Mistakes happen. Rectification is an important remedy when a written contract doesn’t reflect what the parties intended. This article recaps the requirements for rectification and gives some tips for those considering a rectification case.
Test for rectification
Rectification is available where parties had a particular intention and, by mistake, that intention was not properly reflected in the document recording their contract. The purpose of rectification is to make the document conform to the true agreement of the parties.
More specifically, a party seeking rectification must prove the three elements.
1. Intention: The parties held a common intention, which continued until the time the document was executed.
The time at which the parties held the intention is crucial. If the plaintiff proves the parties intended something at one time, but the defendant proves that they changed their intention prior to signing the document, rectification will not be granted (see, for example, Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336).
Likewise, where the plaintiff signed the document under protest, knowing that it contained a provision different from what the plaintiff intended, rectification will not be granted (Maralinga).
2. Mistake: By mistake, the document does not accord with the parties’ common intention.
Subject to limited exceptions (see "unilateral mistake" below), the mistake must be common to both parties – if one party knew that the document differed from the parties' intention, and executed the document anyway, there will be no common mistake and rectification will be denied.
Often parties will have known about (and intended) the words used in the document, but were mistaken about the effect of those words. Historically, this type of mistake was incapable of rectification. But there is a growing body of case law which suggests rectification is allowed even if the parties were only mistaken as to the effect of the words, not the words themselves. See, for example, Thiess Pty Ltd v FLSMIDTH Minerals Pty Ltd [2010] QSC 006.
3. Rectification would correct the mistake: The mistake would be corrected, and the document would accord with the parties’ intention, if it were rectified in the manner requested.
It is not enough to prove that the written document does not accord with the parties’ intention. You must also prove what the parties’ intention was, and how this can be reflected in the document. This means you must show the court exactly how the words in the document should be amended to reflect the parties' intention. The court will not write the amendment for you!
Unilateral mistake – what if only one party was mistaken?
Rectification was traditionally only available in cases of common mistake, ie. where both parties signed the document in the mistaken belief that it reflected their intention. However, the remedy has been extended to cases of unilateral mistake, provided the plaintiff can prove that:
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the plaintiff had a mistaken belief that the document contained or did not contain a particular term;
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the defendant knew or ought to have known of the plaintiff's mistaken belief;
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the defendant said nothing to correct the plaintiff's mistaken belief; and
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the mistake provides an advantage to the defendant or a detriment to the plaintiff.
The plaintiff will bear the onus of proving that the defendant knew or ought to have known about the plaintiff's mistaken belief. Circumstances where the defendant "ought to have known" include where it has wilfully shut its eyes to the obvious, or wilfully and recklessly failed to make inquiries that an honest and reasonable person would make: George Wimpey UK Ltd v Vic Construction Ltd [2005] BLR 135.
Proving intention and mistake where the parties are companies
Proving the necessary intention is often complicated where the parties to the contract are companies. The document may be negotiated by one person, drafted by another, forwarded to another for approval and signed by a fourth person on the company's behalf.
To succeed in a rectification case, you must prove that the relevant intention was held by the persons who were the "directing mind or will" of the company for the purpose of the transaction. Often this will be the company's directors, but that is not always the case. If the directors have delegated authority to an employee to act on the company’s behalf, the employee’s intention may be regarded as the intention of the company. In that case, it will not be enough to prove that the directors held an intention contrary to the written agreement. You would have to prove that the employee held such an intention.
It is therefore of paramount importance that a company seeking rectification has sufficient evidence of the intention of all people who may, in the circumstances, be the directing mind or will of the company – be they directors, management or those involved in the negotiation of the contract.
Practical tips
Can the error be cured by construction, rather than rectification? Rectification will be unnecessary and may be refused where the same result could be achieved by the court construing the document. Ask yourself: Can the problematic clause be cured by the court reading it in the context of the document as a whole, having regard to the factual circumstances surrounding its execution? This alternative is particularly useful where correcting the error is clearly necessary to avoid an absurdity or inconsistency in the contract.
Gathering evidence: Identify and analyse all available documentation which may shed light on the parties' intention leading up to the signing of the contract. Obtain oral evidence from everyone involved in the negotiations and the directors and managers who were responsible for signing off on the contract. This should include evidence about what they actually intended the contract to say.
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