[0] In FSHC Group Holdings Ltd v GLAS Trust Corp Ltd [2019] EWCA Civ 1361, [2020] Ch 365, Leggart LJ (giving the judgment of the Court of Appeal) said, at paragraphs 51 to 175 (a very long extract):

'The traditional approach of courts of equity

'51. The jurisdiction of the Court of Chancery to correct mistakes in written instruments by rectification can be traced back to its roots in canon and Roman law. Cases in which the remedy was recognised can be found in the 16th and 17th centuries. In the middle of the 18th century, in Henkle v Royal Exchange Assurance Co (1749) 1 Ves Sen 317, 318, Lord Hardwicke LC sitting in the Court of Chancery was in “no doubt, but this court has jurisdiction to relieve in respect of a plain mistake in contracts in writing as well as against frauds in contracts: so that if reduced into writing contrary to intent of the parties, on proper proof that would be rectified”. In Shelburne v Inchiquin (1784) 1 Bro CC 338, 341, on a claim to rectify a written agreement made in contemplation of marriage, Lord Thurlow LC considered it “impossible to refuse, as incompetent, parol evidence, which goes to prove, that the words taken down in writing were contrary to the concurrent intention of all parties”. These statements of principle were approved by Lord Eldon LC in Townshend v Stangroom (1801) 6 Ves 328, 333. Half a century later in Fowler v Fowler (1859) 4 De G & J 250, 264, Lord Chelmsford LC said:

“The power which the court possesses of reforming written agreements where there has been an omission or insertion of stipulations contrary to the intention of the parties and under a mutual mistake is one which has been frequently and most usefully exercised.”

52. There can be no doubt that where, in these and other cases in which rectification was claimed, judges referred to the “intention” of the parties, they were referring to what the parties actually intended. Indeed, the use of the term “intention” to refer to what an “objective” observer would reasonably have understood the parties’ intention to be from their communications (irrespective of their actual states of mind) is, we believe, a comparatively recent legal artefact. That the court was concerned on a claim for rectification of a written contract (or other instrument) to identify what the parties actually intended its terms to be is confirmed by the fact that they were allowed, and indeed expected, to give evidence of what was in their minds when they executed the document. In Fowler v Fowler Lord Chelmsford LC said (at p 265):

“It is clear that a person who seeks to rectify a deed upon the ground of mistake must be required to establish, in the clearest and most satisfactory manner, that the alleged intention to which he desires it to be made conformable continued concurrently in the minds of all parties down to the time of its execution …”

In that regard, the Lord Chancellor further observed (at pp 273–274) that:

“Upon the question of rectifying a deed, the denial of one of the parties, that it is contrary to his intention, ought to have considerable weight. Lord Thurlow, in Irnham v Child 1 Bro CC 93 says, ‘The difficulty of proving that there has been a mistake in a deed is so great, that there is no instance of its prevailing against a party insisting that there was no mistake’. And Lord Eldon, in Townshend v Stangroom 6 Ves 334, after observing that Lord Thurlow seems to say that the proof must satisfy the court what was the concurrent intention of all the parties, adds, ‘And it must never be forgotten to what extent the defendant, one of the parties, admits or denies the intention’.”

53. The relevance of the actual subjective intentions of the parties also follows from the rationale of the equitable remedy of rectification, as historically understood. In Story, Commentaries on Equity Jurisprudence, 4th ed (1846) (the last edition for which that distinguished jurist was personally responsible), vol 1, ch 5, para 155, having discussed the rectification of documents fraudulently drawn up, the author explained:

“It is upon the same ground that equity interferes in cases of written agreements, where there has been an innocent omission or insertion of a material stipulation, contrary to the intention of both parties, and under a mutual mistake. To allow it to prevail in such a case would be to work a surprise, or fraud, upon both parties; and certainly upon the one who is the sufferer. As much injustice would to the full be done under such circumstances, as would be done by a positive fraud, or an inevitable accident. A Court of Equity would be of little value, if it could suppress only positive frauds, and leave mutual mistakes, innocently made, to work intolerable mischiefs contrary to the intention of parties. It would be to allow an act, originating in innocence, to operate ultimately as a fraud, by enabling the party, who receives the benefit of the mistake, to resist the claims of justice, under the shelter of a rule framed to promote it. In a practical view, there would be as much mischief done by refusing relief in such cases, as there would be introduced by allowing parol evidence in all cases to vary written contracts.”

54. An illustration of this reasoning can be seen in Calverley v Williams (1790) 1 Ves Jun 210, 211, in which the question was whether a particular piece of land was correctly included in the description of the land to be conveyed under a contract of sale. Lord Thurlow LC said that:

“if both [parties] understood, the whole was to be conveyed, it must be conveyed. But again, if neither understood so, if the buyer did not imagine he was buying, any more than the seller imagined he was selling, this part, then this pretence to have the whole conveyed is as contrary to good faith upon his side, as the refusal to sell would be in the other case. The question is, does it appear to have been the common purpose of both to have conveyed this part.”

55. In other words, it is contrary to good faith for a party to take advantage of a mistake made in drawing up a written contract by seeking to apply the contract inconsistently with what that party knew to be the common intention of the parties when the document was executed.

The antecedent contract theory

56. Notwithstanding this long line of authority, there developed in the second part of the 19th century and early 20th century what eventually became a “formidable array of judicial opinion” (per Russell LJ in Joscelyne v Nissen [1970] 2 QB 86, 93) in support of the view that a contractual document could only be rectified in order to bring it into conformity with a contract that already existed before the document was executed and which the document failed accurately to record as a result of a mutual mistake. This view seems to have originated in the following statement of James V-C in Mackenzie v Coulson (1869) LR 8 Eq 368, 375:

“Courts of Equity do not rectify contracts; they may and do rectify instruments purporting to have been made in pursuance of the terms of contracts. But it is always necessary for a plaintiff to show that there was an actual concluded contract antecedent to the instrument which is sought to be rectified; and that such contract is inaccurately represented in the instrument: …”

57. The high-water mark of this theory was Lovell & Christmas Ltd v Wall (1911) 104 LT 85. The written contract in that case contained a restrictive covenant limiting the defendant's freedom to carry on the business of a “provision merchant” other than on behalf of the plaintiff company. On the facts found, the parties in their discussions before the contract was signed never reached any consensus on the intended scope of the restrictive covenant. On any view the claim for rectification therefore could not succeed. But in giving his reasons for dismissing the plaintiff's appeal to the Court of Appeal, Lord Cozens-Hardy MR made these general observations (at p 88):

“The essence of rectification is to bring the document which was expressed and intended to be in pursuance of a prior agreement into harmony with that prior agreement. Indeed, it may be regarded as a branch of the doctrine of specific performance. It presupposes a prior contract, and it requires proof that, by common mistake, the final completed instrument as executed fails to give proper effect to the prior contract.”

To similar effect, Fletcher Moulton LJ said (at p 91): “to my mind, it is not only clear law, but it is absolutely necessary logic, that there cannot be a rectification unless there has been a pre-existing contract, which has been inaptly expressed.” Buckley LJ stated the principle differently (at p 93):

“For rectification it is not enough to set about to find out what one or even both of the parties to the contract intended. What you have to find out is what intention was communicated by one side to the other, and with what common intention and common agreement they made their bargain.”

58. As later noted by the Court of Appeal in Joscelyne v Nissen [1970] 2 QB 86, 90, Lovell & Christmas Ltd v Wall was not mentioned in textbooks and seems to have disappeared from professional sight for many years. It was not cited in Shipley Urban District Council v Bradford Corpn [1936] Ch 375, despite the fact that the court in that case heard “very elaborate and careful argument” (per Clauson J at p 391) on the question whether the power to rectify a contractual document is limited to the case where there is a pre-existing binding contract. On the facts of the Shipley case the parties had reached a clear common understanding in their negotiations as to how they intended the price of water supplied to the plaintiff council by the defendant corporation to be calculated; but, as each party only had power to contract under seal, no legally enforceable agreement could be made until a contract under seal was executed. In the event the judge held that the language of the contract bore the meaning for which the plaintiff council contended, so that its alternative claim to rectify the wording did not arise. Clauson J nevertheless summarised the “long and ancient line of authorities” showing that “rectification proceeds on proof of mutual mistake in recording the concurrent intention of the parties at the moment of execution of the instrument which it is sought to rectify”: p 396. He said that, had it been necessary for him to decide the point, he should have felt “some difficulty” in following dicta suggesting that proof of a prior contract was necessary and “should have felt bound to hold” that, on the facts found, it was necessary to rectify the instrument so as to accord with the concurrent intention of the parties at the moment of execution.

59. In Crane v Hegeman-Harris Co Inc (Note) [1971] 1 WLR 1390, 1391; [1939] 1 All ER 662, 664, Simonds J endorsed in emphatic terms the view of Clauson J in the Shipley case that “it is not necessary to find a concluded and binding contract between the parties antecedent to the agreement which it is sought to rectify”. Rather:

“it is sufficient if you find a common continuing intention in regard to a particular provision or aspect of the agreement. If you find that in regard to a particular point the parties were in agreement up to the moment when they executed their formal instrument, and the formal instrument does not conform with that common agreement, then this court has jurisdiction to rectify although it may be that there was, until the formal instrument was executed, no concluded and binding contract between the parties.”

Simonds J said that he wholly concurred with the reasoning of Clauson J in the matter and could add nothing to his authority, except to say that:

“if it were not so, it would be a strange thing, for the result would be that two parties binding themselves by a mistake to which each had equally contributed, by an instrument which did not express their real intention, would yet be bound by it. That is a state of affairs which I hold is not the law …”

60. It can be seen that, in the first passage quoted above, Simonds J referred interchangeably to the “common intention” and “common agreement” of the parties. Elsewhere in the judgment he also used on several occasions the expressions “true consensus of the parties” and “the true consensus of their minds”, and he concluded that the defendants were entitled to have the written agreement rectified so as to “bring it into conformity with the consensus of their minds”. Two important points are clear from these formulations and from the way in which Simonds J analysed the evidence given at the trial. First, he plainly regarded the power to rectify the written agreement as dependent upon proof that it did not accurately represent the actual (subjective) intentions of the parties and was thus concerned to identify what was “in their minds”. To that end the judge did not regard the relevant evidence as limited to matters which would have been apparent to an “objective observer”. He considered and evaluated the testimony given by the individuals who represented the defendants in the negotiations and by the plaintiff, Mr Crane, about what they each (subjectively) believed and intended at the relevant time. Simonds J also attached considerable weight to a memorandum written by Mr Crane to his own solicitor, in respect of which privilege had been waived. This was not a communication which had “crossed the line” between the parties, but the judge observed (at p 1397) that: “privilege was waived in respect of many documents in this case in order that I might be able to examine fully into the minds and intentions of the parties at the time when this agreement was being negotiated and executed.”

61. The second significant point to note is that, while he regarded it as necessary, equally clearly Simonds J did not regard it as sufficient to prove that the written agreement did not reflect what each party subjectively intended. He treated it as necessary for the purposes of rectification to show that the formal agreement did not represent the “real agreement” between the parties with regard to the matter in issue—using the term “agreement” not in the sense of a legally binding contract but in the sense of a consensus or shared intention of the parties achieved through communication between them. It is apparent from the whole of the judgment that this is what Simonds J meant and understood by the requirement to show a “common intention”.

62. On appeal in Crane v Hegeman-Harris Co Inc [1939] 4 All ER 68 the Court of Appeal expressed its agreement with the judgment of Simonds J on the question of rectification, although there does not appear to have been any argument about the correct legal test. 

