Archive for the ‘Rectification’ Category

Rectification: quality of evidence of the common mistake

November 5, 2013

In Ahmad v Secret Garden (Cheshire) Ltd ([2013] EWCA Civ 1005, CA (Eng)) A and S negotiated the terms of a lease. They signed a document (lease 1) that did not contain all of the terms but did record some of the agreed terms. This allowed S to sub-let. They then signed a lease that did not allow S to sublet (lease 2). A assured S that the terms of lease 1 were valid and binding.  A sought possession on the grounds of unlawful sub-letting. Whether he could succeed depended on whether lease 2 could be rectified to include the terms agreed in lease 1. The Manchester County Court ordered rectification and A’s appeal against this failed.

On the question of the quality of evidence of a common mistake that is required, Arden LJ said:

‘The evidence must meet the requirement for the outward expression of accord. This stems from the law’s concern that parties should not be able to disassociate themselves from their agreement simply because it has become commercially undesirable. They have to show clear evidence of a consensus on some issue which the executed and unrectified agreement does not reflect. The agreement has to be objectively ascertained by reference to what they both did and said, and not to what each of them may privately have thought.’ ([43]).

The decision to execute a second agreement not containing the terms of lease 1 was not decisive in this case. This was not a case where the parties had made a conscious decision to keep some of the agreed terms in a separate document ([52] – [53]).

Michael Lower

Faulty sub-DMC: rectification

April 10, 2013

In Re Lee Mei Yan Kris ([2013] HKEC 382, CFI) a flat was owned by three people as tenants in common in equal shares. The flat was partitioned in 1980.  A sub-DMC was entered into but this failed to express the parties’ common intention that each was to have a one-third share of the shares attached to the flat. The assignment to one of the owners made a mistake and purported to attach 11/20 of the shares attached to the flat to the part assigned. A later purchaser sought rectification of the 1980 assignment to reflect the common intention of the tenants in common that each was to own one-third of the shares attached to the flat. This relief was granted.

Deputy Judge Marlene Ng identified the applicable principles thus:

‘a party seeking rectification for a common mistake should show that (a) the parties had a common continuing intention in respect of a particular matter in the instrument to be rectified, (b) there was an outward expression of accord, (c) the intention continued at the time of the execution of  the instrument sought to be rectified, and (d) by mistake the instrument did not reflect that common intention.’ ([19])

These conditions were satisfied here. The relief was granted ex parte since the relevant tenant in common could not be found.

Woops! The problem of the missing clause

January 29, 2013

In Sadd v Brown ([2012] UKUT 438 (LC)) the Upper Tribunal (Lands Chamber) had to deal with a dispute between the tenant of a flat held on a long lease and her landlord. The landlord covenanted to insure the building for its full reinstatement value. It sought to recover the cost of insuring the building. Unfortunately, there was no tenant’s covenant to reimburse a share of the premium.

The landlord sought to rely on a covenant to pay and indemnify the lessor against ‘all rates duties charges assessments impositions and outgoings whatsoever’. This was not adequate since this wording did not indicate an intention to repay an expense voluntarily incurred by the lessor ([18]). The landlord also relied on a number of other aspects of the service charge provisions in the lease but none of them amounted to an obligation to reimburse a share of the insurance premium (not even a covenant to contribute to the costs of estate management) ([16]).

Finally, there was no implied covenant. The lease was detailed and (on its face) a complete record of the terms that had been agreed ([20]). Business efficacy did not demand that a term to reimburse a share of the premium be implied. The mere fact that the landlord covenanted to insure was not a sufficient basis on which to imply the term. Nor was the fact that such a term would have been expected and was commonly encountered ([19] – [20]).

On the contrary:

‘To imply a term in the present case would be ‘to effectively draft a completely new paragraph in the Fifth Schedule to the Lease’ ([21].

The landlord could seek rectification or apply for the lease to be varied under Part IV of the Landlord and Tenant Act 1987 ([23]).

Missing terms and section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989 (England and Wales)

January 11, 2013

In Francis v F Berndes Ltd ([2011] EWHC 3377 (Ch)) C alleged that D had agreed to sell property to him for GBP50,000. The agreement was alleged to have been reached orally and then recorded in a document on D’s headed paper that was signed by C and D. The written agreement recorded D’s willingness to sell for GBP50,000 but not C’s obligation to buy at that price. The court held that the agreement did not comply with section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989 (requiring land contracts to be written). C’s obligation to buy could not be implied from his signature on the contract ([31]). Nor was rectification available to allow the written document to be altered to reflect C’s oral agreement to buy. This was not a legitimate use of rectification and it would undermine the policy behind section 2(1) ([37] – [44]).

Member of Wui objecting to sale

July 26, 2011

The mere fact that a member of a Wui signs a form consenting to a sale of Wui property does not estop him from lodging objections to the sale with the District Officer (or otherwise bind him to promote the carrying out of a contract entered into by the managers of the Wui for the sale of Wui property). The managers of a Wui are in a trustee relationship with members (they are not the agents of the members). Rectification of a formal agreement to make it conform to the terms of a provisional agreement will only be ordered where there is convincing proof that the provisional agreement reflects the parties’ true intentions while the formal agreement does not.

In Million Way Ltd v To Shing Wo ([2011] HKEC 560, CA) the managers of a Wui negotiated the sale of Wui property to MW. The members of the Wui approved the sale. A provisional agreement for sale was entered into, this was conditional on obtaining the District Officer’s consent to the sale. The provisional agreement gave MW the right to terminate the agreement if the consent was not obtained within a specified time. The formal agreement, by contrast, provided that the agreement would terminate automatically if the consent had not been obtained by the end of the relevant period.  An application to sell the property was signed by the  members of the Wui, including D4.  D4, nevertheless, wrote to the District Officer objecting to the sale and, as a result, the District Officer refused to consent to the sale. When the period specified in the formal agreement came to an end without the consent having been obtained, the Wui’s solicitors claimed that the agreement was terminated. MW sought a declaration that D4 was estopped from acting so as to prevent the necessary consent from being obtained.

On appeal, MW argued that the managers acted on behalf of the members and that each member was bound by the contract (and therefore precluded from acting so as to prevent the consent from being obtained). This was rejected, managers are trustees for, not agents of, the Wui members. The managers personally enter into the contract. MW also sought rectification of the formal agreement so that it reflected the terms of the Provisional Agreement (which gave MW an option as to whether to terminate the contract or not). This also failed. MW had failed to provide convincing proof that the terms of the Provisional Agreement (rather than the Formal Agreement) reflected the parties’ intentions.