Bashir v Ali & Anor

Contractual interpretation is an objective exercise based on the factual matrix reasonably available to the parties. Where auction conditions require inspection, the court may construe the contract on the basis that a reasonable buyer would have discovered the true physical state of the property, even if neither party actually knew it. If the language contains an obvious mistake and it is clear what a reasonable person would have understood the parties to mean, the court may correct the language by construction. The court may consider the price as part of the factual matrix where it assists in identifying an obviously unintended construction. A common mistake about underlying facts does not justify rectification where the parties accurately recorded their actual agreement, and does not make the contract void where the contract can sensibly be construed to give effect to the intended economic transaction.

The defendants, executors of the former owner, offered a freehold property at auction. The particulars described a ground-floor shop and a first-floor flat, subject to the shop tenancy and a 125-year leaseback of the first-floor flat. In fact, the property also contained a self-contained ground-floor studio flat. Both parties were unaware of it when the contract was made.

The claimant sought specific performance of the contract as he understood it. The defendants argued that the contract concerned only the shop and first-floor flat, alternatively that it should be rectified or declared void for fundamental common mistake. The central issues were the proper construction of the auction contract, the availability of rectification, and the effect of the shared mistake.

1. Construction. The contract was to be construed objectively against the factual matrix reasonably available to the parties. The auction catalogue and contractual conditions required the buyer to inspect and satisfy himself as to the accuracy of the particulars. The court therefore proceeded on the basis that a reasonable buyer would have known that the property contained two flats, despite the parties’ actual ignorance. This approach was supported by Investors' Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, Reardon Smith Line v Yngvar Hansen-Tangen [1976] 1 W.L.R. 989, National Bank of Sharjah v Dellborg, and Mustafa v Baptist Union Corporation Ltd (1983) 266 E.G. 812.
2. The rival constructions were commercially impossible. The contract could not reasonably require the creation of flying freeholds, but nor could it give the claimant a windfall of vacant possession of the additional flat. The description, the contractual documents and the reserve price showed that the intended economic interests were the reversions on the shop and both residential leases.
3. Applying Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101, the court corrected the obvious mistake by construction. The contract required transfer of the whole freehold, subject to separate 125-year leases of both flats at £100 per flat, with the benefit of the existing shop lease. The price could be considered as part of the factual matrix because the document already contained an obvious error.
4. Rectification and mistake. Rectification was unavailable because the parties had accurately recorded their agreement; their mistake concerned the underlying facts, not the writing down of the agreement. The common-mistake argument also failed. The issue arose only on the defendants’ rejected construction, and the contract did not need to be avoided because it could be given a sensible and workable meaning.
5. Specific performance was ordered on the construction stated above. Costs and consequential matters were reserved for further argument.