Rose v Pim: The “horsebeans” case

63. The “lost cause” (per Russell LJ in Joscelyne v Nissen [1970] 2 QB 86, 91) of Lovell & Christmas Ltd v Wall 104 LT 85 was re-discovered in Frederick E Rose (London) Ltd v William H Pim Jnr & Co Ltd [1953] 2 QB 450. This was the “horsebeans” case, which “has amused generations of law students” (per Tadgell JA in The Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd (2001) 3 VR 526, para 5). The plaintiffs, who were London merchants, had been asked by Egyptian buyers to supply “feveroles”. Not knowing what this term meant, they asked the defendants’ representative, who responded that “feveroles” meant horsebeans. Relying on this information, the plaintiffs contracted to buy a quantity of horsebeans from the defendants, which they then sold on as “feveroles” to the Egyptian buyers. To fulfil the contract, the defendants purchased “horsebeans” from an Algerian supplier. There are in fact different varieties of horsebeans and those supplied were “feves”, which were less valuable than “feveroles”. The Egyptian buyers claimed the difference in value as damages from the plaintiffs, who then sought to rectify their contract with the defendants by adding the word “feveroles” after the references to “horsebeans”. The judge granted rectification, but that decision was reversed by the Court of Appeal on the ground that the written contract correctly recorded what the parties had agreed.

64. A passage in the judgment of Denning LJ (at p 461) has since been relied on, most importantly in the Chartbrook case [2009] AC 1101, as expounding an objective approach to rectification:

“Rectification is concerned with contracts and documents, not with intentions. In order to get rectification it is necessary to show that the parties were in complete agreement on the terms of their contract, but by an error wrote them down wrongly; and in this regard, in order to ascertain the terms of their contract, you do not look into the inner minds of the parties—into their intentions—any more than you do in the formation of any other contract. You look at their outward acts, that is, at what they said or wrote to one another in coming to their agreement, and then compare it with the document which they have signed. If you can predicate with certainty what their contract was, and that it is, by a common mistake, wrongly expressed in the document, then you rectify the document; but nothing less will suffice.”

65. As Sir Nicholas Patten explained in the Chancery Bar Association 2013 Annual Lecture, “Does the law need to be rectified? Chartbrook revisited”, para 12, this passage needs to be read in its historical context:

“It was delivered some 17 years before the Court of Appeal stated unequivocally in Joscelyne v Nissen that the parties’ pre-existing accord need not be contractual and it is little more than a statement of what many judges at that time considered the scope of rectification to be. If, as [Denning LJ] said, you can predicate with certainty what their contract was and by common mistake it was wrongly expressed in the written document, then the court can intervene to create consistency between the two. All that one is doing: indeed all that one could do in such circumstances was to ensure that the terms of the prior contract were accurately recorded. What the parties believed those terms to mean was irrelevant. All that the court was concerned with was whether there had been a prior contract and what its terms were. That required a conventional application to the facts of the test as to whether a contract had been reached which depends upon an objective assessment of the parties’ dealings and takes no account of their subjective intention or understanding of what was agreed.”

66. As Sir Nicholas Patten pointed out, this thinking comes out even more clearly in the immediately following passage of Denning LJ's judgment in Rose v Pim [1953] 2 QB 450, 461–462, where he said:

“It is not necessary that all the formalities of the contract should have been executed so as to make it enforceable at law (see Shipley Urban District Council v Bradford Corpn [1936] Ch 375 ); but, formalities apart, there must have been a concluded contract. There is a passage in Crane v HegemanHarris Co Inc which suggests that a continuing common intention alone will suffice; but I am clearly of opinion that a continuing common intention is not sufficient unless it has found expression in outward agreement. There could be no certainty at all in business transactions if a party who had entered into a firm contract could afterwards turn round and claim to have it rectified on the ground that the parties intended something different. He is allowed to prove, if he can, that they agreed something different: see Lovell & Christmas Ltd v Wall, per Lord Cozens-Hardy MR, and per Buckley LJ, but not that they intended something different.” (Original emphasis.)

Joscelyne v Nissen

67. The question whether rectification may only be granted to bring a document into conformity with a prior concluded contract was finally resolved in the leading case of Joscelyne v Nissen [1970] 2 QB 86. A father entered into a written contract with his daughter by which he transferred to her his car hire business in return for her agreement to pay him a pension and discharge certain expenses. In their discussions it had been agreed between them that these expenses should include the father's gas, electricity and coal bills and the cost of home help. However, the daughter argued, and the trial judge held, that the signed contract did not on its proper interpretation provide for payment of these expenses. The judge nevertheless rectified the written contract to provide for these expenses to be paid by the daughter, although he found that no binding contract had been concluded until the document was signed. The daughter appealed, contending that as a matter of law the remedy of rectification was not available to the father in the absence of an antecedent concluded contract.

68. The Court of Appeal, after a full review of the authorities, rejected this contention. Russell LJ, who gave the judgment of the court, concluded that “the law is as expounded by Simonds J in Crane's case with the qualification that some outward expression of accord is required”: see p 98.

69. The Court of Appeal also approved, as apt to cover the case before them, the following statement of Megaw J in London Weekend Television v Paris and Griffith (1969) 113 SJ 222 :

“Where two persons agreed expressly with one another what was the meaning of a particular phrase but did not record their definition in the contract itself, if one of the parties sought to enforce the agreement on the basis of some other meaning, he could be prevented by an action for rectification.”

Rose v Pim was explained (at p 97) on the basis that:

“It turned out that locked separately in the breast of each party was the misapprehension that the word ‘horsebeans’ meant another commodity, but as we understand the case there was no communication between them to the effect that when they should speak of horsebeans that was to be their private label for the other commodity. The decision in our judgment does not assert or reinstate the view that an antecedent complete concluded contract is required for rectification: it only shows that prior accord on a term or the meaning of a phrase to be used must have been outwardly expressed or communicated between the parties.”

In so far as Denning LJ had suggested that an “antecedent complete concluded contract” is necessary, the Court of Appeal rejected his view as inconsistent with the views of both courts in Crane v Hegeman-Harris and as not supported by the other judgments in Rose v Pim. In so far as he was speaking of “agreement in the more general sense of an outwardly expressed accord of minds”, the Court of Appeal said that Denning LJ had done no more than accept the argument advanced by counsel for the appellant in Rose v Pim as to “the true width of the views of Simonds J”. That argument was that, when Simonds J said in Crane's case that it was sufficient to find a “common continuing intention”, he meant intention “as expressed”: see [1953] 2 QB 450, 457.

70. The suggestion that in Rose v Pim the understanding that “horsebeans” meant “feveroles” turned out to be “locked separately in the breast of each party” is difficult to follow as, on the facts found in Rose v Pim, the plaintiffs’ understanding was derived from communication with the defendants’ representative. It appears that the case was indeed one in which the parties were using the word “horsebeans” as their own private label for “feveroles”. But as Sir Kim Lewison pointed out in the Jonathan Brock Memorial Lecture, 21 May 2008, “If it ain’t broke, don’t fix it”, para 50, at the time when Rose v Pim was decided the law had not yet clearly recognised that rectification was an available remedy where parties had deliberately chosen words but were mistaken about their meaning. That possibility, as Sir Nicholas Patten observed in the passage from his Chancery Bar Association lecture quoted earlier, was not consistent with the view that the sole function of rectification was to ensure that the terms of the prior contract were accurately recorded. It has since, however, become well established. In In re Butlin's Settlement Trusts [1976] Ch 251, 260, Brightman J said that rectification is available:

“not only in a case where particular words have been added, omitted or wrongly written as the result of careless copying or the like. It is also available where the words of the document were purposely used but it was mistakenly considered that they bore a different meaning from their correct meaning as a matter of true construction.”

That statement of the law has been approved and applied on many occasions since, including by the House of Lords in the Chartbrook case [2009] AC 1101, where Lord Hoffmann referred (at para 46) to the availability of rectification in such a situation as a reason why it was unnecessary to relax the rule excluding evidence of prior communications as an aid to interpreting a contract.

71. We agree with Sir Kim Lewison that the best justification for the refusal to grant the remedy of rectification in Rose v Pim [1953] 2 QB 450 is that the contract of which rectification was sought was part of a chain of contracts involving third parties so that, as Denning LJ observed (at p 462): “It would not be fair to rectify one of the contracts without rectifying all three, which is obviously impossible.”

The need for an “outward expression of accord”

72. Joscelyne v Nissen [1970] 2 QB 86 clearly and authoritatively established that a prior concluded contract is not necessary for rectification and that a common intention continuing at the time when a contract is made is sufficient, subject only to the qualification that some “outward expression of accord” is required. That qualification did no more than spell out the sense in which, as discussed earlier, Simonds J in Crane's case [1971] 1 WLR 1390 used the phrase “common intention” to refer to what he also called the “common agreement” of the parties or the “true consensus of their minds”—in other words, an intention which the parties not only each held but understood each other to share as a result of communication between them. The same principle was stated by Buckley LJ in Lovell & Christmas Ltd v Wall 104 LT 85, 93, in the passage we have quoted earlier (and which was also quoted in Joscelyne v Nissen [1970] 2 QB 86, 92) when he said:

“For rectification it is not enough to set about to find what one or even both of the parties to the contract intended. What you have got to find out is what intention was communicated by one side to the other, and with what common intention and common agreement they made their bargain.”

73. By insisting on the requirement of an outward expression of accord, the Court of Appeal was thus making clear that it is not sufficient for rectification to prove that each party privately and independently had the same intention as the other with regard to a particular provision of their contract. There can be no common intention of a kind with which the written contract can justifiably be made to conform if the relevant intentions remained “locked separately in the breast of each party” without being communicated by each party to the other. At the same time, the judgment in Joscelyne v Nissen makes it equally clear that the insistence on an outward expression of accord does not supplant or detract from the need to establish what the parties actually intended the relevant term of the contract (or its effect) to be. The Court of Appeal was not suggesting that only outward appearances are relevant for rectification and that, provided they appear outwardly to be in agreement, the actual intentions of the parties do not matter. On the contrary, the unequivocal holding in Joscelyne v Nissen that the law was correctly stated by Simonds J in Crane's case [1971] 1 WLR 1390 leaves no room for doubt that, in order to find a common intention, it is necessary to establish what was in the minds of the parties. As we have outlined and as was considered in detail in the Shipley case [1936] Ch 375, which was then approved in Crane's case, that has always been the basis of the equitable remedy of rectification. The essence of the remedy is that, in a proper case where there is shown to have been a real mistake, the terms of a written contract (or other document) should be reformed in order to give effect to the parties’ real intention.

74. An illustration of how a claim for rectification may fail at the first hurdle for want of proof that the written contract was contrary to the actual intentions of the parties can be found in Lloyd v Stanbury [1971] 1 WLR 535, a case decided very shortly after Joscelyne v Nissen in which the judge (Brightman J) observed that his approach was laid down for him by the Court of Appeal. The issue was whether a particular plot of land had been included through a common mistake in a written contract for the sale of land. On the facts the court found that, when negotiating the contract, the buyer had not given any thought to the matter and had no positive intention that the relevant plot either should or should not be included. Brightman J saw reason to suspect that the seller intended the plot not to be included but considered the evidence insufficient to make a finding to that effect. Accordingly, no common intention to exclude the plot from the land sold had been established and the claim to rectify the written contract therefore failed.

