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When will the court let you fix a mistake in a contract?

A court can consider what the intentions of the parties were when the contract was entered into, when looking at rectifying a mistake. The Court of Appeal reinforced that this is the correct test to apply in FSHC Group Holdings Limited v GLAS Trust Corporation Limited [2019] EWCA Civ 1361.

In this case, two deeds were entered into for the purpose of giving missing security for a prior acquisition. It came to light that an unintended effect was to impose additional onerous obligations on one party. The parties sought rectification. The Court granted rectification because, at the time the deeds were executed, the parties understood and expected the deeds to only provide the missing security.

Case law from 2009 (Chartbrook v Persimmon) held that the test should be an objective rather than a subjective one. That finding was rejected by the Court of Appeal here which decided that the rationale for a subjective test is that rectification is an equitable remedy intended to correct a common mistake (an inadvertent failure to give effect to what the parties actually intended). The Chartbrook case and the objective test is no longer relevant to assessing parties’ intentions for any rectification purposes.

Takeaway Point: When negotiating, always keep notes of meetings and any other records that reflect the intention of the parties. If a mistake turns out to have been made, such records may prove to be very helpful.

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