In Milton Keynes Borough Council v Viridor (Community Recycling MK) Ltd [2017] EWHC, 239 (TCC),England’s Technology and Construction Court allowed the Plaintiff’s claim for rectification of a contract, by the replacement of the wrong schedule attached to it with the correct one, on the grounds of common (or alternatively, unilateral) mistake. The judgment usefully restates the principles governing rectification of contracts on the grounds of common or unilateral mistake.

Background

Following a tendering process, the Plaintiff, Milton Keynes Borough Council, engaged the Defendant, Viridor, to carry out waste recycling in Milton Keynes for 15 years. The Plaintiff prepared the final contract, which included an Income Generating Payment Mechanism (IGPM). The version of the IGPM attached to the Defendant’s final tender identified a fixed payment of £500,000 per annum “indexed for inflation.” However, the Plaintiff mistakenly included in the contract documents an earlier and incomplete version of the IGPM, which contained gaps and made no reference to indexation.

Common Mistake – Requirements

The Court held that the party seeking rectification of a contract based on common mistake must establish the following (as laid down in Swainland Builders Ltd v Freehold Properties Ltd [2002] EWCA Civ 560):-

  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 the execution of the instrument sought to be rectified; and
  4. by mistake the instrument did not reflect that common intention.

The Court opined that 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).

Unilateral Mistake - Requirements

The Court held that the requirements necessary to establish a unilateral mistake are as set out in Thomas Bates & Son Ltd v Wyndham’s (Lingerie) Ltd [1981] 1 ALL ER 1077, as follows:-

  1. one party (A) erroneously believed that the document sought to be rectified contained a particular term or provision, or possibly did not contain a particular term or provision which, mistakenly, it did contain;
  2. the other party (B), was aware of the omission or inclusion and that it was due to a mistake on A’s part;
  3. B had omitted to draw the mistake to A’s notice; and
  4. the mistake must be one calculated to benefit B.

If the above requirements are satisfied, the court may regard it as inequitable to allow B to resist rectification to give effect to A’s intention on the ground that the mistake was not, at the time of execution of the document, a common mistake.

Court’s Decision

Common Mistake

The Plaintiff was entitled to rectify the contract on the ground of common mistake because:-

  • At the time that the Defendant's tender was accepted, there was a common intention between the parties that the fixed payment made by the Defendant to the Plaintiff was £500,000 per annum “indexed for inflation”'.
  • There was an outward expression of accord, namely the Plaintiff’s letter expressly accepting the Defendant’s tender, including the fixed payment indexed for inflation.
  • The intention was continuing between the date of the Plaintiff’s said letter accepting the tender and the date when the final contract was signed. There was no evidence that the indexation was the subject of further negotiation in this period. The fact that the final version of the contract did not state that indexation would not apply to the fixed payment meant that there could not have been any discussion and agreement to that effect during that period. Minor tweaks and revisions to the contract documents in that period were not sufficiently extensive that it became a different agreement. The evidence of the Defendant’s own witness was that gaps in the IGPM included in the version of the contract signed off, meant that it was inoperable and it was therefore plain that there was a common mistake in that the contract contained the wrong IGPM.

Unilateral Mistake

The Court held that, in the alternative, the ingredients for a unilateral mistake had also been made out. It said that if the Defendant had been aware of the Plaintiff’s mistake before the final contract was signed and failed to draw that to the Plaintiff’s attention, that was because the Defendant considered that the mistake was calculated to benefit the Defendant, which is manifestly was.

Defendant’s Defences Rejected

Entire agreement clause

The Court rejected the Defendant’s argument that the entire agreement clause in the contract prevented rectification. The clause provided that the executed contract constituted the entire agreement and understanding between the parties and superseded, cancelled and nullified any previous agreement between them. The Court held that although in some cases an entire agreement clause might be relevant to the issue of rectification, that was not the case here. The Court held that where there is a strong case for rectification, the agreement which constitutes the entire agreement is to be found in the contract as rectified and not in the contract which, ex hypothesi, does not reflect the true intention or agreement of the parties. Thus the entire agreement clause was immaterial.

Delay and Acquiescence

The Defendant argued that events after the contract was signed meant that rectification should not be allowed due to laches (delay) and acquiescence. The Court rejected the defence of laches, because after the Plaintiff noticed the mistake, it immediately informed the Defendant of it and its consequences. There was no acquiescence on the Plaintiff’s part, the Court said, since the Plaintiff had sent an invoice claiming indexation, which showed that the Plaintiff intended that the indexation did apply.

Conclusion

The Court observed that the mistake in question was due to the “sloppy work” of the Plaintiff’s consultants and lack of attention given to the final documents by the Plaintiff’s solicitors. It said that the mistake was perhaps a sad reflection of the fact that modern day contracts of this kind are so complicated that nobody (not even the consultants) bother to check the actual documentation being signed. In large construction projects, it is not uncommon for contracts to run to hundreds of pages, with many attachments and schedules. The negotiation process also results in many versions of the documents. Great care is therefore needed to avoid mistakes.