Thomas Bates and Son Ltd v Wyndham’s (Lingerie) Ltd

Rectification may be granted where convincing evidence establishes a shared intention which the executed instrument fails to record, and one party discovers the other’s mistake but does not correct it. The civil standard remains the balance of probabilities, although cogent evidence is required to displace the signed document as evidence of intention.

A rent-review clause providing only for rents to be agreed, followed by arbitration if agreement fails, requires the arbitrator to fix the rent which it would have been reasonable for the particular landlord and tenant to agree. It does not require an objective market rent unless the wording so provides.

The landlords granted the tenants a 14-year factory lease. Its rent-review provision stated that later rents should be agreed, but omitted the arbitration machinery which had appeared in the earlier renewal arrangements. The tenants knew of that omission when the lease was executed.

The High Court rectified the lease by inserting arbitration machinery and declared that the later rents should be market rents. The tenants appealed. The central issues were whether unilateral mistake known to the other party justified rectification, and how the rent should be fixed if agreement failed.

1. Appeal dismissed, subject to variation. Buckley LJ gave the principal judgment. Eveleigh LJ and Brightman J agreed that the lease should be rectified. The order was varied by substituting “fixed” for “determined” in the arbitration provision.

2. The evidence established a common intention that rent after the first five years would be agreed or, failing agreement, fixed by an arbitrator appointed by the President of the Royal Institution of Chartered Surveyors. The omission of that machinery was a mistake by the landlords’ representative. The tenant’s representative knew both of the omission and of the intended machinery, but did not disclose it before execution.

3. That state of affairs justified rectification. Buckley LJ formulated the equitable principle by reference to knowledge of the other party’s mistake and the inequity of permitting reliance on it. Eveleigh LJ and Brightman J considered that conscious sharp practice, or a benefit to the party with knowledge, was unnecessary. It was sufficient that the instrument failed to give effect to the communicated common intention and the informed party did not correct the error.

4. The required standard was the ordinary civil balance of probabilities. However, convincing evidence was needed because a signed instrument is cogent evidence of the parties’ intentions.

5. The judge’s declaration that the rent should be market rent was wrong. The clause, once rectified, required an arbitrator to fix the rent which reasonable negotiations between these particular parties would have produced, taking account of all relevant circumstances, including tenant improvements. The materially different wording considered in Ponsford & Ors v HMS Aerosols Ltd 1979 Appeal Cases 63 did not compel an objective market-rent measure.

The appellants were ordered to pay the respondents’ costs.

• Court of Appeal: The court upheld the order rectifying the lease, varied the wording of the inserted arbitration provision, and rejected the market-rent declaration as the proper construction of the rectified clause.
• High Court, Chancery Division: Mr Michael Wheeler QC, sitting as a deputy judge, ordered rectification of the lease and declared that the later rents were market rents.