Minor drafting errors or oversights can have serious unintended consequences, as the 2009 case of Chartbrook Ltd v Persimmon Homes Limited illustrated. In Chartbrook, an ambiguous contractual provision allowed for two possible alternative interpretations. A balancing payment due from Persimmon was either some £4.48 million, as contended by Chartbrook, or a mere £897,000 according to Persimmon's interpretation. This rather large difference of opinion resulted in litigation that went all the way to the House of Lords. Since that case, there has been heightened awareness of the courts' role in correcting documents when errors have crept into the drafting.

The options available to the courts

The two main tools the courts use are construction and rectification.

When the meaning cannot be ascertained from the document itself, because something has gone wrong with the language, the court may use established principles of construction to try to construe the wording in accordance with what a reasonable person would have thought the parties had meant, taking the background circumstances into account. This approach, which has come to be described as considering the "factual matrix", allows the court to look beyond the document to the background against which it was concluded. The court will not, however, consider evidence of the parties' pre-contractual negotiations as part of this exercise. Once it has established what was meant, the court has considerable freedom to correct the document.

Rectification

Rectification is a discretionary remedy which lets the courts correct a document, if persuaded that it does not reflect what was really agreed between the parties. In order to succeed in a claim for rectification, the stringent requirements needed to establish either a common or unilateral mistake must be satisfied, but evidence of pre-contractual negotiations is admissible. The court will make its decision about whether, and how, to rectify the document based on what an objective observer would have thought the intentions of the parties to be.

Construction

In order to have the best chance of success, parties will often bring a claim for construction with rectification as an alternative basis of claim. However, parties should be aware that the courts may decline altogether to use the construction and rectification tools at their disposal, as the recent case of Fairstate Limited v General Enterprise & Management Limited and another [2010] EWHC 3072 (QB), decided in November 2010 illustrates.

The decision in Fairstate

The High Court was asked to remedy defective drafting in a personal guarantee. Fairstate, the owner of a block of residential flats, entered into a property management contract with General Enterprise, whose obligations were guaranteed by its director. In due course Fairstate claimed £178,000 under the management contract and sought to recover this from the guarantor. Although the guarantee document contained various errors, Fairstate argued that it was plain what the parties had intended. Whilst accepting that the principles of construction and rectification were applicable, the court decided that the defects were too numerous, and so refused to apply construction or rectification principles, holding that the guarantee was ineffective.

Our comment

Relying on the courts to be proofreaders of last resort is not to be recommended as a drafting technique. Apart from the fact that courts do not readily accept that what has been recorded in a formal agreement is not what was actually agreed, judges may themselves have differing views as to how a provision should be construed. After all, in Chartbrook, Persimmon had to take its case all the way to the House of Lords before its interpretation was upheld.

The decision in Fairstate Limited v General Enterprise & Management Limited and another can be accessed here