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When will the court allow rectification of a contract for mistake?

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Summary: Attention to detail is all when compiling and checking voluminous contracts. What happens if the wrong documents are appended to the contract? If the parties agree, they can enter into a deed of variation to rectify the contract. But what if one party refuses? The recent case of Borough of Milton Keynes v Viridor (Community Recycling MK) Ltd (No 2) [2017] provides some helpful guidance on this issue.

Facts

Milton Keynes Council and Viridor entered into a waste recycling contract, following a tender process under the Public Contracts Regulations 2006 (PCR 2006).  The contract contained a payment regime which was subject to indexation.  However, when compiling the contract documents, the Council’s consultants included an earlier and incomplete version of the payment mechanism, which made no reference to indexation.

The Council sought rectification of the contract by the replacement of the incorrect schedule with the correct version, arguing that this was a case of mistake.  However, the defendant disagreed.  It raised a number of arguments as to why rectification should not take place.  These included that it would be contrary to PCR 2006, that the contract’s entire agreement clause prohibited rectification and because of the claimant’s delay and acquiescence.

Decision

The court ruled in favour of the Council, holding that it was entitled to have the contract rectified as a consequence of a common mistake, or alternatively a unilateral mistake.  It dismissed all the defendant’s arguments.  Points of particular note include:

  • Clarification of the requirements for rectification: Previous case law (as summarised in Swainland Builders Limited v Freehold Properties Limited [2002]) set out four requirements: (1) 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; (2) there was an outward expression of accord; (3) the intention continued at the time of execution of the instrument sought to be rectified; and (4) by mistake the instrument did not reflect that common intention.  Here the court refined requirement (1), holding that the word "continuing" was superfluous. It was more accurate to say that there needed to be a common intention (requirement 1) which was continuing at the time that the contract was executed (requirement 3).
  • Does an entire agreement clause preclude a claim for rectification?:  The court acknowledged that it could do in some cases, but dismissed the argument in this case.  It cited with approval the decision in LSRF III Wight Limited v Mill Valley Limited [2016] that, where there is a strong case for rectification, the "entire agreement" is to be found in the contract as rectified and not in the original contract, which does not reflect the true intention or agreement of the parties.
  • PCR 2006 does not prevent rectification: The defendant argued that the contract was unlawful and could not be rectified, because it differed from the tendered form and was therefore in breach of PCR 2006.  Rectification could not be used to rehabilitate an unlawful contract.  The court rejected this argument, holding that rectification would simply restore the contract to the form which the parties had always intended to agree at the end of the tender process.  The correct approach to rectification of a public contract was the same as for any other contract.

Key takeaways

This case does not create new law but provides a helpful summary of the law surrounding rectification, with some useful pointers for parties seeking rectification and for those opposing it.  Above all, it underlines the importance of taking care when compiling contract documents.  

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