mistakenly believes a
document to contain a term or provision (or believes that it does not contain a term) and the other party (B),
being aware of A's mistake, does not draw A's attention to it. The court may also require A to prove that the
mistake is likely to benefit B. 17 It does not have to be established that Party B was actually aware of the mistake;
it is sufficient that it wilfully shut its eyes to the obvious, or wilfully and recklessly failed to make the kind of
enquiries which an honest and reasonable person would make: 18
"the conduct of the defendant must be such as to make it inequitable that he should be allowed to object
to the rectification of the document ... the conduct must be such as to affect the conscience of the party
who has suppressed the fact that he has recognised the presence of a mistake." 19

4.

Proof can the court look beyond the contract itself?

The party seeking rectification has a high burden of proof. It must provide clear and "convincing" evidence 20 to
show that the parties' real intention is otherwise than as expressed in the original document. The burden of proof
is particularly onerous where there have been protracted negotiations leading up to the signing of a detailed and
lengthy formal document. 21 In a departure from the general rule on the interpretation of contracts, however, the
court will allow the claimant to submit evidence 22 of earlier drafts or of the pre-contractual negotiations to prove
his case. Evidence of subsequent conduct is also admissible.

13
14
15
16
17
18
19
20
21
22

Hawksford Trustees Jersey Limited -v- Stella Global UK Limited and another [2011] EWHC 503 (Ch).
Joscelyne -v- Nissen [1970] 2QB 86; Fowler -v- Fowler 4 De G & J 250; KPMG LLP -v- Network Rail Infrastructure Ltd [2007] EWCA Civ 363.
PT Berlian Laju Tanker TBK -v- Nuse Shipping Ltd (The Aktor) [2008] EWHC 1330 (Comm).
Fairstate Ltd -v- General Enterprise & Management Ltd and another [2010] EWHC 3072 (QB).
See the test set down in Thomas Bates & Son Ltd v- Wyndham's (Lingerie) Ltd [1981] 1 WLR 505.
Commission for the New Towns -v- Cooper (Great Britain) Ltd [1995] C. 259. See also George Wimpey UK Ltd -v- VI Construction Ltd [2005]
EWCA Civ 77 for an example of the types of issues that may arise in pleading such a case.
Thomas Bates & Son Ltd -v- Wyndham's (Lingerie) Ltd [1981] 1 WLR 505 per LJ Buckley at 515.
Thomas Bates & Son Ltd -v- Wyndham's (Lingerie) Ltd [1981] 1 WLR 505; Joscelyne -v- Nissen [1970] 2 QB 86.
James Hay Pension Trustees Ltd -v- Hird [2005] EWHC 1093; Crane -v- Hegeman Harris Co. Inc. [1939] 4 ER 68.
Lovell and Christmas Ltd -v- Wall [1911] 104 LT 85.

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Rectification of Contracts

5.

What are the defences to a claim for rectification?

The court does not concern itself with fault in a claim for rectification so carelessness or negligence on the part of
the claimant, the defendant itself or the legal advisers who were instructed to draw up the defective document
cannot be used as a defence. 23 However, on the particular facts, the court may take the view that the other party
should, reasonably, have checked the draft contract before signing it and for this reason may refuse
rectification. 24 As noted above, rectification is a discretionary remedy. If the parties delay in applying to the court
or if the court considers that they have acted unfairly or unconscionably, it may refuse the order. Furthermore,
the inclusion of an entire agreement clause in the contract will not, in itself, preclude rectification on the grounds
of common mistake. 25
However, the court may consider the position of additional parties who could be affected by the rectification of
the contract. This means that rectification may be refused if:

there is no way to separate the terms in relation to which rectification is sought from the other terms in
which the additional party is interested; or

the additional party would or might be substantially prejudiced by rectification. 26

6.

Special cases

Special rules apply in the case of real property contracts. The court will not intervene to rectify a document on
the ground of mistake as against a third party who has become a purchaser for value of a legal estate or interest
without notice. 27 There are also special rules regarding both rectification of the land register and the register of
common land. Additionally, the court has no jurisdiction to rectify the Articles of Association of a company. 28 Any
power of alteration of the Articles of Association is purely statutory.

23
24

25
26
27
28

Monaghan CC -v- Vaughan [1948] IR 306; Weeds -v- Blaney [1978] 2 EGLR 84.
Taylor Barnard -v- Tozer (1984) 269 EG 225. However, in Daventry District Council v- Daventry & District Housing Ltd [2011] EWCA Civ 1153
the Court of Appeal granted rectification of a clear and unambiguously worded contract because it did not accord with the commercial negotiations
that preceded it and the commercial sense behind the contractual negotiations.
Surgicraft Ltd -v- Paradigm Biodevices Inc [2010] EWHC 1291 (Ch).
Hawksford Trustees Jersey Limited -v- Stella Global UK Limited and another [2011] EWHC 503 (Ch).
Garrard -v- Frankel (1862) 30 Beav. 445 at 459460; Smith -v- Jones [1954] 2 All ER 823 [1954] 1 WLR 1089.
Scott -v- Frank F Scott (London) Ltd [1940] Ch 794.

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