Uncommunicated intentions

75. The decision in Joscelyne v Nissen [1970] 2 QB 86 was not received with universal approval. Shortly after it was decided, Mr Leonard Bromley QC in an article published in the Law Quarterly Review argued that the Court of Appeal was wrong to require an “outward expression of accord” and that all that is required for rectification is:

“the establishment of the subjective intention of the party or of the parties to the instrument (in the latter case an identical intention). Intercommunication, however necessary in the common law of contract, properly plays no part either in the theory or in the practice of this equitable doctrine …”

See L Bromley, “Rectification in Equity” (1971) 87 LQR 532. Mr Bromley submitted that the presence or absence of an outward expression of accord “may well go to whether the burden of proof can be discharged” but is not “per se a requirement of rectification”.

76. The suggestion that an outward expression of accord is not an absolute requirement for rectification but only of evidential value in proving the parties’ intentions has also from time to time been made by others. It is endorsed in Chitty on Contracts, 33rd ed (2018), vol 1, para 3-064, and was advanced by counsel for the Parent in their skeleton argument for this appeal. Apart from pension cases which we will consider shortly, the authority relied on in Chitty is Munt v Beasley [2006] EWCA Civ 370 at [36], where Mummery LJ expressed the view that an outward expression of accord, although established on the facts of that case, was not a strict legal requirement for rectification where the party resisting rectification had in fact admitted that his true state of belief when he entered into the transaction was the same as that of the other party. Mummery LJ saw the trend in recent cases as being “to treat the expression ‘outward expression of accord’ more as an evidential factor rather than a strict legal requirement in all cases of rectification”. The cases cited by Mummery LJ for this proposition, however, do not in our view support it. The only English authority cited which might at first blush appear to do so is Gallaher Ltd v Gallaher Pensions Ltd [2005] Pens LR 103, para 117. But that was a case involving a pension scheme where, as we are about to discuss, proof of a consensus established through communication between the parties is not required because the relevant transaction is not a contract. In any case, Joscelyne v Nissen clearly held that it is essential for rectification of a written contract to show an agreement, not in the sense of a prior concluded contract but “in the more general sense of an outwardly expressed accord of minds”, and this requirement has been affirmed by the Court of Appeal on many subsequent occasions, as we will see.

77. We also consider that the requirement is sound in principle. As has often been observed, the power of the court to rectify a contractual document is not a power to make an agreement for the parties; it is a power to correct mistakes in recording what the parties have actually agreed. Moreover, the effect of rectification is not merely to prevent a party from enforcing the written terms of a contract: it is to alter those terms so as to establish legal rights and obligations which differ from those recorded in the original contractual document. Leaving aside for the time being cases of rectification for unilateral mistake, establishing new contractual rights and obligations in this way is only justified if they are founded on mutual agreement. Whether the test applied is subjective or objective, it is fundamental that contractual rights and obligations should be based on mutual assent which the parties have manifested to each other and not on uncommunicated intentions which happen, without the parties knowing it, to coincide. Thus, as noted in Tartsinis v Navona Management Co [2015] EWHC 57 (Comm) at [88], it would be capricious if a document which the parties have agreed as the formal record of their contract could be altered to make it conform to the private intention of a party just because, although unknown to that party at the time, it turns out that the other party had a similar intention. We agree with the answer implied to the following question posed by Campbell JA in the Australian case of Ryledar Pty Ltd (trading as Volume Plus) v Euphoric Pty Ltd (2007) 69 NSWLR 603, para 315:

“If two negotiating parties each had a particular intention about the agreement they would enter, and their intentions were identical, but that intention was disclosed by neither of them, and they later entered [into] a document that did not accord with that intention, what would be the injustice or unconscientiousness in either of them enforcing the document according to its terms?”

The pension cases

78. The nature of the requirement to show an outward expression of accord can be further brought out by contrasting a line of cases involving the rectification of amendments made to the rules of employee pension schemes where the trustees of the scheme have the power to alter the rules provided they obtain the consent of the employer. As analysed by Lawrence Collins J in AMP (UK) plc v Barker [2001] Pens LR 77, in this situation no agreement between the trustees and the employer is needed in order to effect a change in the rules: it is sufficient that the employer gives its consent to the proposed change. In such a case it is sufficient to justify rectification that the intentions of the trustees and the employer coincide in that they both independently have the same intention regarding the effect of the amendment. It is not necessary to show that the trustees and the employer had a common intention as a result of communication with each other because the validity of an amendment does not depend on the parties having mutually agreed it—only on one having approved what the other has done.

79. This analysis has been followed in later cases: see eg Gallaher Ltd v Gallaher Pensions Ltd [2005] Pens LR 103, para 117; IBM United Kingdom Pensions Trust Ltd v IBM United Kingdom Holdings Ltd [2012] Pens LR 469. In the latter case Warren J said (at para 19):

“There needs to be cogent evidence of the intentions of both the trustee and the employer where the power of amendment requires the consent of both … In a case such as Chartbrook or Daventry, what is sought to be rectified is a contract; it makes sense that, in order to displace the contract actually made by rectifying it, there should be found a consensus, albeit not one giving rise to a legally binding agreement. In contrast, in a case such as the present, no sort of agreement is required for there to be a valid deed of amendment. What is needed is an exercise of the power of amendment by the trustee and the consent of the employer to the exercise of that power. If that is to be called a consensus, so be it, but it is a different animal from the agreement or consensus which is relevant in a contractual case.”

Tacit agreement

80. Another authority cited in Munt v Beasley [2006] EWCA Civ 370 as support for the suggestion that an outward expression of accord is not a strict legal requirement for rectification was JIS (1974) Ltd v MCP Investment Nominees I Ltd [2003] EWCA Civ 721 at [33]–[34]—where Carnwath LJ quoted with what might be described as cautious or tentative approval the following passage from the judgment of Hart J at first instance:

“A particular intention may be, as it seems to me, as a matter of the general nature of human discourse, be communicated by one party to another without express words necessarily being used. It may therefore sometimes be possible for the court to conclude that there has been sufficient outward evidence of the accord of the parties’ intentions in relation to a particular term of their bargain without either party having actually spelled out to the other that term in so many words. It may be like an implied term in a contract, something which, in the context of the particular discourse, is so obvious that it need not be stated.”

After referring to a submission that there was no room for the implication of terms so as to show accord for the purposes of applying the doctrine of rectification, Hart J continued: “But, for myself, I do not think that that can be right. There are many occasions in ordinary human exchange in which something can be implied and, without being expressly stated, perfectly understood by the other party …” See JIS (1974) Ltd v MCP Investment Nominees I Ltd [2002] EWHC 1407 (Ch) (21 June 2002).

81. The important point made in these passages, however, is not that an outward expression of an accord is unnecessary for rectification. It is that the communication necessary to establish an outwardly expressed accord or common intention which each party understands the other to share need not involve declaring that agreement or intention in express terms. The shared understanding may be tacit.

82. The same point was well made by Campbell JA in the Ryledar case 69 NSWLR 603, para 281, when he said that, in order to form a common intention, parties might come to know of each other's intentions without those intentions being directly stated, through various other means. As he elaborated:

“Those means can sometimes involve a process of conscious and deliberate inference. Those means can sometimes involve simply perceiving a gestalt in a series of events. Those means can depend to some extent on the people involved sharing a common understanding of how particular bodies of knowledge or markets or social institutions they are operating in work—the experienced surgeon, or the experienced chess player, can sometimes see what another surgeon, or chess player, is seeking to do, in a way that an inexperienced person cannot. What matters for present purposes is that for a negotiating party to perform actions or say words from which the other party can gather his or her intention is itself a form of communication. Negotiation of any contract takes place in a context in which various facts are known or assumed by the negotiating parties. Sometimes, for example, if a contract is negotiated in a context where there are well understood business practices and conventions, and nothing is said about those practices and conventions not applying, it can be legitimate to conclude that both parties to the contract intended to act in accordance with those practices and conventions, even if they did not expressly communicate to each other that they intended to act in accordance with those practices and conventions. This view of what is needed before an intention is a common intention, accords, it seems to me, with the Australian case law since Joscelyne.”

This view of what is needed before an intention is a common intention also accords, as it seems to us, with English law since Joscelyne v Nissen [1970] 2 QB 86.

83. An old case which illustrates how a common intention may be formed without needing to be expressly articulated when a contract is negotiated in a context where there is a well understood business practice is Caraman v Aperghis (1923) 17 Ll L Rep 183. Two contracts for the sale of sultanas on c i f terms were drawn up by a broker acting for the sellers. By mistake, the broker used a form intended for spot contracts instead of the form for c i f contracts with the result that the written contracts did not include, as was customary in the trade, a clause exempting the seller from liability in the event of war preventing the delivery of the goods. No reference had been made to this clause in negotiating the contracts because it was a usual clause which did not need to be spelt out, and no one noticed until later that the clause was not included in the forms used to document the transactions. Greer J nevertheless held that the sellers were entitled to have the contractual documents rectified to insert the war clause. His reasoning was that the parties had taken it for granted that, when the written contracts were drawn up, if anyone read through them they would find the clause there.

84. This point is summarised in Chitty on Contracts, 33rd ed (2018), vol 1, para 3-064, in the statement that an accord “may include understandings that [are] so obvious as to go without saying, or that were reached without being spelled out in so many words”.

85. Although leading counsel for the appellant in the present case, Mr Masefield, criticised this formulation, he accepted the general proposition that intentions or understandings may be communicated without being expressly stated. He also accepted that there can be cases where, depending on the circumstances and the context, the fact that an intention or understanding is shared may be apparent from the fact that nothing is said—a form of inference, as Rose LJ observed during oral argument, analogous to the case of the dog that didn’t bark in the night.

86. Mr Masefield confined his criticism of the statement in Chitty to any suggestion that the test for implying a term into a contract is applicable to a claim for rectification. We agree with him that the juridical basis is different. The difference was clearly explained by Mason J in the High Court of Australia in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 346:

“The implication of a term is to be compared, and at the same time contrasted, with rectification of the contract. In each case the problem is caused by a deficiency in the expression of the consensual agreement. A term which should have been included has been omitted. The difference is that with rectification the term which has been omitted and should have been included was actually agreed upon ; with implication the term is one which it is presumed that the parties would have agreed upon had they turned their minds to it—it is not a term that they have actually agreed upon. Thus, in the case of the implied term the deficiency in the expression of the consensual agreement is caused by the failure of the parties to direct their minds to a particular eventuality and to make explicit provision for it. Rectification ensures that the contract gives effect to the parties’ actual intention ; the implication of a term is designed to give effect to the parties’ presumed intention.” (Emphasis added.)

87. The notion that something is so obvious as to go without saying is both a familiar feature of actual human communication (which underlies a whole branch of linguistics, known as “pragmatics”) and a basis for the implication of a term. Provided that it is understood that on a claim for rectification the court is concerned with what the parties actually communicated to each other, and not with identifying their presumed intention by means of an officious bystander test, we consider that the formulation in Chitty is sound.

Britoil v Hunt

88. We have rejected the suggestion, which cannot stand with Joscelyne v Nissen [1970] 2 QB 86, that a correspondence of subjective intentions is all that is required for rectification of a contractual document and that intercommunication is unnecessary. In an important case decided during the period between Joscelyne v Nissen and the Chartbrook case [2009] AC 1101, an argument was advanced for the opposite position that the parties’ subjective states of mind are irrelevant for the purpose of determining whether a written contract should be rectified and that a wholly objective test should be applied. That argument was rejected by the Court of Appeal (with Hoffmann LJ dissenting) in Britoil plc v Hunt Overseas Oil Inc [1994] CLC 561.

