Ahmad v Secret Garden (Cheshire) Ltd

Rectification for common mistake is available where the parties had a common continuing intention, objectively expressed, which persisted when the instrument was executed but was not reflected in it. A prior concluded agreement is unnecessary. The mistake may concern the legal effect of the executed document, including a mistaken belief that two documents would operate together. The signed instrument is strong evidence against rectification, but the evidence must be assessed in its factual and commercial context. The court may delete or amend terms to give effect to the common intention. Relief remains discretionary: affirmation, inordinate delay or third-party rights overriding the applicant’s rights may justify refusal. A deliberate decision to keep terms separate differs from acting under a mistake.

Riaz Ahmad, the lessor, and Secret Garden (Cheshire) Ltd, the tenant, negotiated a seven-year lease. Their agreed terms were recorded in an earlier signed document, while the later formal lease omitted several amendments. The tenant alleged that both parties had mistakenly believed the two documents would operate together.

Recorder Howells found a common mistake and ordered rectification of the formal lease. The lessor appealed, challenging the evidence of common intention, the characterisation of the mistake, and the exercise of discretion in light of affirmation, delay and a subsequent lease granted to a third party. The central issue was whether the conditions for rectification were satisfied.

1. Appeal dismissed. Lady Justice Arden, with whom Lloyd Jones and Fulford LJJ agreed, held that the Recorder was entitled to order rectification of Lease 2 so that it incorporated the agreed amendments in Lease 1.
2. Applicable test. The conditions stated in Swainland Builders Ltd v Freehold Properties Ltd [2002] 23 EG 123, and approved by the House of Lords in Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101, were satisfied. The applicant had to establish a common continuing intention, an outward expression of accord, continuation of that intention at execution, and a mistake causing the instrument not to reflect it. A prior concluded agreement was not required, as recognised in Joscelyne v Nissen [1970] QB 86.
3. Evidence and mistake. Common intention is assessed objectively from what the parties said and did, viewed in its factual and commercial context. The unamended execution of Lease 2 was evidence against rectification, but the Recorder was entitled to consider the recent assurance that the earlier amendments remained agreed. The parties were mistaken as to the legal effect of Lease 2: they believed that Lease 1 and Lease 2 would operate together. Rectification could therefore delete or amend terms in Lease 2. The court’s approach was consistent with Re Butlin’s Settlement Trusts [Rectification] [1976] Ch 251 and Co-operative Insurance Society Ltd v Centremoor Ltd [1983] 2 EGLR 52.
4. Separate documents. The case differed from Oun v Ahmad [2008] EWHC 545 Ch. A deliberate decision to keep contractual terms in a separate document for that purpose would not establish the necessary continuing common intention in the instrument to be rectified. Here, the parties had acted under a mistake that incorporation was unnecessary. Rectification could not be used merely to give effect to a subsequent change of mind.
5. Discretion. Rectification may be refused because of affirmation, inordinate delay or overriding third-party rights. Those factors were absent. The tenant’s emails did not establish affirmation, there was no inordinate delay, and the later lease to Cliffemount could not override the tenant’s rights or enlarge its interest. The Recorder was not required to refuse relief.

• Court of Appeal (Civil Division) — dismissed the appeal against the order dated 20 July 2012.
• Manchester County Court — Recorder Howells found that the parties had made a common mistake as to the effect of the formal lease and ordered its rectification.