Background

Correcting a mistake in a commercial agreement

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How can it be resolved?

‘Never interrupt your enemy when he is making a mistake,’ said Napoleon Bonaparte, and many a business advantage has been achieved by not pointing out a mistake or an omission by the other side in a deal or negotiation. But what can you do if you do notice that a mistake or omission has been made and this is to your detriment?

If you have entered a business contract which does not accurately reflect the terms that were agreed, or which contains a fundamental error or misunderstanding, then it may be possible for you to apply to the court to have the contract amended or declared void. However, it is important that you act quickly in seeking the court’s help, as any rights you have to address a contractual mistake may be lost if you do not take appropriate steps within what the court considers to be a reasonable amount of time.

The law on contractual mistakes

There are four types of contractual mistakes recognised in law:

  • a common mistake, which occurs when all of the parties to a contract have relied on the same mistake – for example, a drafting error which neither party has picked up and which means that a particular contractual provision does not reflect either party’s intentions;
  • a mutual mistake, which occurs when the parties have misunderstood each other’s intentions and have clearly been acting at cross-purposes;
  • a unilateral mistake, which occurs when just one party has acted in reliance on a mistake, but the other party is aware of this and has sought to take unfair advantage; and
  • a mistake as to identity, which occurs when there has been a mistake concerning the identity of one of the contracting parties.

The mistake may relate to:

  • the factual basis on which the contract was agreed;
  • the terms of a written agreement drawn up to reflect the deal negotiated;
  • the law as it was at the time the contract was agreed; or
  • the subject matter of the contract or (as noted above) the identity of the contracting parties.

Before the court will agree to intervene to deal with a contractual mistake, there are set criteria that need to be satisfied. These will vary depending on the type of mistake that has occurred.

The criteria for unilateral mistakes

To prove that there has been a unilateral mistake which justifies a written agreement being amended (or rectified, to use the correct legal terminology), the party seeking to challenge the contract (Party A) needs to be able to establish:-

  • That they erroneously believed that the contract in question contained a particular term or provision which it turns out was not included, or alternatively that the contract did not contain a particular term or provision which it turns out that the contract did contain;
  • That the other party to the contract (Party B) was aware (or ought to have been aware) of the erroneous exclusion or inclusion of the relevant term or provision, and that this was attributable to a mistake on the part of Party A, and yet they did nothing to draw this to Party A’s attention; and
  • That the inaction of Party B in drawing attention to the mistake was calculated to enable Party B to benefit from the mistake.

Powers of the court to intervene

The court has wide ranging powers when it comes to dealing with a contractual mistake. However, the exercise of these powers is discretionary and it is therefore necessary to present a compelling case to persuade the court that an order in your favour ought to be made.

Among the things that you might be entitled to ask the court to do are:

  • to make an order for the contract to be rescinded, i.e. cancelled;
  • to make an order for the contract to be rectified, i.e. by changing one or more provisions to give effect to what was actually agreed or to reflect the common intention – note however that this type of order can only be made where there is a written, as opposed to oral, contract in place;
  • to make an order for the payment of damages, for example to provide reimbursement for any overpayment or to reflect the profit that one party has made at the expense of the other;
  • to make an order for the return of any money or property that has been handed over; or
  • to make an order for specific performance, i.e. to compel a party to perform a specific act.

How we can help

Our dispute resolution lawyers specialise in helping businesses to resolve contractual disputes through correspondence, negotiation, face-to-face meetings, mediation and, if all else fails, the instigation of court proceedings.

We can provide an expert opinion on whether a unilateral (or indeed some other type) of contractual mistake has occurred. We will advise you on commercially sensible options for addressing this which recognise both the strength of your position and the desirability of dealing with the dispute as quickly and economically as possible.

Where a claim based on mistake is not feasible, we can consider whether there may be any other action that you can take, such as bringing a claim for breach of contract or for innocent, negligent or fraudulent misrepresentation.

Where legal proceedings need to be issued, we will work closely with you to develop the most compelling or robust defence that we can, depending on whether you are the one alleging that a mistake has occurred or a party who wishes to argue strongly that it has not. For further information, please contact Luke Edwards in our Dispute Resolution Team on 01733 882800 or [email protected].

Luke Edwards LLB, Solicitor


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