15th Dec 2023 | Articles & Newsletters

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Robert Strang and Katharine Bailey acted for the appellant in Porter v Stokes [2023] UKPC 11 in the Privy Council.

The Board endorsed the leading decision on rectification for common mistake, FSHC Group Holdings v GLAS Trust Corp [2019] EWCA Civ 1361, confirming that there are two distinct bases for a claim for rectification: first, to accord with a prior binding contract, whose meaning is to be construed objectively; second, to accord with the parties’ common intention where it did not amount to a prior contract, which entails determining as a fact their actual, subjective intention.

The judgment of the Board confirmed the first of these bases (which had been stated obiter in GLAS), considered defences which may arise and endorsed with one qualification the reasoning of the Court of Appeal in Britoil plc Hunt Petroleum [1994] CLC  561.

In this case the party resisting rectification contended that the relevant term in the prior contract was not binding, because the parties to it had later agreed that it was made by mistake. The Board confirmed that it would be a defence to a claim for rectification based on a prior contract to claim that the prior contract itself was liable to be rectified. This suggests that in such a case, the court will be required both to construe the prior contract objectively and to determine the parties’ actual, subjective intentions at the time of that contract.

Analysis

The case of Porter v Stokes [2023] UKPC 11, an appeal from Trinidad and Tobago, concerned a claim for rectification of a deed of conveyance so as to conform with a prior written agreement for sale.

The judgment of the Board, written by Lord Briggs, discusses issues arising in a claim for rectification of a document to conform with a prior binding contract, and identifies the principles which apply where the party resisting rectification alleges that the prior contract was itself mistaken or was varied.

The law

The general principles applying to rectification for common mistake were summarised by Leggatt LJ as he then was in GLAS at [46] as follows:

It is necessary to show that at the time of executing the written contract the parties had a common intention (even if not amounting to a binding agreement) which, as a result of mistake on the part of both parties, the document failed accurately to record. This requires convincing proof to displace the natural presumption that the written contract is an accurate record of what the parties agreed.

As to the question, how is the relevant common intention established, the judgment of the Court of Appeal in GLAS demonstrated that there are two distinct bases of a claim for rectification, in which the common intention is established by different means.

The first basis concerns the case where the parties were seeking by the document in question to give effect to a prior binding contract. In this case, the common intention is objectively determined by construing the terms of the earlier contract.

The second basis concerns the case where the parties had formed a common intention, mutually expressed (i.e., there was an outward expression of accord) but which did not amount to a contract, to which the document in question was supposed to conform. The judgment in GLAS conclusively established that in this type of case the common intention is determined by finding the actual, subjective intentions of the parties.

The conclusion was expressed in GLAS at [176]:

…We consider that we are bound by authority, which also accords with sound legal principle and policy, to hold that, before a written contract may be rectified on the basis of a common mistake, it is necessary to show either (1) that the document fails to give effect to a prior concluded contract or (2) that, when they executed the document, the parties had a common intention in respect of a particular matter which, by mistake, the document did not accurately record. In the latter case it is necessary to show not only that each party to the contract had the same actual intention with regard to the relevant matter, but also that there was an “outward expression of accord” – meaning that, as a result of communication between them, the parties understood each other to share that intention.

Lord Briggs in Porter endorsed the idea that there are two distinct bases of a claim for rectification at [43]:

In the Board’s view this distinction between the basis of a rectification claim where there is, or is not, a prior binding contract is well-founded in basic principle. Where there is a prior binding contract, the nature of the claimant’s equity is to have their contractual right vindicated by bringing the later implementing document into accordance with the terms of the contract. By contrast, the nature of the equity in a case where there is no prior binding contractual right is to remedy the unconscionability of the enforcement of a binding document which runs counter to the outwardly manifested common intention of the parties making it. A similar basis of unconscionability underlies rectification for unilateral mistake known to the other party, but that need not be addressed here. To reduce the significance of a prior binding contract merely to evidence which may (or may not) be probative of the parties’ common intention would be to deprive the claimant of an equity based upon the specific enforcement of the contract.

The facts

The appeal in Porter concerned a claim by Mr Porter to rectify a deed of conveyance by which Mr Stokes senior had conveyed one parcel of land to Mr Porter (‘the main parcel’). The deed identified and described a smaller strip of land owned by Mr Stokes, which was the access road for both the parcel conveyed to Mr Porter and parcels retained by Mr Stokes. The deed did not include words conveying this access road to Mr Porter (but did include words purportedly reserving to Mr Stokes a right of way over the strip which would make more sense if the strip was being conveyed). For his claim Mr Porter relied upon the terms of the earlier written agreement for sale between the parties, by which Mr Stokes had on the face of it agreed to sell both the main parcel and the access road to Mr Porter.