89. After the failure of the attempt by the Texan oil tycoon, Nelson Bunker Hunt, in the 1970s to corner the world silver market, his fortune collapsed and his companies were forced to sell off assets. In 1979 two of those companies (the defendants in the subsequent litigation) entered into a contract by which they assigned to the plaintiffs (then the British National Oil Corporation, which subsequently became Britoil plc) their interests in a licence to produce petroleum from a North Sea oil field. Under the terms of the contract the Hunt companies had a right to receive a share of the profits if the exploitation of the oil field was sufficiently successful. A dispute later arose as to whether this right had been triggered. This depended in the first place on what the relevant terms of the contract meant. That question of interpretation was decided in the plaintiffs’ favour. The defendants made an alternative claim for rectification. The contract had been preceded by non-binding “heads of agreement”. The defendants contended that it was the common intention of the parties that the definitive written contract should in the relevant respects give effect to the heads of agreement and that, under the terms of the heads of agreement, their right to a share of profits had been triggered. In so far as the contract on its proper interpretation had a different effect, the contract should be rectified so as to have the same effect as the heads of agreement.

90. The defendants further submitted that for this purpose the parties’ states of mind were wholly irrelevant. They argued that the heads of agreement should be construed objectively, in exactly the same way as a contract is construed.

91. In support of this argument, the defendants relied on three authorities. One was the passage in Denning LJ's judgment in Rose v Pim [1953] 2 QB 450 which we have quoted at para 64 above. Another was George Cohen Sons & Co Ltd v Docks & Inland Waterways Executive (1950) 84 Ll L Rep 97, to which we will return. The third authority was Etablissements Georges et Paul Levy v Adderley Navigation Co Panama SA (The Olympic Pride) [1980] 2 Lloyd's Rep 67, 72, in which Mustill J sought to summarise the law in a few propositions:

“1. The remedy of rectification is available only for the putting right of a mistake in the terms of a document which purports to record the terms of a previous transaction …

“2. Rectification may be granted in two situations: (a) where there is a mistake common to both parties, the mistake being the belief that the document accurately records the terms of the transaction …

“3. The prior transaction may consist either of a concluded agreement or of a continuing common intention. In the latter event, the intention must be objectively manifested. It is the words and acts of the parties demonstrating their intention, not the inward thoughts of the parties, which matter.

“4. The court must be satisfied not only that the document fails to reflect the prior agreement or intention but also that there was a prior or common agreement (or intention) in terms which the court can ascertain.

“5. The court requires the mistake to be proved with a high degree of conviction before granting relief.”

The defendants relied on the sentence we have underlined.

92. Hoffmann LJ accepted the defendants’ argument. In his view, which he thought was supported by the authorities relied on:

“The purpose of rectification of a contract (as opposed to rectification of a unilateral instrument like a will or voluntary settlement) is not to make the instrument accord with what the parties subjectively intended but with what they actually agreed. Agreement in English law does not require a meeting of minds, a consensus ad idem. It is an objective fact, requiring only the appearance of such a consensus. If therefore the parties both intended a written instrument to embody their agreement and it does not do so, the necessary common mistake exists. It does not require that the written instrument should actually mean something different from what each of the parties thought it meant.”

See [1994] CLC 561, 578. Hoffmann LJ accepted that there could be cases in which the proper inference is that the final document represents the true agreement of the parties even though it means something different from prior heads of agreement. However, in the Britoil case Hoffmann LJ thought it clear that:

“the common intention was that the definitive agreement should reflect the meaning of the heads of agreement, whatever that might be. So far as it failed to do so, it was in my judgment a common mistake which should be rectified.”

93. Hoffmann LJ's view was not shared, however, by the majority of the Court of Appeal. Hobhouse LJ, with whose judgment Glidewell LJ agreed “in every respect”, pointed out that there is a material difference between a case where the parties have made a legally binding contract which their formal document is intended to record and a situation where there was no prior contract. In the former case the court will have to construe the earlier contract as a matter of law and give effect to it in a manner analogous to the remedy of specific performance. Where there is no prior contract, by contrast, a different approach is required: see [1994] CLC 561, 572.

94. Hobhouse LJ observed (at p 573) that, as a matter of logic, the defendants’ argument had the result that:

“where there is a succession of documents of increasing formality but without legal effect leading up to a final considered legal document, the ascertainment of the actual agreement between the parties can be thrown back to the successively less formal, less considered and less carefully drafted earlier documents. This cannot be right.”

95. Hobhouse LJ rejected in clear and emphatic terms the defendants’ contention that the heads of agreement should be construed wholly objectively, in the same way as a contract, and that what the parties subjectively intended was irrelevant. The critical reasoning is contained in this passage (at p 573):

“Further, there must be a reality to the allegation of common mistake. It is a factual allegation, not a question of law. On the defendants’ argument before us no actual common mistake is required. The parties are to be treated as if they were bound by the objective interpretation of the, ex hypothesi, non-binding heads of agreement. Where the relevant document is a legally binding document, it is appropriate and just to hold the parties to the objectively ascertained meaning of the words used. But where they are not bound and where the court is only looking at the previous document to help it answer the factual question whether or not there has been a mistake in the preparation of the legal document, the matter becomes one of fact not law. The claimant must prove the mistake and he must prove that it is a common mistake. The answering of that factual question is assisted by considering what is the natural meaning of the words used in an earlier document—people normally mean what they say—but strictly it cannot be concluded by it. It cannot be right to treat as conclusive evidence of the existence of a mistake in the execution of a carefully prepared and clearly expressed later contract the fact that language has been used in an earlier document which is bona fide capable of being understood in more than one way.”

96. Applying this legal analysis, Hobhouse LJ concluded (at pp 573–574) that the judge (Saville J) had been right to find that the defendants had failed to prove that there was any common mistake in the preparation of the written contract. The only evidence relied on was the earlier heads of agreement, which was open to more than one interpretation and was on any view incomplete, and which did not justify the conclusion that the plaintiffs were mistaken when they executed the written contract. As he further emphasised:

“How a court would construe the heads of agreement if they were intended to be a legally binding contract and the court was forced to choose between treating it as void for uncertainty or giving it an effect, is beside the point. What the court is doing is looking to see if the document provides clear evidence to justify the conclusion that the plaintiffs were mistaken when they executed the definitive agreement. In my judgment it does not support that conclusion.”

97. The claim for rectification therefore failed as the court was not satisfied that there was, as a matter of fact, a common mistake.

From Joscelyne to Chartbrook

98. In the 40 years after Joscelyne v Nissen [1970] 2 QB 86 was decided the requirements for rectification for common mistake laid down in that case were applied and re-affirmed by the Court of Appeal on several occasions in addition to the Britoil case. For example, in Co-operative Insurance Society Ltd v Centremoor Ltd [1983] 2 EGLR 52, 53, Dillon LJ said:

“In view of the decision in Joscelyne v Nissen [1970] 2 QB 86, we can take it in this court … that a claimant for rectification has to show a common continuing intention of the parties, outwardly expressed or communicated between them, which is not reflected in the concluded instrument which they have executed, but does not have to show that that common continuing intention amounted to a complete concluded contract antecedent to the instrument which it is sought to have rectified. Such a common continuing intention is conveniently referred to as an ‘agreement’ in inverted commas.”

99. In Agip SpA v Navigazione Alta Italia SpA (The Nai Genova and The Nai Superba) [1984] 1 Lloyd's Rep 353, 359, Slade LJ (with whom Oliver and Robert Goff LJJ agreed) summarised the requirements in this way:

“First, there must be a common intention in regard to the particular provisions of the agreement in question, together with some outward expression of accord. Secondly, this common intention must continue up to the time of execution of the instrument. Thirdly, there must be clear evidence that the instrument as executed does not accurately represent the true agreement of the parties at the time of its execution. Fourthly, it must be shown that the instrument, if rectified as claimed, would accurately represent the true agreement of the parties at that time …”

100. To similar effect, in Swainland Builders Ltd v Freehold Properties Ltd [2002] 2 EGLR 71, para 33, Peter Gibson LJ said that the party seeking rectification must show that:

“(1) the parties had a common continuing intention 1 2, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified; (2) there was an outward expression of accord; (3) the intention continued at the time of the execution of the instrument sought to be rectified; (4) by mistake, the instrument did not reflect that common intention.”

101. This last summary of the requirements for rectification has often been cited. It was quoted with approval by Lord Hoffmann in the Chartbrook case [2009] AC 1101, para 48, though as we will shortly discuss the approach taken by Lord Hoffmann differs from that established by Joscelyne v Nissen and summarised in the Swainland case, which requires an actual common intention to be proved together with an outward expression of accord.

102. A yet further decision of the Court of Appeal which treated it as necessary to establish that both parties actually intended their written contract to contain a particular term as well as giving outward expression to that common intent is Kiriacoulis Lines SA v Cie d’Assurances Maritimes Aeriennes et Terrestres (CAMAT) (The Demetra K) [2002] 2 Lloyd's Rep 581, para 22. Lord Phillips of Worth Matravers MR (who gave the judgment of the court) cited in support of these requirements, in addition to Joscelyne v Nissen, the following statement of Lord Diplock in American Airlines Inc v Hope [1974] 2 Lloyd's Rep 301, 307:

“Rectification is a remedy which is available where parties to a contract, intending to reproduce in a more formal document the terms of an agreement upon which they are already ad idem, use in that document words which are inapt to record the true agreement reached between them. The formal document may then be rectified so as to conform with the true agreement which it was intended to reproduce and enforced in its rectified form.”

We think it clear that in this passage the expression “true agreement” is being used to refer, not to a mere appearance of agreement, but to an actual “consensus ad idem” or what in Joscelyne v Nissen [1970] 2 QB 86, 97 the Court of Appeal described as an “outwardly expressed accord of minds”.

Unilateral mistake

103. It has come to be accepted that the jurisdiction to rectify a written contract is not limited to cases where there was a common mistake and that in certain circumstances rectification may be granted even though at the time of execution of the contract only one of the parties was mistaken about its terms or effect. The development of the modern doctrine stems from the approval in A Roberts & Co Ltd v Leicestershire County Council [1961] Ch 555, 570 of the following statement of principle in Snell's Equity, 25th ed (1960):

“a party is entitled to rectification of a contract upon proof that he believed a particular term to be included in the contract, and that the other party concluded the contract with the omission or a variation of that term in the knowledge that the first party believed the term to be included.”

104. The precise scope of this principle remains controversial. But there is no doubt that it covers at least a case, such as the facts found in Thomas Bates & Son Ltd v Wyndham's (Lingerie) Ltd [1981] 1 WLR 505, where the parties had a common intention that each had communicated to the other but one party before executing the contract realised that the document did not give effect to that intention and changed their mind without telling the other party.

105. The recognition of this principle is consistent with the traditional rationale of rectification for common mistake and gives effect to the same underlying equity. In the case of common mistake it is inequitable for a party to the contract to seek to apply the contract inconsistently with what that party knew to be the common intention of the parties when the written contract was executed. The doctrine of unilateral mistake extends this principle to the situation where a party seeks to apply the contract inconsistently with what that party knew the other party believed to be the common intention of the parties when the written contract was executed.

106. In Holaw (470) Ltd v Stockton Estates Ltd (2000) 81 P & CR 29, para 41, Neuberger J summarised the law in what were then uncontroversial terms as follows:

“Rectification of a bilateral document can be obtained in two types of case. The first is where the party seeking rectification can establish that both parties to the document had an intention that it should contain something different from that which it actually contains, that that intention had been communicated between the parties before execution of the document, and that the intention was shared by both parties up to the time that they executed the document. The second type of case is where the party opposing the claim for rectification appreciated that the document departed from what had previously been negotiated between the parties, and that the other party was under a misapprehension, and the first party, though aware of this, forbore from drawing his attention to the error.”

