Daventry District Council v Daventry & District Housing Ltd

Rectification for common mistake requires convincing proof of a continuing common intention, objectively manifested, which the executed instrument fails to record. Where the prior consensus is recorded in writing, subjective beliefs carry less weight than the parties’ words and conduct. A party cannot establish a continuing common intention contrary to the objective effect of a later provision approved by its authorised solicitors.

Unilateral mistake requires proof that the mistaken party held the relevant belief, that the other party knew of the mistake, failed to correct it, and stood to benefit, such that resistance to rectification would be unconscionable. Arm’s-length parties negotiating a commercial transaction do not ordinarily owe one another a tortious duty to disclose misunderstandings or refrain from benefiting from them.

Daventry District Council transferred its council housing stock and related employees to Daventry & District Housing Ltd under a transfer contract. The parties had negotiated a commercial valuation which, on the Council’s case, included an agreement that the defendant would pay a £2.4 million pension deficit.

The executed contract instead stated that the Council was to make the payment. The Council sought rectification for common mistake, alternatively unilateral mistake, and damages for breach of an alleged duty of care arising from the parties’ negotiations. The central issues were whether a continuing common intention existed at execution, whether the defendant knew of and failed to correct a unilateral mistake, and whether the negotiations created a tortious duty of care.

1. The claims for common mistake rectification, unilateral mistake rectification and damages for breach of duty of care were dismissed.

2. For common mistake, the requirements stated in Swainland Builders Ltd v Freehold Properties Ltd [2002] 2 EGLR 71 applied: a common continuing intention concerning a particular matter, an outward expression of accord, continuation of that intention at execution, and an instrument which by mistake failed to reflect it. Convincing proof was required.

3. The relevant intention was to be determined objectively from the parties’ words and acts. Subjective evidence could assist, but was of lesser weight where the alleged prior consensus was contained in documents. The earlier commercial proposal objectively supported the Council’s construction, and the parties had reached a common intention that the defendant would pay the deficit. However, the authorised solicitors’ agreement on 1 November 2007 to clause 14.10.3 objectively changed the parties’ intention. The common intention therefore did not continue until execution.

4. Rectifying clause 14.10.3 alone would also have produced an internal contradiction with clause 14.10.2, which required the Council to fund the accrued pension liabilities and relieved the defendant from liability for them.

5. The requirements for unilateral mistake, as stated in George Wimpey UK Ltd v V I Construction Ltd [2005] EWCA Civ 77, were not established. The proposal and approval of clause 14.10.3 made it objectively clear that the Council was to pay the deficit. The defendant could not be shown to have known that the Council remained mistaken, or to have failed to draw that mistake to its attention.

6. The parties’ memoranda and assurances of fair dealing did not amount to an assumption of responsibility or the provision of a service giving rise to a tortious duty of care. Extending negligence in that manner would undermine the structured rules governing contractual mistake and make commercial negotiations uncertain.

7. The court considered that the defendant would not have agreed to a clause requiring it to pay the deficit without funding and business-plan approval. The remaining damages issue therefore did not arise.