Contract Error Rectification

Introduction

Contracts support everyday deals, from simple purchases to complex commercial agreements. Errors can creep in through drafting slips, misread terms, or mistaken assumptions about the subject matter or the law. Left unchecked, these problems can lead to disputes, wasted costs, or claims.

English law provides tools to manage mistakes and correct written agreements that do not reflect what was actually agreed. These include rectification by the court, rescission in some cases, and damages where a breach has caused loss. This guide sets out the main types of mistake, when a contract is void or voidable, how rectification works, and how to apply the case law in practice.

What You’ll Learn

• The main types of contract mistake: drafting slips, unilateral, mutual, and common mistakes
• When a mistake makes a contract void, voidable, or leaves it binding but rectifiable
• How rectification works, including the tests in Chartbrook and FSHC Group
• When rescission and damages apply, and the limits on those remedies
• Key cases: Smith v Hughes, Raffles v Wichelhaus, Great Peace, Chartbrook, FSHC Group, Leaf v International Galleries, and Hadley v Baxendale
• Practical steps to prevent, detect, and correct contract errors, including where third-party rights are involved

Core Concepts

Types of Contract Mistake

• Drafting errors (recording mistakes)

  • Examples: wrong names, dates, figures, or cross-references; missing definitions; inconsistent clauses.
  • Effect: often a matter of construction or rectification. If an essential term is missing or uncertain, the agreement may fail for uncertainty.
  • Fix: a simple amendment or deed of rectification if all parties agree; otherwise consider a court claim for rectification.

• Unilateral mistake

  • One party is mistaken about a term or quality; the other knows or ought to know of the mistake.
  • Smith v Hughes (1871): the buyer thought he was getting old oats; he received new oats. The court held the contract stood because the seller had not promised old oats and had not misled the buyer. Relief may be available where the non-mistaken party knew of the mistake or caused it (for example, by misrepresentation).
  • Mistake as to identity is a special category and can invalidate a contract in limited cases (often involving written, distance dealings).

• Mutual mistake

  • Parties are at cross purposes about a key matter.
  • Raffles v Wichelhaus (1864): two ships named Peerless; the parties meant different ships. No consensus, so no contract.

• Common mistake (shared mistaken assumption)

  • Both parties share the same mistaken belief about a basic fact at the time of contracting.
  • Great Peace Shipping v Tsavliris [2002] EWCA Civ 1407: the test is strict. A contract is void for common mistake only if the mistake makes performance impossible or the subject matter essentially different; mere increased expense or difficulty is not enough. The court rejected a loose equitable jurisdiction to set contracts aside for common mistake.

• Errors of law and illegality

  • A mistaken view of the law rarely justifies relief as a mistake. However, a contract that contravenes statute or public policy may be void for illegality on separate grounds.

• Non est factum (rare)

  • A person who signs a document that is fundamentally different from what they believed it to be may not be bound (Saunders v Anglia Building Society [1971]). This defence is narrowly applied, especially against those who signed without proper care.

Rectification: Correcting the Written Record

Rectification is an equitable remedy used when a written instrument fails to record the parties’ actual agreement. It does not change the bargain; it corrects the document to reflect what was agreed.

• Common intention rectification

  • Chartbrook Ltd v Persimmon Homes [2009] UKHL 38 and FSHC Group Holdings Ltd v GLAS Trust Company Ltd [2019] EWCA Civ 1361 set out the approach.
  • The claimant must show, with convincing proof:
    1. A common continuing intention as to a particular term or effect;
    2. An outward expression of accord (the intention was communicated);
    3. The intention continued up to execution; and
    4. The document fails to record that intention due to a mistake.
  • Evidence: drafts, heads of terms, emails, term sheets, and other contemporaneous materials are admissible for rectification, even though they are largely excluded for interpretation.

• Unilateral mistake rectification

  • Available where one party was mistaken about the document’s effect and the other knew (or suspected) the mistake and chose to proceed. Authorities include Thomas Bates & Son Ltd v Wyndham’s (Lingerie) Ltd [1981] and Daventry District Council v Daventry & District Housing Ltd [2011].
  • The court looks for “sharp practice” or equivalent unconscionable conduct.

• Limits and interaction with interpretation

  • Rectification is not a tool to improve a bad bargain or to renegotiate risk allocation.
  • Courts prefer to resolve issues by interpretation if the words can fairly bear the meaning contended for (see Arnold v Britton [2015] and Wood v Capita [2017] on interpretation). If interpretation cannot cure a recording error, rectification may be considered.
  • Third-party rights may prevent rectification if they would be unfairly prejudiced.

Void, Voidable, and Remedies

• Void contracts

  • No legal effect. Common mistake may render a contract void only under the strict Great Peace test. Illegality can also render a contract void. Restitutionary remedies may apply to restore benefits conferred.

• Voidable contracts

  • Valid unless and until set aside, for example for misrepresentation, undue influence, or some unilateral mistakes. Rescission aims to return the parties to their pre-contract positions, but can be barred by affirmation, delay, impossibility of restoring parties, or the intervention of third-party rights. Leaf v International Galleries [1950] is often cited on delay barring rescission.

• Damages and remoteness

  • Where the contract is upheld but a breach has occurred, damages are assessed using Hadley v Baxendale (1854): losses that arise naturally from the breach or were in the reasonable contemplation of both parties when the contract was made.

