KPMG Llp v Network Rail Infrastructure Ltd

A court may correct an obvious omission in a written instrument by construction only where it is clear both that words were omitted and what their gist was. An earlier agreement may form part of the background, but a later agreement intended to supersede it must primarily be construed on its own terms. Where wording is awkward but capable of meaning, the court should construe it rather than rewrite it. A rent-review mechanism conferred on the landlord alone cannot be supplemented by implying a tenant’s power to initiate review merely to make a break right effective. Rectification requires convincing proof of a continuing common intention, its outward expression, and a mistake in the written instrument.

KPMG occupied office premises under a reversionary sub-underlease granted by Network Rail’s predecessor. The lease contained a rent-review schedule and a break clause. The dispute concerned whether the words “and thereafter” created two additional, free-standing break opportunities, or whether words from an earlier draft had accidentally been omitted so that all break rights depended on an increased reviewed rent.

Network Rail sought declarations supporting the narrower construction and, alternatively, rectification by inserting the omitted words. KPMG sought declarations supporting its construction and argued that the tenant could initiate the rent-review machinery if necessary.

1. The earlier Agreement for Lease and annexed sub-underlease were admissible background, but the executed sub-underleases governed the parties’ relationship and could not be contradicted by the earlier document.
2. The court could not insert the alleged omitted words by construction because it was not sufficiently clear that they had been omitted or what the omission was. The wording was awkward but capable of construction. “And thereafter” introduced an alternative route to exercise the break right. The tenant therefore had five opportunities: three following relevant rent determinations and two independent opportunities during the tenth and twentieth years.
3. The rent-review machinery could be activated only by the landlord. No tenant’s power could be implied merely because the landlord might prevent a review-linked break by declining to serve notice.
4. The unilateral-mistake rectification claim failed because PMM had not knowingly or unconscionably taken advantage of an obvious mistake. The mutual-mistake claim succeeded. The parties’ continuing common intention was that the tenant should have only the three break rights in the annexed sub-underlease, adjusted for the split term, and the omission caused the executed clause to fail to express that intention.
5. Rectification was not barred by carelessness, the alleged package effect, or laches. The paragraph was rectified by inserting the relevant words before “and thereafter”.

Not an appeal. No prior decision requiring appellate review is stated.