Swainland Builders Ltd v Freehold Properties Ltd

Rectification for common mistake is available where the parties had a common continuing intention concerning a matter in an instrument, expressed outward accord, retained that intention when the instrument was executed, and the instrument failed by mistake to give it effect. The alleged intention need not amount to an agreement, but convincing proof is required because the instrument is cogent evidence of intention.

The parties need not have agreed the precise drafting or mechanics. Equity may reform the instrument by an appropriate means which places them in the intended legal position. A rectifying provision which merely supplies that machinery does not alter the consideration or principal terms of a disposal for the purposes of Landlord and Tenant Act 1987, Part 1.

The claimant sold the freehold of a block of 39 flats to the defendant for £60,000. Both parties intended that Flats 11 and 18 would, like the other flats, be subject to 99-year leases, with the claimant retaining the benefit of those two leases. Through both solicitors’ oversight, the executed transfer instead conveyed those flats with vacant possession, subject only to short tenancies.

Neuberger J ordered rectification requiring the defendant to grant the claimant 99-year leases of the two flats. The defendant appealed, contending that the parties had not agreed the mechanism for achieving their intention, that rectification would make a new bargain, and that it would offend Part 1 of the Landlord and Tenant Act 1987.

1. Appeal dismissed. Peter Gibson LJ held that the judge had correctly ordered rectification. Jonathan Parker LJ agreed with his reasons.

2. For rectification based on common mistake, the claimant had to establish a common continuing intention relating to the instrument, outward expression of accord, continuance of the intention at execution, and a mistake by which the instrument failed to reflect it. The ordinary civil standard applied, although the written instrument required convincing proof to displace its evidential force.

3. The evidence overwhelmingly established that the parties intended a transfer of the freehold reversion subject to 39 long leases at ground rents, not a transfer giving the defendant vacant possession of Flats 11 and 18. The executed transfer therefore departed from their continuing common intention.

4. It was immaterial that the parties had not discussed the particular mechanism by which that intention would be carried into effect. The common intention and the remedy were distinct. Equity could rectify the transfer by requiring grants of leases which put the parties in the intended position. Alternative pleaded methods of achieving one consistent intention did not amount to inconsistent pleaded intentions.

5. The rectification did not create a new bargain or alter the £60,000 consideration. The lease-back provisions were machinery for giving effect to the intended disposal. Accordingly, no principal term of the disposal was omitted from the tenants’ offer notice, and Part 1 of the Landlord and Tenant Act 1987 did not bar relief or create the asserted public-policy objection.

6. The appeal was dismissed with costs, subject to detailed assessment.

• Court of Appeal (Civil Division): dismissed the defendant’s appeal in [2002] EWCA Civ 560 and upheld the order rectifying the transfer.
• Chancery Division: Neuberger J ordered rectification of the transfer on 10 May 2001.