Written contracts do not always reflect the agreements actually made by the parties. In such cases, the courts have the power to put things right; they can do this by construing the document to reflect the parties’ agreement. Alternatively, they can rectify the instrument. Claims for the remedies tend to go hand in hand, but an action for correcting a mistake by construction is not a summary version of an action for rectification. It forms part and parcel of the process of interpreting a document to get as close as possible to the meaning intended by the parties.
However, claims for the remedies are usually advanced in the alternative. This enables evidence of the negotiations to be placed before the court (even though the evidence is inadmissible when interpreting the document) and if, on its true construction, the agreement means what the claimant says it means, there will be nothing for the court to rectify. Only if the court decides that it cannot correct the contract by construing it differently will the question of rectification arise.
Woodford Land Ltd v Persimmon Homes Ltd [2011] EWHC 984 (Ch); [2011] PLSCS 109 illustrates the relationship between the remedies. The parties entered into put-and-call options for the sale of land at a price calculated in accordance with a formula prescribed by the option agreements. They each argued that the other should bear the cost of affordable housing because the provisions they had agreed were inconsistent.
The judge ruled that the specific provisions dealing with the cost of affordable housing, which favoured the seller, overrode a general provision in the buyer’s favour. Consequently, the seller’s interpretation of the agreement was correct.
Alternatively, the parties had reached an outward expression of accord, evidenced by the heads of terms and communications between them. They had intended that the buyer would pay for any affordable housing and had never wavered from their intention. Therefore, if the agreement did not already bear the meaning ascribed to it by the seller, the judge would have rectified it to ensure that it did.
Unfortunately, however, the court cannot rectify an agreement if it already means what the claimant says it means. This will not normally pose a problem because the court will have upheld the claimant’s interpretation of the document – but Woodford is a case with a twist.
The parties had obtained an expert determination in which the independent expert had interpreted the contract differently (because the seller conceded the point). The parties had agreed that the expert’s determination would be final and were bound by their contract to accept his decision. The seller’s hands were therefore tied and its case depended entirely on the success or failure of its application for rectification.
However, the true construction of a document is a matter of law. It is not something that parties can agree between themselves in a manner that will bind the court – and the judge had interpreted the options differently. Consequently, he dismissed the application for rectification, leaving the seller to collect substantially less than it had hoped to receive.
Allyson Colby is a property law consultant