Confusion arose from the fact that although the words of the agreement for sale described the sale of both parcels, it also referred to an attached plan describing and measuring only one parcel of land, the main parcel, upon which the access road was depicted as a right of way. Attached to the subsequent deed was an amended version of the same plan, amended to describe and measure both parcels of land: the main parcel and the access road. This plan had in fact been made before the date of the written agreement and the reasons why it had not been attached to that agreement were obscure.

The sale had taken place in 1982. Mr Porter brought his claim for rectification in 2007, by which time Mr Stokes senior was dead. Mr Stokes junior defended the claim and denied that his father had ever intended to sell the access road. He said that after his father agreed to sell the main parcel of land to Mr Porter, the parties had arranged a meeting on site with a surveyor, to point out the land to be sold so that the surveyor could draw up a plan. The result of those instructions was the plan which described the main parcel and was attached to the subsequent written agreement for sale. Mr Stokes junior said that his father had signed the agreement thinking he was selling only the main parcel – he had looked at the attached plan but not read the words of the operative term in the written agreement. He said that it was he who had pointed out the error to his father; when his father then pointed it out to Mr Porter, the parties had agreed not to abide by the written agreement for sale; and when they came to execute the deed of conveyance they were agreed that only the main parcel was to be conveyed.

The judge found in favour of Mr Stokes and rejected the claim. The Court of Appeal reversed the judge’s findings and allowed the claim. The Board agreed with the Court of Appeal that the judge’s factual findings against Mr Porter could not be supported, but also found errors in the Court of Appeal’s approach to the facts. It therefore found itself in the position of having to make its own findings of fact.

The Board analysed Mr Stokes junior’s case as a claim either that the written agreement for sale was itself liable to be rectified, as it did not reflect the parties’ true intention at the time; or that the parties had in effect agreed to vary it as to performance by excluding the access road.

This analysis accorded with the Board’s consideration of the case law and the principles applicable to rectification on the basis of a prior contract. In particular, at [42] Lord Briggs quoted with approval a passage from the judgment of Hobhouse LJ in Britoil plc Hunt Petroleum [1994] CLC 561 at 572, as follows (the Board’s emphasis included):

The Britoil case also points the way to a better understanding of what may be in issue in a case where there is a prior binding contract. At p. 572 Hobhouse LJ said:

“Where the prior agreement is a legally binding contract then the grant of the remedy of rectification is, as was pointed out by Lord Cozens-Hardy in Lovell & Christmas v Wall (1911) 104 LT 85 at p 88, analogous to the remedy of specific performance. The parties were entitled to have an agreement conforming to their earlier contract. If the later document fails to fulfil this entitlement, the parties are entitled to have it rectified so that it will do so. Such a conclusion will only be defeated if the parties have intended to vary their earlier agreement. In such a situation the court will have to construe the earlier agreement as a contract and as a matter of law. Having decided as a matter of law what its effect is, the court will give effect to the legal rights of the parties.”

As in Chartbrook these observations were unfortunately only obiter dicta, because there was no prior binding agreement in Britoil. Nonetheless the Board considers that, with one adjustment, they are a correct statement of English and Trinidadian law. The adjustment that the Board would make is that there is nothing to stop a defendant to a claim for rectification based upon an earlier binding contract from claiming that the contract was itself liable to be rectified.

The Board thus identified two possible defences to a rectification claim based on an ostensibly binding prior contract, where the document to be rectified is at odds with the terms of the prior contract:

One, that the parties had intended to vary the prior contract (approving the dicta in Britoil); we take this to entail the possibilities (i) that the parties had already varied the contract at some point prior to executing the document in question and (ii) that the parties by executing the document in question intended to vary it.

Two, that the prior contract itself was liable to be rectified, because it did not accord with the parties’ true common intentions at that time (the true common intentions in fact being in accord with the subsequent document).

Having identified the two propositions upon which Mr Stokes junior’s defence was based, the Board rejected both propositions as inconsistent with the documentary evidence: the claim that the parties had intended the agreement for sale to include only the main parcel was inconsistent with the documentary history of the sale and the accompanying plans; and the claim that they subsequently meant to vary it was inconsistent with the terms of the deed of conveyance taken as a whole, which pointed to an intention to convey the access road as well as the main parcel.

Conclusion

The possibilities explored in this appeal demonstrate that while there are two distinct categories of common mistake rectification, there can be cases where there is overlap between the two or, more precisely, where the court may have to carry out both exercises: objectively construing the meaning of an earlier contract, and determining as a fact the actual, subjective intention of the parties at that time.

As it happens, in the circumstances of this case, there was little difference in method between the two exercises. The Board relied on the contractual documents. As the Board observed, the sale had taken place so long ago that memories were likely to be unreliable; one key protagonist had died; the judge’s assessment of the witnesses could not guide the Board, given the errors she had made; and the only documentary “outward expressions of accord” were the contractual documents themselves.


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