Max Thorowgood and Jonathan Pennington Legh analyse a recent Court of Appeal ruling on the rectification of contracts.
Must a claimant of rectification for common mistake show that the parties actually (subjectively) shared the same mistaken belief as to the meaning of the contract? Yes, said the Court of Appeal in FSHC Group Holdings Ltd v Glas Trust Corporation Ltd  EWCA Civ 1361.
The expressly obiter remarks of Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd  UKHL 38;  AC 1101, that the only relevant intentions were the intentions of the parties as they manifested themselves in themselves in the communications that crossed the line (see paras 59 and 60) threw the recondite world of rectification for common mistake into turmoil in a way that the obiter remarks of no lesser person could have done. The recondite turmoil was only increased by the subsequent attempt of the Court of Appeal in Daventry District Council v Daventry & District Housing Ltd  1 WLR 1333  EWCA Civ 1153 to apply Lord Hoffman’s dicta.
The conclusion of Lord Justice Leggatt, with whom the other judges agreed, was that written contracts can be rectified on the basis of a common mistake where one of the following can be shown:
- The document fails to give effect to a prior concluded contract; or
- When they executed the document, the parties had a common intention in respect of a particular matter which, by mistake, the document did not accurately record.
In the case of (b) it must be shown both that each party to the contract had the same actual intention with regard to mistaken provision and that there was an “outward expression of accord” as a result of which the parties understood each other to share that intention.
Lord Hoffmann’s obiter remarks were found to be consistent with his own previous minority decisions but inconsistent with precedent. The Court was not bound by Daventry because it had been common ground there that the objective test was the correct one.
This decision corrects the obvious anomaly created by Lord Hoffman’s remarks that parties might be bound by an agreement which they had neither signed nor intended to sign!
The Appeal failed.