The Chartbrook case

107. This apparently settled state of the law was thrown into doubt by the observations of Lord Hoffmann on the question of rectification in Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101.

108. In summary, the facts were that owners of land (Chartbrook) made a contract with a developer (Persimmon) granting Persimmon a licence to develop the land for commercial and residential use. Planning permission was granted and the development was built. The sums payable to Chartbrook under the contract included an “additional residential payment” (or “ARP”) which was to be calculated according to a defined formula. On what Chartbrook contended—and the trial judge (Briggs J) and the Court of Appeal held—was the correct interpretation of the contractual formula, the amount payable to Chartbrook was some £4·4m, whereas on Persimmon's case it was only some £900,000. On Persimmon's alternative claim to rectify the contract, Briggs J found that there had been no common mistake, as the two directors of Chartbrook had understood both the relevant clause in the contract and a pre-contractual exchange of letters describing the ARP as having the effect for which Chartbrook contended. The Court of Appeal declined to interfere with that finding.

109. The House of Lords allowed Persimmon's appeal on the issue of interpretation holding that, objectively construed, it was clear that something had gone wrong with the language used to define the ARP in the contract and that a reasonable person would have understood the contractual definition to bear the meaning for which Persimmon contended—essentially because Chartbrook's interpretation, although consistent with ordinary rules of syntax, made no commercial sense. The House of Lords reached that conclusion without taking account of what was said in the pre-contractual correspondence, having declined to depart from the established rule that what is said in the course of negotiating a contract is not admissible for the purpose of drawing inferences about what the contract means.

110. In these circumstances the question whether Persimmon was entitled to have the wording of the contract rectified did not arise. Nevertheless, while acknowledging that the question was “academic”, Lord Hoffmann expressed the opinion that, had it not succeeded on the issue of interpretation, Persimmon would have been entitled to an order for rectification. The basis for this opinion was an argument advanced for the first time on behalf of Persimmon in the House of Lords, encouraged in particular by an article in the Law Quarterly Review by Marcus Smith: “Rectification of Contracts for Common Mistake, Joscelyne v Nissen and Subjective States of Mind” (2007) 123 LQR 116. The argument was that the prior consensus or “continuing common intention” which must be shown in order to found a claim for rectification need not involve any concurrence of the parties’ actual subjective intentions. Its existence must be ascertained objectively by asking what a reasonable observer would have understood the intentions of the parties to be. This was the same argument as had previously been advanced by the defendants in the Britoil case [1994] CLC 561, and Lord Hoffmann once again agreed with it.

111. The starting point for his legal analysis was the observation of Lord Cozens-Hardy MR in Lovell & Christmas Ltd v Wall 104 LT 85, 88 (quoted at para 57 above) that rectification “may be regarded as a branch of the doctrine of specific performance”. As Lord Hoffmann explained (at para 59), what Lord Cozens-Hardy MR clearly meant by this was that, if parties contractually agree to execute a document containing particular terms but instead execute a document containing different terms, the court can specifically perform the contract by rectifying the document. For this purpose, Lord Hoffmann reasoned, the terms of the contract to which the subsequent document must conform must be objectively determined in the same way as any other contract.

112. Lord Hoffmann then extended this reasoning to cases where there is no prior contract in the following key sentence (at para 60):

“Now that it has been established that rectification is also available when there was no binding antecedent agreement but the parties had a common continuing intention in respect of a particular matter in the instrument to be rectified, it would be anomalous if the ‘common continuing intention’ were to be an objective fact if it amounted to an enforceable contract but a subjective belief if it did not.”

Lord Hoffmann also relied on the same three authorities on which he had relied in expressing a similar opinion in the Britoil case. He distinguished the Britoil case (at para 63), on the ground that the difference between himself and the majority of the Court of Appeal in that case had merely been about whether the language of the heads of agreement was sufficiently certain to establish a prior common agreement or intention, ascertained objectively, and that the judgment of Hobhouse LJ lent no support to the view that, in order for rectification to be granted, a party must be mistaken as to whether the document reflects what that party subjectively understood to have been agreed.

113. Applying this approach to the facts of the Chartbrook case, Lord Hoffmann considered that a reasonable observer would have understood from the pre-contractual exchange of letters between the parties that they intended the ARP formula to operate in the way for which Persimmon contended. There was no suggestion that the contract was intended to depart from what had previously been discussed. In these circumstances, if the wording of the contract had, on its proper interpretation, borne the meaning for which Chartbrook contended, Persimmon would have been entitled to have the contract rectified to make it accord with the prior consensus expressed in correspondence. That would have been so, even though (on the undisturbed factual findings of the trial judge) Chartbrook's directors had understood the formula agreed in correspondence as well as the wording of the contract to mean something different.

114. Each of the other members of the Appellate Committee either agreed or saw no reason to differ from Lord Hoffmann's observations on what Lord Walker of Gestingthorpe and Baroness Hale of Richmond respectively referred to as “the important questions that we do not have to decide” (para 97) and “the issues which we do not have to decide” (para 101).

The Daventry case

115. The first case following the Chartbrook case in which the Court of Appeal had to analyse a claim for rectification was Daventry District Council v Daventry & District Housing Ltd [2012] 1 WLR 1333. In somewhat simplified summary, the claimant council sought rectification of a contract by which it transferred its housing stock and the staff employed in its housing department to the defendant company. There was a deficit of £2·4m in the staff pension scheme referable to the transferred employees and the contract provided for the council to fund this deficit. An earlier non-binding document which was agreed in principle and signed during the negotiations, objectively interpreted, provided that the cost of funding the deficit would be shared equally between the parties. This was how the council's agent understood it (as the company's negotiator knew) but the company's negotiator thought that a different interpretation of the document was tenable and told the company's board of directors that the deal was for the council to fund the deficit.

116. When the formal contract was prepared, the company's funders proposed the inclusion of a clause which had the clear effect that the council was to fund the pension scheme deficit. The council's agent approved the inclusion of this clause, and the council executed the contract, without realising its effect. When the error was discovered, the council brought a claim to rectify the contract. Although the claim failed before the judge (Vos J), the Court of Appeal by a majority (Lord Neuberger of Abbotsbury MR and Toulson LJ, with Etherton LJ dissenting) held that the council was entitled to rectification.

117. The judgments of the Court of Appeal are long and have been described by Professor Burrows in his A Casebook on Contract, 6th ed (2018), p 739 as “mind-bogglingly difficult”. Their preparation evidently involved what in current jargon was an “iterative process” by which, as Lord Neuberger MR explained at para 187, “we have effectively been conducting a dialogue through the exchange and consequent refining of successive drafts of our respective judgments”. The following general points may, however, be extracted.

118. First, the case was argued, both before the judge and on the appeal, on the basis that Lord Hoffmann's observations about the law of rectification in the Chartbrook case [2009] AC 1101 were correct, and the Court of Appeal—while recognising that those observations were obiter dicta—thought it right to proceed on that basis.

119. Second, although Etherton LJ thought that Lord Hoffmann's observations in the Chartbrook case had “set out established principles rather than seeking to change them” and that both parties had “rightly” proceeded on the basis that those observations correctly stated the existing law (see para 78), the other two members of the court expressed considerable reservations about the correctness of Lord Hoffmann's analysis. Toulson LJ pointed out at some length objections to it, stating at para 176:

“Notwithstanding the immense respect due to Lord Hoffmann and other members of the House of Lords, I have difficulty in accepting it as a general principle that a mistake by both parties as to whether a written contract conformed with a prior non-binding agreement, objectively construed, gives rise to a claim for rectification.”

Lord Neuberger MR agreed (at para 195) that “the analysis is not without its difficulties and has not met with universal approval in learned articles, and may have to be reconsidered or at least refined”.

120. Third, all the members of the court were in agreement that, proceeding on the basis of the approach outlined in the Chartbrook case, the question whether there was a common mistake was to be judged “objectively” by reference to what a hypothetical reasonable observer would have concluded; but they had different opinions about exactly what this test required. Etherton LJ regarded Lord Hoffmann's “clarification” as being that the required “common continuing intention” was what an objective observer would have thought the intention to be. He suggested that the requirements for rectification for common mistake could be rephrased so that, instead of treating a “common continuing intention” and “an outward expression of accord” as separate conditions, what is required is a common continuing intention which is “to be established objectively, that is to say by reference to what an objective observer would have thought the intentions of the parties to be”(para 80).

121. Lord Neuberger MR also proceeded on the basis that the issue as to whether there was a common mistake must be judged objectively and said that he agreed with Etherton LJ's analysis of the law (paras 225 and 227). However, in identifying differences between rectification and contractual interpretation, Lord Neuberger MR said (para 198):

“even in relation to written contracts, some subjective evidence of intention or understanding is not merely admissible, but is normally required in a rectification claim: the party seeking rectification must show that he indeed made the relevant mistake when he entered into the contract.”

Etherton LJ may have been saying the same thing when he stated at para 82: “a party can always give evidence that the wording of the document was the result of a mistake. That is an essential part of the cause of action.”

122. This is at odds with the assumption that the question whether there was a mistake should be judged wholly objectively by reference to what a hypothetical reasonable observer would have concluded and suggests that, to succeed in a claim to rectify a contract, the claimant must show that he or she was actually (ie subjectively) mistaken about what the contract provided. Such a requirement is consistent with the law as it was understood before the Chartbrook case. But once it is accepted that an actual mistake by the claimant is an essential part of the cause of action, it seems to us logically to follow that it is also necessary to show such a mistake on the part of the defendant. The principle under consideration is not that of rectification based on a unilateral mistake by the claimant: it is rectification for common mistake. Whatever the appropriate test of a mistake, the very idea of a “common mistake” requires that the same test must apply to both parties.

123. Applying his understanding of the Chartbrook test to the facts of the Daventry case, Etherton LJ thought that the critical question was whether objectively, prior to the execution of the contract, the company communicated to the council that it intended to contract in relation to the pension deficit on a different basis from the accord reflected in the earlier non-binding document (para 91). In Etherton LJ's view, the objective observer would have thought that, when the company put forward the clause which made different provision for the pension deficit from that contained in the earlier non-binding agreement, the company no longer adhered to that earlier agreement.

124. As well as questioning whether the principle adopted in the Chartbrook case on the rectification issue was right, Toulson LJ differed from Etherton LJ about how the principle operated. Toulson LJ considered that where on an objective analysis the form of the written contract differs from the effect of a previous non-binding agreement, the relevant question to ask is “whether on a fair view there was a renegotiation or a mistake in the drafting of the contract”. To answer that question, it is necessary to ask whether the parties

“behaved in such a way that they would reasonably understand one another to be involved in a process of seeking to negotiate a different deal from the one originally agreed or as involved in a process of drafting an agreement intended to accord with the deal originally agreed.” (Para 160.)

Applying that test, Toulson LJ concluded that the new clause put forward would not reasonably have been understood as an attempt by the company to renegotiate or vary the earlier non-binding agreement (paras 167–170).

125. Lord Neuberger MR agreed with Etherton LJ's approach of looking solely at whether the company had indicated an intention to resile from the prior accord, rather than also looking at the council's reaction and asking whether the reasonable observer would have thought that the council was agreeing to what the company proposed, as Toulson LJ's approach required (paras 205–207). However, on the facts of the case, Lord Neuberger MR reached the same result as Toulson LJ. In Lord Neuberger MR's view (para 213):

“Despite the clear terms of the proffered clause … the hypothetical observer would not have concluded that [the company] was signalling a departure from the prior accord: the observer would have believed that [the company] was making a mistake.”

