Premium – Payment by instalments – Unilateral mistake – Rectification – Claimant pleading mistake as to consequences of proviso to sale agreement – Whether claimant entitled to rectification transferring liability to defendant – Whether defendant entitled to summary judgment – Application dismissed
In April 1998, the claimant took a 199-year lease from the local council of derelict business premises at a rent of £100 pa with a premium of £650,000. The premium was payable in 10 annual instalments of £65,000, the first payable in April 2000 and the remainder on the same date in each subsequent year. However, the claimant paid the instalments by monthly payments in arrears and the council agreed to, or acquiesced in, that arrangement.
The claimant renovated the property, which became a successful retail and leisure unit. The defendant agreed to purchase the lease, subject to contract, for £16.3m. The sale brochure stated that part of the premium would remain payable but it did not disclose the existing arrangement for payment. The execution of the agreement was delayed and an instalment became due in April 2006, prior to the contract having been signed. Unbeknown to the defendant, the claimant did not pay the instalment but continued to make the monthly payments under the arrangement.
The council approved the draft assignment of the lease and sent it to the defendant’s solicitor, stating that the latter would receive a receipt confirming that all premium payments had been paid. The defendant subsequently agreed to complete the purchase without such confirmation, subject to a proviso that, on completion, the claimant would deliver to the defendant a receipt for the rent and capital payment due in April 2006.
The receipt was not produced and a dispute arose as to which party was liable to pay the instalment. The defendant argued that, by having failed to produce the receipt, the claimant was in breach of contract. The claimant contended that it had mistakenly believed that the amendment did not override the term in the original heads of agreement whereby the defendant would pay the instalment. The claimant applied to rectify the agreement accordingly. The defendant sought summary judgment on the ground that the claimant had no prospect of success.
Held: The application was dismissed and summary judgment was granted.
The claimant had no real prospect of establishing its claim for rectification on the ground of unilateral mistake and the defendant was therefore entitled to summary judgment.
The conditions for the remedy of rectification for unilateral mistake had to be strictly satisfied since that remedy would impose upon the defendant a contract that it had not intended to make. To establish its claim to rectification, the claimant was required to plead and establish that the defendant had had actual knowledge of the claimant’s mistake, subject to two qualifications. First, actual knowledge included wilfully shutting one’s eyes to the obvious and wilfully and recklessly failing to make such enquiries as an honest or reasonable man would make. Second, if the defendant intended to mislead the claimant and had deliberately tried to divert the claimant’s attention from discovering the mistake, it was not necessary for the defendant actually to have known that the claimant was mistaken; it was sufficient that the defendant merely suspected that the claimant had been mistaken: George Wimpey (formerly Wimpey Homes Holdings Ltd) v VI Construction Ltd (formerly VI Components Ltd) [2005] EWCA Civ 77 applied.
The amendment plainly and unequivocally obliged the claimant to pay the instalment. The critical fact was that the matters that had apparently induced the claimant to believe that the amendment had no such effect had been unknown to the defendant. Absent that knowledge, there was no reason why the defendant should not have proceeded on the basis that the claimant knew that it had to provide a receipt for the payment of the instalment. Moreover, there was no reason why the defendant could, or should, have known or suspected the mistake.
Martin Young (instructed by H Montlake & Co) appeared for the claimant; Michael Pryor (instructed by Russell-Cooke) appeared for the defendant.
Eileen O’Grady, barrister
