An obvious drafting mistake in a contract can be corrected as a matter of construction if two conditions are satisfied: “first there must be a clear mistake on the face of the instrument; secondly it must be clear what correction ought to be made in order to cure the mistake”; per Bingham LJ in East v Pantiles (Plant Hire) Ltd [1982] EGLR 111.
In Regent Wealth Ltd and ors v Wiggins and ors [2019] UKUT 310 (LC) the Upper Tribunal (UT) had to consider the application of the East principle to correct a purportedly “obvious mistake” contained in three licences. Correction would increase the value of leases that fell to be acquired in a claim for collective enfranchisement under the Leasehold Reform, Housing and Urban Development Act 1993 (the Act).
The freeholder, Grosvenor West End Properties Ltd (GWEP), originally granted the appellants overriding leases of three flats in Mayfair (the OL1 Leases). In 2010 the first respondent served a notice under section 13 of the Act to acquire the OL1 Leases (the 2010 Notice), but failed to register the 2010 Notice. Ingeniously, the appellants granted themselves overriding leases of the flats for a term of 111 years (the OL2 Leases). The OL2 Leases were not caught by the 2010 Notice and enabled the appellant to claim extended Leases.
The OL1 Leases contained a fully qualified covenant restricting assignment and forbade the grant of a sublease for a term exceeding 20 years. The provisions of the OL2 Leases mirrored the OL1 Leases except that the term of the OL2 Leases exceeded 20 years. The appellants, obtained GWEP consent (the Licences). Under paragraph 3.3 of the Licences, a prospective undertenant was bound by an absolute covenant against alienation. The absolute prohibition ran contrary to the alienation provisions contained in the OL2 Leases. The appellants argued that the Licenses contained a mistake. The OL2 leases were valued to be £2,136,500 less if the lessees were bound by the absolute prohibition.
Relying primarily upon the principle in East, the appellants asked the UT to read into paragraph 3.3 the phrase “without the landlord’s consent, not to be unreasonably withheld”. As a matter of construction, the appellants argued that the phrase could be read into the Licences because an obvious mistake had been made. It was argued by the appellants that GWEP had intended to act benevolently to enable them to enjoy the benefit of the leases. The UT disagreed.
The East principle did not operate in the present case. First, it could not be said that paragraph 3.3 contained an obvious mistake. The language and grammar used did not contain any discernible error and made sense on its face. Second, although an inconsistency existed between the Licences and the alienation clause in the OL2 Leases it did not necessarily amount to a mistake as the Licences and OL2 Leases were between different parties. Third, even if a grammatically correct clause that failed to make commercial sense could be corrected in the manner sought, it was not the case that paragraph 3.3 failed to make commercial sense in light of the parties dealing with one another.
Even, if there was a mistake, it was not clear how it could be corrected. The addition of the phrase requested would create a far more generous alienation covenant than the OL2 Leases provided.
Elizabeth Dwomoh is a barrister at Lamb Chambers