In these circumstances Lord Neuberger MR agreed with Toulson LJ that the council was entitled to have the contract rectified on the ground of common mistake.

Cases since the Daventry case

126. We were referred to two cases involving claims for rectification in which, since the Daventry case, appeals have been heard by the Court of Appeal. In Ahmad v Secret Garden (Cheshire) Ltd [2013] 3 EGLR 42, the recorder had found that both parties had been mistaken in their belief about the effect of a lease and had granted rectification. The appeal was dismissed. Arden LJ (with whom Lloyd Jones and Fulford LJJ agreed) approached the issue of rectification by considering whether the requirements set out by Peter Gibson LJ in the Swainland case [2002] 2 EGLR 71 had been satisfied: see paras 25–26 and 34. Reference was made to the Chartbrook case [2009] AC 1101 as indicating that the existence of the parties’ common intention is to be ascertained on an objective basis. But the question whether there had been an “outward expression of accord” seems to have been approached simply by reference to whether the evidence was sufficient to show that in the course of their negotiations the parties had in fact agreed what the terms of the lease were to be. The Court of Appeal concluded that the recorder had been entitled to find that they had reached such an agreement on which the party seeking rectification had relied in signing the lease, and that the other party had afterwards changed his mind about what the legal effect of the lease was (paras 46–47).

127. Day v Day [2014] Ch 114 concerned a claim to rectify a conveyance of property by the claimant's mother. The Court of Appeal (Sir Terence Etherton C, Elias and Lewison LJJ) held that the conveyance was in the nature of a voluntary settlement and that in such a case what is relevant is the subjective intention of the settlor (see paras 22 and 50). The Chartbrook and Daventry cases were distinguished on the basis that they involved bilateral transactions.

128. The general approach adopted by judges at first instance since the Chartbrook and Daventry cases were decided has been the prudent course followed by the trial judge in this case of making findings about the subjective intentions and the “objective” intention of the parties which, in all the cases cited to us, happily produced the same result. In several cases, however, significant misgivings have been expressed about the notion that a written contract should be rectified to conform to what a reasonable observer would have understood the parties’ common intention as manifested in pre-contractual communications to have been, irrespective of whether it actually was the parties’ common intention: see Crossco No 4 Unlimited v Jolan Ltd [2011] NPC 38, para 253; Tartsinis v Navona Management Co [2015] EWHC 57 (Comm) at [89]–[99]; LSREF III Wight Ltd v Millvalley Ltd (2016) 165 Con LR 58, para 70.

Commentary

129. In his judgment in the Daventry case [2012] 1 WLR 1333, paras 173–176, Toulson LJ quoted from a case comment by Professor David McLauchlan which criticised the approach taken to rectification in the Chartbrook case: “ Chartbrook Ltd v Persimmon Homes Ltd : Common-sense Principles of Interpretation and Rectification?” (2010) 126 LQR 8. This comment made the point that, on the undisturbed findings of fact: “it is difficult to accept that Chartbrook was mistaken, at least in any usual sense of that word. The company intended the contract to provide the benefits that (we assume) it did provide for.” Toulson LJ saw “much force” in the criticism made (para 174). Since the Daventry case, the criticism has become something of a chorus. At our request, we were provided with a full bundle of relevant academic and extra-judicial commentary. Journal articles which we have found particularly helpful are one by James Ruddell, “Common Intention and Rectification for Common Mistake” [2014] LMCLQ 48, and two articles by Professor Paul Davies, “Rectifying the Course of Rectification” (2012) 75 MLR 412 and “Rectification versus Interpretation: The Nature and Scope of the Equitable Jurisdiction” (2016) 75 CLJ 62.

130. The controversial nature of the issues raised by the Chartbrook and Daventry cases is also reflected in the number of lectures—unprecedented in our experience—in which judges or retired judges have commented on those issues. In addition to the two lectures mentioned earlier given by Sir Kim Lewison and Sir Nicholas Patten, we have had the benefit of reading nine other such lectures, comprising two given by each of Lord Hoffmann and Sir Terence Etherton and one by each of Sir Christopher Nugee, Sir Paul Morgan, Lord Toulson, Lord Neuberger and Lord Briggs, as well as an article in the Cambridge Law Journal by Sir Richard Buxton: “‘Construction’ and rectification after Chartbrook ” (2010) 69 CLJ 253.

131. Much of this academic and extra-judicial commentary has been reviewed in detail by David Hodge QC in his comprehensive treatise on Rectification, 2nd ed (2015). He concludes (at para 3-81) that:

“there is general acceptance that the present state of the law of rectification is unsatisfactory. It is over-complicated, unpredictable in its outcome, capable of producing unacceptable consequences, and creates confusion between cases of common and unilateral mistake.”

132. In A Restatement of the English Law of Contract (2016), prepared by Professor Andrew Burrows assisted by an advisory group of academics, judges and practitioners, there were two “issues of topical dispute” which it was decided, “after considerable debate”, that the Restatement would have to leave open. One (the approach to illegality) has since been resolved. The other is “whether Lord Hoffmann was correct in obiter dicta in Chartbrook Ltd v Persimmon Homes Ltd to regard the common continuing intention needed for rectification as objective rather than subjective” (see pp xi–xii).

The need for reconsideration

133. Like the Court of Appeal in the Daventry case [2012] 1 WLR 1333, we recognise the immense respect due to an opinion expressed by Lord Hoffmann on a point of law which commanded the unanimous agreement of the House of Lords. Nevertheless, Lord Hoffmann's observations in the Chartbrook case [2009] AC 1101 were expressly acknowledged to be obiter dicta and are therefore not binding authority. In circumstances where Lord Hoffmann's opinion that a purely objective approach should be adopted in determining whether the parties had a “common continuing intention” has been disputed by the Parent on this appeal, we think it necessary to decide whether it is correct in law.

134. We are satisfied that we are not prevented from doing so by this court's decision in the Daventry case because in that case the Court of Appeal proceeded on the basis that Lord Hoffmann's analysis was correct in circumstances where the parties argued the case on that assumption. Moreover, two members of the court expressed concerns about the reasoning in the Chartbrook case, suggesting that it may have to be reconsidered in a future case.

135. A similar question potentially arose in Joscelyne v Nissen [1970] 2 QB 86, 98–99, as to whether the Court of Appeal was bound by its previous decision in Crane v Hegeman-Harris Co Inc [1939] 4 All ER 68 which approved the analysis of Simonds J, but did so in circumstances where the correctness of that analysis had not been disputed. On the question whether a binding precedent had nevertheless been created, the members of the Court of Appeal in Joscelyne expressed themselves “attracted by a suggestion that the conceded point of law should be open to argument in another case”, provided it was made plain that this would not apply where “an argument, though put forward, had been only weakly or inexpertly put forward”.

136. Subsequent authorities have clearly established that the suggestion which attracted the Court of Appeal in Joscelyne v Nissen is a correct approach and that a court is not bound by a proposition of law which was not the subject of argument because it was not disputed in an earlier case (even if that proposition formed part of the ratio decidendi of the case). In In re Hetherington, decd [1990] Ch 1, 10, Sir Nicolas Browne-Wilkinson V-C held that, as a first instance judge, he was entitled to decline to follow even a decision of the House of Lords in which a proposition of law necessary for the decision was not disputed. After a review of the authorities, he concluded that:

“the authorities therefore clearly establish that even where a decision of a point of law in a particular sense was essential to an earlier decision of a superior court, but that superior court merely assumed the correctness of the law on a particular issue, a judge in a later case is not bound to hold that the law is decided in that sense.”

See also R (Kadhim) v Brent London Borough Council Housing Benefit Review Board [2001] QB 955, para 33; Rawlinson & Hunter Trustees SA v Director of the Serious Fraud Office (No 2) [2015] 1 WLR 797, para 43.

137. Furthermore, because of the assumption on which the case was conducted, the Court of Appeal in the Daventry case was not referred to and did not consider the substantial body of case law which we have reviewed establishing the need to show an actual (and not merely objectively inferred) common intention and mistake in order to obtain rectification of a contract. In particular, the important decisions of this court in Joscelyne v Nissen [1970] 2 QB 86 and Britoil plc v Hunt Overseas Oil Inc [1994] CLC 561 were not cited in the Daventry case. In a lecture given to TECBAR on 31 October 2013, “Does Rectification Require Rectifying?”, Lord Toulson drew attention to the Britoil case and observed:

“When a similar problem arises, as no doubt it will, it will be a matter for argument whether a court should follow the reasoning in Britoil or in Chartbrook. In principle a court should follow a binding decision of the Court of Appeal rather than a later opinion expressed obiter by the House of Lords.”

138. In addition, the differences of view which emerged between the members of the Court of Appeal in the Daventry case [2012] 1 WLR 1333, and the difficulties encountered in that case in attempting to analyse and apply a purely “objective” test, together with the controversy and uncertainty that currently afflicts the test of rectification for common mistake, make it all the more imperative, in our view, to identify the true principle of law that underpins the doctrine.

139. In considering whether the approach approved in the Chartbrook case [2009] AC 1101 is correct, we will examine it from the point of view of (i) principle, (ii) precedent and (iii) policy considerations.

Principle

140. In later lectures in which he has sought to explain and further justify his opinion in the Chartbrook case, Lord Hoffmann has drawn a distinction between two forms of rectification, based on different principles. As described in his recent TECBAR Lecture, 21 November 2018, “Rectifying Rectification”:

“we have two forms of rectification, based on altogether different principles. The first is rectification of a document because it does not reflect what the parties agreed … Whether there was an agreement is an objective fact. The underlying moral principle is that parties should keep their promises to each other; they should be bound by what they agreed to record in the document and not by a document which does not give effect to that agreement. The second, more recent form of rectification is entirely concerned with the parties’ intentions, their subjective states of mind. A party who subjectively knows that the other party is mistaken about the terms of the contract … cannot enforce those terms and the mistaken party may be entitled to rectification … The underlying moral principle is that persons negotiating a contract have to observe certain standards of good faith.”

See also Lord Hoffmann, Lecture to the Commercial Bar Association, 3 November 2015, “Rectification and other Mistakes”, paras 27–29.

141. We find this analysis illuminating. Applying the distinction between the two forms of rectification, it can be seen that the judges who at one time espoused the view that it was necessary to find a prior concluded contract before an order for rectification could be made were treating the only permissible form of rectification for common mistake as the first form of rectification described by Lord Hoffmann, based on the principle that the court should give effect to what the parties have contractually agreed to record in their document. This explains the dictum of James V-C in Mackenzie v Coulson (1869) LR 8 Eq 368, 375, that: “Courts of Equity do not rectify contracts; they may and do rectify instruments purporting to have been made in pursuance of the terms of contracts.” It also explains, as Lord Hoffmann pointed out in the Chartbrook case at para 59, the observation of Lord Cozens-Hardy MR in Lovell & Christmas Ltd v Wall 104 LT 85, 88, that rectification “may be regarded as a branch of the doctrine of specific performance”. We agree with the reasoning (as did the majority of the Court of Appeal in the Britoil case [1994] CLC 561 ) that, if parties make a binding agreement to execute a document containing particular terms but instead execute a document containing different terms, the court may specifically enforce the agreement by rectifying the document; and that, in such a case, the terms of the contract to which the subsequent document is made to conform must be objectively determined in the same way as any other contract.

