Littman & Anor v Aspen Oil (Broking) Ltd

Where a lease contains a break clause whose wording makes the landlord’s right to terminate conditional on the tenant’s compliance with the lease, the court may correct an obvious drafting error by construction where both the mistake and the intended correction are clear. Commercial absurdity may demonstrate that something has gone wrong, but the court must identify the precise correction from the language and surrounding circumstances. Unilateral mistake may alternatively justify rectification where the claimant intended a different provision, the defendant knew of the mistake, failed to draw it to the claimant’s attention, and the mistake was calculated to benefit the defendant or cause detriment to the claimant. Those conditions are necessary but not sufficient; unconscionability is also required.

The claimants were landlords and the defendant was their tenant under a five-year lease containing a mutual break clause exercisable at the end of the third year. The clause stated that the lease would cease on the termination date, provided that, in the case of a notice given by the landlord, the tenant had complied with its covenants.

The tenant served notice to terminate. The landlords contended that the wording was an obvious drafting error and that the condition should apply where notice was given by the tenant. They alternatively sought rectification for unilateral mistake. The preliminary issue was whether the tenant’s right to break was conditional on compliance with the lease.

1. Construction. The tenant’s right to terminate was conditional on its having duly observed and performed the relevant covenants. The words referring to a notice given by the landlord produced an absurd commercial result: a landlord’s right to break would depend on the tenant’s performance, enabling the tenant to defeat that right by its own breach. It was therefore obvious that something had gone wrong with the clause.
2. It was also obvious what the error was. The conditional wording had deliberately been introduced for a tenant’s break right before the clause was made mutual. The court accordingly construed “in the case of a notice given by the landlord” as “in the case of a notice given by the tenant”. This approach was consistent with the principles discussed in Holding & Barnes plc v Hill House Hammond Ltd (No 1) [2001] EWCA Civ 1334 and Jis (1974) Ltd v MCP Investment Nominees Ltd [2003] EWCA Civ 721.
3. Rectification. The construction conclusion made it unnecessary to decide the alternative claim. The judge nevertheless held that unilateral mistake requires proof that the claimant intended the relevant provision and mistakenly believed it appeared in the document, that the defendant knew of the mistake, and that the defendant failed to disclose it. The mistake must also be calculated to benefit the defendant or be detrimental to the claimant. Those requirements were drawn from Thomas Bates & Son Ltd v Wyndham’s (Lingerie) Ltd [1981] 1 WLR 505.
4. The evidence established the necessary knowledge and failure to correct the mistake. It would have been unconscionable for the defendant to insist on the literal wording. Rectification would therefore have been granted had it been necessary to decide the issue.