Rectification of Contracts by the Court

by | Mar 13, 2017 | Blog, Blog Posts

As a general rule, a Court will not intervene in the terms of a contract. This means that the Court will not allow you to escape a deal that you later regret.
The Court does, however, have limited powers of rectification. These allow the Court to intervene in a written contract to correct it. However, it will only do so in circumstances where the parties’ true intentions are not reflected in the written agreement.  This power can be used, for example, where there has been a mistake in the drafting of a written contract.  The applications of this rule all can be seen in action in a recent case of Borough of Milton Keynes -v- Viridor (Community Recycling MK) Limited (No 2) [2017] EWHC 239 (TCC).

Borough of Milton Keynes -v- Viridor (Community Recycling MK) Limited (No 2)

This case concerned a waste recycling contract that had been agreed between Milton Keynes Council and a waste contractor, Viridor.  During negotiations, the parties agreed that the payments due under the contract would be indexed to rises in inflation.  Unfortunately, due to an error on the part of the party drafting the contract, an older version of the payment mechanism formula (which did not provide for indexation) was inserted into the contract that was eventually executed.
The Council, who suffered due to the mistake, argued that the contract should be rectified due to the error. Viridor refused to agree to the rectification. They argued that written contracts included an entire agreement clause which excluded any terms and conditions that were not specifically included in the written contract from taking effect.
The Council issued proceedings in the High Court, arguing that the contract should be rectified as it was the clear intention of the parties that indexation would be included. The Council argued that it should have the benefit of the doctrine of common mistake; that is that the parties had reached a common intention, but due to a mistake in the drafting, the written instrument did not reflect that intention.  Giving judgment in the High Court, Mr Justice Coulson ruled in favour of the Council.  Coulson J. reviewed the authorities on rectification and concluded that it was a remedy available in a case of common mistake. Coulson J. found that there clearly had been a common intention between the parties that indexation be included within the contract and that the written instrument had for some reason failed to reflect that.

The High Court’s Decision

Coulson J. rejected Viridor’s argument that the inclusion of an entire agreement clause should prevent any rectification.  He was willing to acknowledge that there could be situations where an entire agreement clause prevented rectification. However, he found that in the context of this case, the Council had “an overwhelming case in favour of rectification”.  Ultimately, the flawed written contract should never have existed. Therefore the whole contract clause should therefore be interpreted within the contract as rectified and not in the form of the contract before rectification.
This case, although it has caused no change to the existing law, is still of note because it shows one of the rare situations in which the remedy of rectification would be employed by the Court.  It is also a timely reminder to those entering into contracts of the need to take care and ensure that any written instrument accurately reflects the intention of parties.
If you have concerns about a contract, contact our commercial litigation team to arrange a free consultation. Call today on 0113 244 9931.

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