Hurst Stores and Interiors Ltd v ML Europe Property Ltd.

Rectification for unilateral mistake requires proof that one party misunderstood the document, the other had actual or shut-eye knowledge of that mistake, and the conduct was unconscionable. Knowledge may be inferred from striking circumstances and the unexplained failure to give evidence. A project manager engaged to administer a contract has no presumed authority to vary its terms or release claims. A document valuing contractual variations becomes materially different when it adds a broad full and final settlement, particularly while the works and contract continue. Such a settlement is ineffective against the employer unless the signatory had the necessary authority.

Hurst was a trade contractor carrying out fitting-out works for ML Europe Property Ltd. During the works, Hurst’s project manager, Mr Mell, signed a document prepared by the construction manager which valued various changes and stated that payment would be accepted in full and final settlement of all claims accrued to that date.

The High Court granted declarations rectifying the document and declaring that Mr Mell lacked authority to enter into the alleged settlement. ML Europe appealed. The issues were whether the document was liable to rectification for unilateral mistake and whether Mr Mell had actual authority to agree a fundamental departure from the contractual valuation machinery.

Disposition

Lord Justice Buxton gave the leading judgment. Arden LJ and Pumfrey J agreed. The appeal was dismissed, with the appellant ordered to pay the respondent’s costs.

1. Rectification. The court followed the guidance in Commission for New Towns v Cooper [1995] Ch 259. The claimant had to establish that Mr Mell was mistaken as to the document’s contents, that Mace through Mr Rumsey had actual or “shut-eye” knowledge of the mistake, and that the conduct was unconscionable. The court did not need to pursue the detailed knowledge analysis in Baden v Société Génerale [1993] 1 WLR 509, because the formulation adopted from Commission for New Towns v Cooper was sufficient.
2. Application of the test. The trial judge was entitled to find that Mr Mell understood the figures as valuations of labour, plant, materials and agreed preliminary items, rather than as a settlement of disruption or other contractual claims. The document’s new settlement wording had not been foreshadowed and differed materially from earlier statements. Although there was no direct evidence from Mr Rumsey, the circumstances called for an explanation. The judge was entitled to infer at least shut-eye knowledge from the failure to provide one. The unconscionability requirement was also satisfied.
3. Authority. A person appointed to fulfil a contract is not presumed to have authority to vary it. Sharpe v San Paulo Railway Company LR 8 Ch App 597 involved a different question concerning an engineer acting as a certifying officer, but illustrated the distinction between directions within a contract and variation of the contract itself. Mr Mell’s project-management role gave him no express or implied authority to agree a radical release of claims.
4. Contractual machinery. The disputed wording was not an advance valuation under clause 20.3 or clause 23.6.4. Nor could it be treated as an accelerated final account under clause 23.6.5, which contemplated settlement of the complete contract and contract term, not a period-specific settlement during continuing works. The added wording therefore changed the document’s character and fell outside Mr Mell’s authority.

1. Court of Appeal (Civil Division) dismissed ML Europe Property Ltd’s appeal and ordered it to pay Hurst’s costs.
2. High Court, Queen’s Bench Division, Technology and Construction Court, before Mr Recorder Reese QC, granted declarations rectifying the settlement document and declaring that Mr Mell lacked authority to enter into it.