Hurst Stores and Interiors Ltd. v M.L. Europe Property Ltd.

A unilateral mistake may justify resisting enforcement of contractual terms where the other party had actual knowledge of the mistake, wilfully shut its eyes to it, or wilfully and recklessly failed to make reasonable inquiries. A project manager’s authority is determined from the particular appointment and surrounding contractual arrangements. The title alone confers no authority to vary the principal contract. A contractual accounting mechanism cannot be replaced by a new form of final settlement without authority to vary the contract. An agreement compromising uncertain contractual rights is supported by consideration. A party cannot rely on estoppel to prevent another from enforcing its true legal rights where the alleged compromise was ineffective.

The claimant carried out toilet fit-out works for the defendant under a trade contract. During the project, the claimant’s project manager signed a document described as a Stage 1 final statement of account. It purported to settle all claims accrued up to the date of signature, while reserving only claims concerning later instructions.

The claimant contended that the document was not binding because of unilateral mistake, lack of authority, absence of signature by the defendant or its construction manager, and absence of consideration. It also raised estoppel issues. The defendant relied on the document as a compromise of the claimant’s earlier loss and expense and disruption claims.

1. Rectification for unilateral mistake. The court applied the principles reaffirmed in Commission for the New Towns v Cooper (Great Britain) Ltd [1995] Ch 259. The claimant had proved that its project manager mistakenly believed the document merely recorded agreed CMI valuations, and that the mistake benefited the defendant.
2. Actual knowledge was not required in the narrow sense. The relevant knowledge could include actual knowledge, wilful blindness, or wilful and reckless failure to make inquiries. The court adopted the classification discussed in Baden v Société Générale pour Favoriser le Développement du Commerce et de L’Industrie en France SA (Note) [1993] 1 WLR 509. The document was therefore rectified by deleting the provisions purporting to settle all accrued claims.
3. Authority. The project manager had authority to deal with progress, payment and accounting matters under the trade contract. He had no express or implied authority to vary the contract or introduce an unprovided-for Stage 1 final account. The title Project Manager did not itself determine the scope of authority. The principle in Sharpe v San Paulo Railway Company (1873) LR 8 Ch App 597 was applied.
4. Alternative issues. The absence of a signature by Mace or the defendant was an immaterial irregularity, and the compromise would have had consideration because settlement of uncertain contractual rights constitutes an accord. The claimant’s estoppel case failed. The defendant’s estoppel case also failed because it could not prevent the claimant from vindicating its true legal rights.
5. Two declarations were granted. The claimant recovered 80% of its costs.

First-instance decision in the High Court Technology and Construction Court. The judgment does not state any subsequent appellate decision.