Rectification of contract and the exclusionary rule of pre-contract negotiations when deciphering both parties intentions are uneasy bedfellows within English law, and yet these two principles proved effective when the complex and confused drafting of a multimillion pound construction project created heated litigation.
When the land dealer respondents and property developer appellants undertook a mixed development scheme, schedule 6 of the contract bred uncertainty and conflict through opposing interpretations that at first glance favoured of the respondents to the tune of almost £3.6m, and so relying upon the argument of construction to claim their fees the respondents took the matter to court where in the first instance the judge found in their favour and awarded the amount before a failed appeal left the appellants pursuing a remedy in the House of Lords.
Here the House discussed the nature of contracts and the intentions of those involved before referring to Prenn v Simmonds in which it had held that:
“It is only the final document which records a consensus.”
Before noting that in order to achieve a clear outcome the parties must seek rectification of the contract as defined in Swainland Builders Ltd v Freehold Properties Ltd in which the Court of Appeal had also held that:
“The party seeking rectification must show that: (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; (4) by mistake, the instrument did not reflect that common intention”
However on this occasion the respondents were adamant that the calculation formulae was correct despite obvious contention by the appellants, and so the House upheld the appeal on grounds that an objective application of the formulae through the eyes of a reasonable man showed that while the respondents were content to pursue the terms of sch.6 under a clear misapprehension, sufficient reasoning and supporting evidence reflected the views of both the House and laymen besides, while also reminding the parties that:
“When the language used in an instrument gives rise to difficulties of construction, the process of interpretation does not require one to formulate some alternative form of words which approximates as closely as possible to that of the parties. It is to decide what a reasonable person would have understood the parties to have meant by using a language which they did.”