Key Examples or Case Studies

Smith v Hughes (1871) LR 6 QB 597

• Facts: Buyer thought he was buying old oats; seller supplied new oats without promising age.
• Held: Contract binding. A unilateral mistake about quality does not void a contract unless the seller misled the buyer or knew of the buyer’s mistake about a term the seller had agreed to.
• Practice point: Check what is expressly warranted. Absent misrepresentation or knowledge of the other party’s mistake, the contract will usually stand.

Raffles v Wichelhaus (1864) 2 H & C 906

• Facts: Cotton sale “to arrive ex Peerless” where two ships had the same name; each party had a different ship in mind.
• Held: No agreement. The parties were at cross purposes about an essential element (shipment).
• Practice point: Use precise identifiers (voyage numbers, dates, IMO numbers, or similar) to avoid ambiguity.

Great Peace Shipping Ltd v Tsavliris (International) Ltd [2002] EWCA Civ 1407

• Facts: Salvage contract concluded on a shared mistaken assumption about the vessel’s proximity.
• Held: Common mistake did not void the contract because performance was still possible and the subject matter was not essentially different.
• Practice point: Use conditions precedent or warranties for key assumptions. Do not expect a court to undo a deal for a shared but non-fatal mistake.

Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38 and FSHC Group Holdings Ltd v GLAS Trust Company Ltd [2019] EWCA Civ 1361

• Issue: Whether a complex price formula and related documents reflected the parties’ actual bargain.
• Principle: Interpretation and rectification are distinct. For rectification, the claimant must provide convincing proof of a common continuing intention with an outward expression of accord; pre-contract materials are admissible for rectification.
• Practice point: Keep clean, dated audit trails (term sheets, tracked drafts, email exchanges) to prove true agreement if the signed wording is wrong.

Leaf v International Galleries [1950] 2 KB 86

• Facts: Buyer sought to rescind the purchase of a painting misattributed to Constable after a long delay.
• Held: Rescission barred due to lapse of time.
• Practice point: Act promptly if you seek rescission; delay can prevent the remedy.

Hadley v Baxendale (1854) 9 Exch 341

• Principle: Damages for breach cover losses that arise naturally or were within both parties’ contemplation when contracting.
• Practice point: If a specific loss risk is non-standard, communicate it and allocate it expressly.

Practical Applications

• Preventing errors at the drafting stage

  • Use a clear definitions section; avoid circular or conflicting definitions.
  • Align the schedules, annexures, and pricing tables with the main body.
  • Validate numbers: currencies, decimals, VAT treatment, interest calculations, and rounding.
  • Cross-check dates, notice periods, longstop dates, and business day conventions.
  • Ensure parties’ names, company numbers, and addresses match public records.
  • Run a consistency check on cross-references and clause numbering after every edit.
  • Include agreed risk allocation for key assumptions (conditions precedent, warranties, termination rights).

• Fixing errors by agreement

  • Use a simple amendment or a deed of rectification to correct obvious slips.
  • Consider a side letter for clarifications that do not alter the commercial deal.
  • Respect any “no oral modification” clause (Rock Advertising v MWB [2018]): make changes in writing, signed as required.

• When to seek rectification from the court

  • The parties dispute what was agreed or one party refuses to sign a correction.
  • Third-party interests may be affected and certainty is needed.
  • You have strong contemporaneous evidence of a common continuing intention (or proof of unilateral mistake with knowledge on the other side).

• Evidence to gather for rectification

  • Heads of terms, draft mark-ups, version logs, negotiation emails, board minutes, and term sheets.
  • Proof that the shared intention continued up to signing.
  • For unilateral rectification, evidence that the other party knew (or strongly suspected) the mistake and kept silent.

• Choosing remedies wisely

  • If the contract is fundamentally flawed and a clean unwind is feasible: consider rescission, but act quickly to avoid bars such as affirmation or delay.
  • If the document misrecords the bargain: seek rectification.
  • If the contract stands but performance fell short: pursue damages applying Hadley v Baxendale.

• Practical steps in a dispute

  • Send a prompt, without prejudice letter setting out the error and proposing a fix.
  • Preserve all drafts and correspondence; suspend routine deletion policies if needed.
  • Consider a Part 8 claim in the High Court for rectification if facts are largely undisputed.
  • Be alert to third-party rights under the Contracts (Rights of Third Parties) Act 1999.
  • Keep business continuity in mind: temporary standstill or escrow arrangements can manage operational risk while the issue is resolved.

Summary Checklist

• Identify the type of mistake: drafting slip, unilateral, mutual, or common.
• Decide the likely legal effect: void, voidable, or binding but rectifiable.
• For rectification, confirm there was a common continuing intention with an outward expression of accord, or unilateral mistake with knowledge on the other side.
• Gather convincing proof: drafts, emails, term sheets, minutes, and version histories.
• Check for bars to rescission: affirmation, delay, impossibility of restoring positions, or impact on third parties.
• If the contract stands and a breach occurred, assess damages using Hadley v Baxendale.
• Prefer a written amendment or deed of rectification where agreement is possible; otherwise, consider a court claim.
• Maintain clean drafting practices: clear definitions, aligned schedules, accurate data, and consistent references.

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