142. We do not, however, accept that the same reasoning can be applied to a situation in which parties have not made any prior contract but had a common continuing intention in respect of a particular matter in the document sought to be rectified. Where, as we see it, the analysis in the Chartbrook case went awry was in regarding rectification to reflect a common intention where there was no prior contract as also based on the principle that agreements must be kept. As we have seen, that was not historically the principle on which equity interfered with written contracts which mistakenly failed to reflect the common intention of the parties; nor in our view does it provide a proper basis for such interference. Rather, rectification to give effect to a “common continuing intention” not amounting to a legally enforceable contract is justified, and is only capable of being justified, as an instance of the second form of rectification, based on an equitable principle of good faith.

143. The principle that a contractual document should be reformed so as to enforce what the parties have (objectively) agreed has no validity where the prior “agreement” is not a legally binding contract but a non-binding expression of intent. There is no principle which requires or justifies a court in holding the parties to the terms of an objective consensus reached during negotiations but never intended to be binding: it is in the very nature of such a consensus—even where, as in the Britoil and Daventry cases, it is embodied in a document which the parties have signed—that it should not have any legal effect and represents only a stage in negotiations from which either party is free to walk away. Still less does the principle that parties should keep their promises to each other justify giving such a consensus priority over the terms of a formal written contract by which (objectively) the parties did intend to be bound. To adopt this course is to impose on the parties a contract they never made in place of one which they did make. It is to do exactly what on the reasoning of cases like Lovell & Christmas Ltd v Wall and Denning LJ's judgment in Rose v Pim [1953] 2 QB 450 courts should not do: it is to rectify the contract made by the parties and not simply a document which fails to give effect to the terms of a contract.

144. It is in the very nature of a formal written contract that it is objectively intended to have priority over any earlier informal non-binding record of the parties’ intention, as objectively assessed. In so far as there is a difference between them, it is therefore the contractual document which must prevail. As Professor Paul Davies has aptly put it: “The objective approach to rectification involves too much objectivity: objectively, a binding written contract with a particular meaning, ascertained through the process of interpretation, has been concluded.” See “Construing commercial contracts: no need for violence” in Freeman & Smith (eds), Law and Language: Current Legal Issues, Vol 15 (2013), 444.

145. Nor is it an answer to argue that rectifying a written contract to accord with a prior objective consensus is legitimate as, on a rectification claim, more facts can be taken into account by the hypothetical observer than can be taken into account in interpreting the final contract because evidence of the parties’ negotiations is admissible. Rectification does not simply involve deciding whether the parties have made a contract and, if so, what effect it has, applying the same objective test as where the question is one of interpretation but having recourse to a wider range of material. It involves altering the terms of the written contract and doing so in some cases even where those terms cannot reasonably be read, however much material (including evidence of antecedent negotiations) is admitted as background, as having the effect which rectification seeks to achieve. The present case is a good example.

146. The justification for rectifying a contractual document to conform to a “continuing common intention” is therefore not to be found in the principle that agreements (as objectively determined) must be kept. It lies elsewhere. It rests on the equitable doctrine that a party will not be allowed to enforce the terms of a written contract, objectively ascertained, when to do so is against conscience because it is inconsistent with what both parties in fact intended (and mutually understood each other to intend) those terms to be when the document was executed. This basis for rectification is entirely concerned with the parties’ subjective states of mind. The underlying moral principle can be characterised, to adopt Lord Hoffmann's analysis, as being that persons who make a contract have to observe certain standards of good faith.

147. It is not, however, a new principle, as suggested by Lord Hoffmann in the passage we have quoted from his recent lecture. Nor is it limited, as also there suggested, to cases of unilateral mistake. We have seen that the principle is of ancient origin and was, historically, the rationale for granting rectification in cases of common mistake. Moreover, it is just as contrary to good faith —if not more obviously so—for a party to take advantage of a mistake about the content or effect of a written contract in a case where both parties were mistaken in believing when the contract was executed that it faithfully recorded their common intention than it is to do so in a case where only one party made such a mistake (to the other's knowledge). Rectification for unilateral mistake can, as we noted earlier (at para 105 above), be understood as an extension of the same basic equitable principle. It is fundamental to the doctrine, in either aspect, that an actual mistake was made by one or more real people in believing that the written contract gave effect to what either was or was understood by one party to be the parties’ actual common intention. As it was put in the passage from Story's Commentaries on Equity Jurisprudence, quoted earlier, to allow the terms of the written contract to prevail where such a mistake was made “would be to allow an act, originating in innocence, to operate ultimately as a fraud, by enabling the party, who receives the benefit of the mistake, to resist the claims of justice, under the shelter of a rule framed to promote it”.

The objective test and its limits

148. To elucidate this further, it is useful to consider why English law applies an objective test in interpreting contracts at all and asks, as stated earlier in Lord Hoffmann's judgment in the Chartbrook case [2009] AC 1101, para 14, “what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean”. The reasons lie in the greater predictability and consistency of decision-making that such an approach is considered to bring.

149. In many, if not most, cases in which parties to a contract disagree about how it should be interpreted, it is likely, if not certain, that they had no relevant intention when they entered into the contract that the particular clause should have the particular effect for which they later contend—let alone a common intention in that regard which they had communicated to each other. One reason for this is that contracts often contain standard terms, the meaning of which will often (for good practical reasons) have been given little thought by the parties or their agents when entering into the contract, if indeed they read them at all. Another reason is that it is impossible to foresee when a contract is made all the future eventualities to which its terms will fall to be applied. Nevertheless, English law proceeds on the assumption that the words used have a single specific meaning (the “proper interpretation” or “true construction” of the contract) which is established objectively by asking what the language should reasonably be understood to mean rather than by enquiring into what, if anything, the parties subjectively meant.

150. This approach has many practical advantages. It enables a party to predict with a reasonable degree of certainty when entering into a contract how its provisions will be interpreted, without having to probe or be concerned about whether the other party shares this understanding. It also allows third parties to ascertain the meaning of contractual provisions without requiring them to have been privy to the actual intentions of the parties to the contract. In addition, this approach facilitates contractual ventures by giving content to contractual obligations even in circumstances which the parties did not specifically envisage. In all these ways the objective approach enhances the ability of parties to plan and act in reliance on contracts.

151. The reasons for enforcing a contract in accordance with its objective meaning lose their force, however, in a situation where the parties did have an agreed understanding or common intention about what a particular provision in their contract required but the contract as objectively interpreted does not reflect that common intention. In such a situation, provided the common intention is clearly demonstrated, there is no sound justification for giving effect to the meaning that a hypothetical reasonable observer would have attributed to the words used in preference to what the parties actually intended the effect of their contract to be. Indeed, to do so will result in injustice.

152. Lord Wright explained the position very clearly in Inland Revenue Comrs v Raphael [1935] AC 96, 143, when he said that:

“the principle of the common law has been to adopt an objective standard of construction and to exclude general evidence of actual intention of the parties; the reason for this has been that otherwise all certainty would be taken from the words in which the parties have recorded their agreement or their dispositions of property. If in some cases hardship or injustice may be effected by this rule of law, such hardship or injustice can generally be obviated by the power in equity to reform the contract, in proper cases and on proper evidence that there has been a real intention and a real mistake in expressing that intention: these matters may be established, as they generally are, by extrinsic evidence. The court will thus reform or re-write the clauses in order to give effect to the real intention. But that is not construction, but rectification.”

153. For these reasons, there is in our view no anomaly in applying an objective test where rectification is based on a prior concluded contract and a subjective test where it is based on a common continuing intention. Different principles are in play.

Precedent

154. To apply a purely objective test of intention is also, as we have seen, inconsistent with precedent, including authority that is binding on this court. We have reviewed the history of the doctrine of rectification and seen that, in cases where the court is not simply enforcing a contractual obligation to execute a document in particular terms, the doctrine has always been understood and justified as an equitable remedy to correct an actual common mistake – that is to say, an inadvertent failure to give effect to what the parties actually intended. This explains why, in considering whether the necessary common intention has been established, it has always been regarded as relevant to take account of evidence bearing on what each party intended which was not contained in communications that “crossed the line”, including evidence of subsequent conduct—which may show what a party believed the effect of the contract to be but ex hypothesi could not be known by a notional objective observer of such communications—and evidence of a party's later admission or credible denial that he or she had the relevant intention.

155. As noted earlier, Lord Hoffmann relied in the Chartbrook case [2009] AC 1101 on three authorities to support the suggestion that, in establishing the existence of a common intention, the question is what an objective observer would have thought the intentions of the parties to be. These were the same three authorities on which he had previously relied in his dissenting judgment in the Britoil case [1994] CLC 561, but which had failed on that occasion to persuade the majority of the Court of Appeal. In our view, none of the three authorities justifies the reliance placed on it.

156. Lord Hoffmann described as “perhaps the clearest statement” the passage in Denning LJ's judgment in Rose v Pim [1953] 2 QB 450 which we have quoted at para 64 above. As already discussed, that passage, read in context, was premised on the view that rectification had to be based on a prior concluded contract and that a continuing common intention was not sufficient. Denning LJ was saying no more than that the meaning of such a concluded contract (as with any contract) must be ascertained objectively. That is unexceptionable, but does not support the view that, where rectification is based on a common intention, no actual common intention need be shown.

157. George Cohen Sons & Co Ltd v Docks and Inland Waterways Executive 84 Ll L Rep 97 was a claim for rectification of a lease. The parties had entered into a previous lease of a wharf for a term of 21 years. Under the terms of that original lease the defendant landlord was responsible for repairing the quay walls. Two years before that lease expired, the parties executed a new lease which contained a clause putting the repairing obligation on the plaintiff tenant. In the course of the negotiations for the new lease it had been agreed in correspondence that the terms and conditions contained in the then current lease were to be embodied in the new lease “where applicable”. The trial judge found that, notwithstanding the denials of the defendant's witnesses, both parties had subjectively intended that all the relevant terms and conditions of the old lease, including the repairing covenant, were to be transferred to the new lease and that the document should be rectified to give effect to that intention. The Court of Appeal upheld the judge's decision. The case therefore involved an application of traditional equitable doctrine and is inconsistent with the view that, where a common intention is alleged, it is what an objective observer would have thought and not what the parties actually intended that matters.

158. There was a further ground given for dismissing the appeal. Although the judge had not made such a finding, the members of the Court of Appeal also considered that the agreement reached in correspondence that the new lease should embody the terms and conditions of the old lease “where applicable” amounted to a binding contract. It followed that (unless it could be shown that this contract was later varied or superseded) the plaintiff was entitled to enforce this contract, objectively interpreted in accordance with the principle that the words used should be given their ordinary meaning, and to have the lease rectified to give effect to it. Applying that principle, the repairing covenant was clearly an “applicable” term which the parties had therefore agreed was to be transposed into the new lease. Again, however, this reasoning is no more than an application of orthodox principle—here the principle that contracts should be enforced—and provides no support for the view that the objective test applicable to the interpretation of a contract should also be applied to ascertain the parties’ intentions when there is no concluded contract.

159. The third authority referred to by Lord Hoffmann, and the only one which post-dates the seminal decision of the Court of Appeal in Joscelyne v Nissen [1970] 2 QB 86, is the statement of Mustill J in The Olympic Pride [1980] 2 Lloyd's Rep 67, 72, that it is “the words and acts of the parties demonstrating their intention, not the inward thoughts of the parties, which matter”. However, that statement was simply one of a number of propositions “which were not seriously in dispute at the trial” seeking to summarise the effect of earlier authorities. It is clear from the earlier propositions quoted at para 91 above that Mustill J was not seeking to suggest that it is unnecessary to demonstrate an actual common mistake. His third proposition should, we think, be understood as a statement of the requirement to show an “outward expression of accord” and as signifying only that the inward thoughts of the parties, unless manifested to each other, will not support a claim for rectification.

