WG Mitchell (Gleneagles) Ltd & Anor v Jemstock One Ltd

Rectification may be ordered where the parties had a continuing common intention, outwardly expressed, which remained operative when the instrument was executed, but the instrument failed by mistake to give effect to it. The precise wording originally contemplated is unnecessary if the intended substance and detail can be ascertained. Rectification is not barred because the mistake can be corrected in more than one way or because the parties did not agree the exact corrective words. However, rectification is unavailable where the parties agreed the wording but merely failed to achieve an intended fiscal result. The court may rectify an instrument to give effect to the transaction actually agreed, even where the order preserves a tax benefit that would otherwise be lost.

The claimants purchased a leasehold reversion from the defendant. During negotiations, the parties agreed that the defendant would guarantee minimum rent of £3.25 million in each of the first two years. The guarantee was omitted from the executed documentation because the drafting solicitors were not instructed to include it.

The parties jointly sought rectification for mutual mistake. A correcting deed would have jeopardised stamp duty land tax relief following legislative changes. The central issues were whether the requirements for rectification were established and whether the fiscal consequences prevented the court granting the order.

1. Rectification requirements. The court applied the formulation in Swainland Builders Ltd v Freehold Properties Ltd [2002] 2 SGLR 71. The claimants had to establish: a common continuing intention concerning a particular matter; an outward expression of accord; continuation of that intention when the instrument was executed; and a mistake causing the instrument not to reflect it. The ordinary civil standard applied, but convincing evidence was required because the alleged common intention contradicted the written instrument.
2. The evidence established that the minimum-rent guarantee was a fundamental term, was communicated and outwardly agreed, continued to bind both parties at execution, and was omitted through drafting error. The exact form of words was immaterial where the intended effect could be identified.
3. It was no bar that the mistake could be corrected in more than one way or that no specific agreement existed as to the precise corrective wording. The court could give effect to the ascertainable common intention in an appropriate form.
4. Rectification was unavailable where the parties had agreed the words used but had merely failed to obtain the hoped-for tax consequences. That limitation, illustrated by Whiteside v Whiteside [1950] Ch 65 and Lake v Lake [1989] STC 865, did not apply. Here, the mistake concerned omission of an agreed substantive term.
5. Following Racal Group Services Ltd v Ashmore [1995] STC 1155, and the court’s earlier decisions in Price & Ors v Williams-Wynn [2006] EWHC 788 and Noon v Harnal [2006] EWHC 173, the court could rectify the documents to confer the interest actually intended, although the result also preserved a fiscal advantage. The claim was therefore allowed and the order for rectification was made in the form sought.
6. Obiter, the court stated that the suggestion in correspondence from the Inland Revenue that an incomplete written contract was not a contract until rectification appeared erroneous. The issue had not been argued and was immaterial to the decision.