K/S Victoria Street (A Danish Partnership) v House of Fraser (Stores Management) Ltd & Ors

Construction of a contract is res judicata once finally determined, so a party cannot use estoppel by convention to prevent reliance on the construction already adopted by the court. A rectification claim is different because it concerns whether the executed instrument failed to record the parties’ continuing common intention.

Rectification requires a continuing common intention on a particular matter, an outward expression of accord, continuation of that intention until execution, and a mistake causing the instrument not to reflect it. The intention is assessed objectively, although uncommunicated subjective evidence may be admissible. An amendment should be refused where the pleaded case has no real prospect of establishing those requirements.

The defendants sought permission to re-amend their defence and add a counterclaim alleging estoppel by convention and rectification of a lease. The application followed earlier decisions rejecting their construction of the lease’s intra-group assignment provisions and the Court of Appeal’s decision upholding that construction: [2011] EWCA Civ 904.

The defendants contended that the lease should permit an intra-group assignment and immediate reassignment without the financial protections otherwise required by the lease. The issues were whether the estoppel claim was barred by the earlier construction decision, whether the rectification claim was barred, and whether either proposed case had a real prospect of success.

1. Estoppel by convention. The proposed estoppel was barred by res judicata. The construction which Victoria was allegedly estopped from asserting had already been finally determined in its favour. The estoppel would therefore serve no useful purpose.
2. Rectification and estoppel compared. The rectification claim was not barred by cause of action estoppel or issue estoppel. It relied on a different cause of action: an alleged common or unilateral mistake and failure of the executed lease to reflect the relevant intention. The earlier construction decision supplied the starting point but did not determine rectification.
3. The existence of the final injunction did not create an insuperable bar. If rectification retrospectively altered the legal basis of the injunction, it was clearly arguable that the court could revoke or vary it under CPR rule 3.1(7), even though the circumstances in which a final order may be varied remain restricted.
4. Rectification. The requirements stated in Swainland Builders Ltd v Freehold Properties Ltd [2002] EWCA Civ 560 were applicable and had been approved in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38: continuing common intention, outward expression of accord, continuation until execution, and mistake causing the instrument not to reflect that intention. The relevant intention is ascertained objectively, although uncommunicated subjective evidence may remain admissible.
5. The pleaded evidence did not give the rectification case a real prospect of success. The agreement containing the assignment and guarantee obligations was introduced after the memorandum relied on by the defendants and was apparently accepted without demur. Objectively, the common intention pleaded could not have continued until execution. There was also no evidence supporting the alternative unilateral-mistake case.
6. The general proposition in Daventry District Council v Daventry & District Housing Ltd [2011] EWCA Civ 1153 that rectification is not necessarily barred by inconsistency with another contractual provision did not assist on these facts.
7. Permission to amend and to add the counterclaim was refused. Delay and abuse of process would not independently have justified refusal if the proposed claims had been legally available and had a reasonable prospect of success.

• Court of Appeal: upheld the earlier decisions on the construction of the lease and the validity of the guarantee provision, [2011] EWCA Civ 904.
• High Court (Chancery Division): refused permission to re-amend the defence and add the counterclaim.