Rectification of Commercial Agreements by the Courts

The Courts are typically reluctant to step in and interfere with commercial agreements, particularly when the parties have been professionally advised.

However, it is not unheard of for the Courts to rectify an agreement to ensure that it reflects the actual intentions of the contracting parties at the time.

What is Rectification?

In simple terms, rectification is a legal remedy which has evolved to address mistakes in agreements arising from human error.

The remedy is available to correct either a common mistake where both parties believe that the agreement correctly reflects their common intentions, or a unilateral mistake where one party believes that the agreement correctly reflects the common intentions, but the other is aware of the mistake and unfairly takes advantage of it.

Persimmon Homes Ltd -v- Hillier

This interesting case was heard by the Court of Appeal and involved an application for the rectification of a share purchase agreement (SPA) and an associated disclosure letter because the SPA failed to identify all of the land forming part of the transaction.

The seller argued that the SPA was a binding document, and that the buyer had not acquired the parcels of land which had been omitted from the SPA. The buyer counter-argued that the common intention of the parties had always been that the buyer would acquire all of the land, and that the SPA should be rectified accordingly. The buyer also argued that the disclosure letter should be rectified to prevent the seller from relying on a warranty disclosure over the extent of the land being sold.

The Court of Appeal upheld the first instance decision finding that the judge was right to conclude that the SPA did not reflect the mutual intentions of the parties and that the grounds for rectification were satisfied. The judge also held that although the disclosure letter was a unilateral document, it was an integral part of the transaction and without rectification, the disclosure letter would have deprived the buyer of a remedy for the original intentions of the parties not being properly reflected.

Conclusion

The Persimmon case is an interesting example of the Courts being prepared to intervene in a commercial agreement to give a legal remedy to reflect the actual intention of the contracting parties. That said, there can be evidential difficulties in establishing the true intention of the parties at the time and this hurdle may mean that an application for rectification is a remedy of last resort.

It is also the case that an application for rectification may not give the precise remedy sought by the applicant. For example, in the Persimmon case, the SPA was not rectified such that the buyer acquired the additional parcels of land, but the disclosure letter was rectified to allow the buyer a remedy for breach of warranty for the extent of the land being misdescribed.

For the reasons highlighted by the Persimmon case, it is essential that great care is taken in the drafting of transactional documents to ensure that they accurately capture the true intentions of the parties at the time. Doing so will ensure that protracted and expensive legal proceedings can be avoided.

How Can We Help?

The Corporate and Commercial team at Wilson Browne Solicitors is ideally placed to advise on all aspects of drafting and negotiating transactional documents to avoid issues such as those highlighted by the Persimmon case. For a confidential and no obligation initial discussion about how we may be able to help, please contact the Corporate and Commercial team at 0800 088 6004