160. There was no discussion in Lord Hoffmann's judgment in the Chartbrook case [2009] AC 1101 of the history of the equitable remedy of rectification for common mistake which shows that courts of equity have always been concerned with the actual intention of the parties. Nor, with one exception, was any reference made to the authorities which, where a claim is based on a common continuing intention, establish the need to prove the reality of that intention. The one exception was the Britoil case [1994] CLC 561 which, as noted earlier, Lord Hoffmann sought to distinguish on the ground that the only disagreement between himself and Hobhouse LJ, who gave the majority judgment, was that Hobhouse LJ thought that the language of the heads of agreement was too uncertain to establish a prior common agreement or intention which the final document failed to reflect: see the Chartbrook case, para 63.

161. We do not accept that on a fair reading of the judgments the differences between the majority and dissenting opinions in the Britoil case were so narrowly confined. When Hobhouse LJ noted (at p 571) that Saville J (the trial judge) “did not base himself upon any consideration of the evidence as to the actual state of mind of the parties”, he was referring to the fact that the defendants in the Britoil case had sought to rely, to establish a common intention, solely on the heads of agreement; Saville J had found that the evidence of the heads of agreement was insufficient to prove a common intention and mistake and in those circumstances did not find it necessary to consider the other evidence in the case that no mistake was made (including the evidence of witnesses as to what they thought at the time). But, as Hobhouse LJ repeatedly emphasised, that was all a matter of evidence. His judgment cannot fairly be read as suggesting that the actual intentions of the parties were irrelevant or that what matters is what an objective observer would have thought their intentions to be. Quite the reverse.

162. In particular, we think it clear that, in the passage we have quoted at para 95 above, Hobhouse LJ was insisting that rectification for common mistake is an exercise of a different nature from the interpretation of a contractual document and requires proof that the parties were actually mistaken as a matter of fact. Therefore, where a non-binding document which precedes the final written contract is relied on in support of a claim to rectify the final contract, its relevance is only as evidence of what the parties intended the effect of the contract to be. Hence in the Britoil case the heads of agreement were only relevant if and in so far as they justified a factual finding that the parties had a common intention, which continued at the time of execution of the contract, that the contract should have the effect for which the defendants contended such that, when they executed the contract, they were both mistaken about its effect. Applying that test, the heads of agreement did not justify the conclusion that as a matter of fact such a mistake was made.

163. There was no suggestion in the Chartbrook case that the Britoil case was wrongly decided or should be overruled. It was not brought to the attention of the Court of Appeal in the Daventry case, but it remains good authority which is binding on us.

Comparison with unilateral documents

164. To apply an objective test of intention where the claim is to rectify a written contract is also inconsistent with the law that applies to the rectification of unilateral documents—where it remains well settled that it is a party's actual intention that matters. For example, as mentioned earlier, in Day v Day [2014] Ch 114 the Court of Appeal confirmed that, on a claim to rectify a voluntary settlement, what is relevant is the subjective intention of the settlor.

165. Such a difference of approach cannot be justified on the ground that the objective principle of interpretation does not apply to unilateral documents, since it is clearly established that it does. English law takes the same approach to the interpretation of unilateral documents such as wills, contractual notices and patents as it does to the interpretation of contracts: see eg Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 ; and Marley v Rawlings [2015] AC 129, paras 20–23. The test in each case is what a reasonable person would have understood the words used, in their context, to mean. However, where in the case of a unilateral document it is demonstrated that the words used, as objectively interpreted, do not correctly express the maker's subjective intention, a court may order rectification. The fact that a contract is agreed between two or more parties provides a reason for requiring proof of a common intention communicated between them before rectification may be granted. But it does not provide a reason for dispensing with the need to show any actual mistake and for ignoring the parties’ actual intentions in favour of what a hypothetical objective observer would have thought. We cannot see any difference of principle between a one party and a two party case which is capable of justifying such a radical difference of approach.

166. The illogicality of such a distinction is highlighted in the present case by the fact that the Parent could, as Mr Masefield accepted, have satisfied its contractual obligation to assign its interest in the shareholder loan as security by executing a unilateral document and giving notice of the assignment. As Flaux LJ pointed out in the course of argument, if the Parent had done that, it is clear that the court would be interested only in the Parent's subjective intention. As it happens, the Parent chose instead to invite Barclays to countersign deeds which, although the difference was of little, if any, practical importance, were bilateral documents because Barclays as security agent undertook obligations pursuant to the IRSAs to apply any proceeds of the shareholder loan in specified ways. Because the transaction was structured in this way, with consideration given by Barclays, the alternative case advanced by the Parent in a respondent's notice on this appeal that the deeds were unilateral documents cannot be accepted. But it is hard to see why the difference should be material to the test of intention such that, just because a bilateral structure was chosen, a purely objective test should be adopted and the court ignore the Parent's actual intention (unless for some reason it sheds light on what an objective observer would have thought).

The law in other common law jurisdictions

167. The purely objective approach endorsed in the Chartbrook case [2009] AC 1101 is also inconsistent with how the doctrine of rectification is understood and applied in other common law jurisdictions—most notably Australia, where it is settled law that a written contract may only be rectified on the basis of a common mistake if it is shown that the instrument does not reflect the actual common intention of the parties.

168. An argument that the common intention of the parties should be determined objectively and that their subjective intentions are not relevant was comprehensively rejected by the New South Wales Court of Appeal in Ryledar Pty Ltd v Euphoric Pty Ltd 69 NSWLR 603. The history and rationale of the remedy of rectification for common mistake were thoroughly reviewed by Campbell JA in a judgment which repays careful study. He concluded (at para 316) that “proof of the subjective intention of the parties to the contract is fundamental to the grant of rectification”. Campbell JA further concluded that there is a requirement for each party's intention to be disclosed to the other before it can count as a “common intention”, while explaining (as mentioned earlier) that such communication can occur through means other than express statement. Mason P and Tobias JA agreed with Campbell JA's analysis. This decision has been followed and applied by the New South Wales Court of Appeal in later cases: see eg Newey v Westpac Banking Corpn [2014] NSWCA 319 at [173]–[192]; SAMM Property Holdings Pty Ltd v Shaye Properties Pty Ltd [2017] NSWCA 132 at [113]–[115].

169. In Simic v New South Wales Land and Housing Corpn [2016] HCA 47 the High Court of Australia, in holding that certain performance bonds should be rectified in order to correct a common mistake, applied the traditional test of asking what was the actual or true common intention of the parties: see the joint judgment of Gageler, Nettle and Gordon JJ at para 104. In his concurring judgment, French CJ referred to Lord Hoffmann's obiter remarks in the Chartbrook case supporting a requirement for an objectively attributed common intention, but observed that such an objective test had not been argued for and “does not represent the common law of Australia as it presently stands” (para 19). Kiefel J (with whose reasons for granting rectification French CJ also agreed) commented (at para 48):

“Lord Hoffmann's view involves a departure from the traditional approach of the courts to rectification. Its utility has been questioned. It has been observed that it is difficult to see why a prior agreement, objectively determined, should override the later instrument, unless it reflects the parties’ actual intentions. The need for consistency which his Lordship thought desirable may also be questioned. Rectification is an equitable remedy which is concerned with a mistake as to an aspect of what an instrument records and with the conscience of the parties. The common law, on the other hand, deals with the interpretation of the words chosen by the parties to reflect their agreement and it does so pragmatically, by reference to considerations such as business efficacy.”

While noting that it was unnecessary to express a concluded opinion on the matter, Kiefel J considered that the appeal “should be approached by reference to settled principle” (para 49).

170. In New Zealand the requirements for rectification for common mistake were authoritatively stated by Tipping J in Westland Savings Bank v Hancock [1987] 2 NZLR 21, 30, as follows:

“(1) That, whether there is an antecedent agreement or not, the parties formed and continued to hold a single corresponding intention on the point in question.

“(2) That such intention continued to exist in the minds of both or all parties right up to the moment of execution of the formal instrument of which rectification is sought.

“(3) That while there need be no formal communication of the common intention by each party to the other or outward expression of accord, it must be objectively apparent from the words or actions of each party that each party held and continued to hold an intention on the point in question corresponding with the same intention held by each other party.

“(4) That the document sought to be rectified does not reflect that matching intention but would do so if rectified in the manner requested.” 

This statement has been approved by the New Zealand Court of Appeal in Pimlico Properties Ltd v Driftwood Developments Ltd [2009] NZCA 523, paras 26–27, and Robb v James [2014] NZCA 42 at [21]–[22]. In the latter case the Court of Appeal contrasted “the state of some uncertainty as to the requisites for rectification in English law” (referring to the Daventry case) with the “relatively settled” position in New Zealand where “Tipping J's 1987 formulation still applies”.

171. The only common law jurisdiction, so far as we can find, in which approval has been expressed for an objective test of common intention is Hong Kong. The Hong Kong Court of Final Appeal approved the Chartbrook approach in Kowloon Development Finance Ltd v Pendex Industries Ltd [2013] HKCFA 35 in a judgment given by Lord Hoffmann NPJ (with whom the other members of the court agreed).

172. We find the Australian authorities, in particular, strongly persuasive. They are consistent with and provide compelling reasons for adhering to what we consider to be the true principles on which contractual documents may be rectified for common mistake in English law.

Policy

173. In addition to these reasons of principle and precedent, there are in our view good reasons of policy for maintaining the requirement (in any case where there is no prior contract) to show that the wording of a contractual document is inconsistent with the parties’ actual common intention before the document may be rectified. That is rightly a demanding test to satisfy and one which affords appropriate respect to the primacy of the final, agreed, written terms of a contract. Allowing those terms to be altered to reflect an objectively ascertained common intention, even though one party to the contract (or even both parties) actually intended to be bound by the terms of the document as executed, does not adequately protect the certainty and security of commercial transactions. An additional layer of uncertainty, as the Daventry case [2012] 1 WLR 1333 shows, attends the way in which an objective test of intention should operate.

174. In the article mentioned earlier in which he argued for a purely objective approach to the rectification of contracts for common mistake, Marcus Smith criticised a test which requires proof of the parties’ actual intentions partly on the ground that:

“a subjective test for rectification is likely to lead to fewer contracts being rectified. This is because an objective consensus is not only easier to demonstrate in any given case, but is also much more likely to arise in a contractual negotiation. By contrast, subjective consensus is likely to be far more elusive. It is precisely for this reason that contractual analysis adopts an objective test for agreement.”

See (2007) 123 LQR 116, 130. In our view, the fact that a “subjective consensus” (that is to say, a common intention in the sense we have described) is harder to prove than an “objective consensus” is not an objection to adopting a subjective test for 

rectification but a positive merit of such a test. As a matter of policy, rectification should be difficult to prove. The reasons for adopting an objective test of agreement which makes it easier to establish a legally enforceable contract than would a subjective test are not reasons for making it easier to alter such a contract. We agree with the response of Professor Paul Davies that: “Formal, written contracts should be presumptively upheld and instances of rectification should be rare. Any other approach would undermine the importance commercial parties put on the final written agreement.” See Paul Davies, “Rectification versus Interpretation: The Nature and Scope of the Equitable Jurisdiction” (2016) 75 CLJ 62, 78.

Injustice

175. Finally, what we see as the potential unfairness of the objective approach approved in the Chartbrook case [2009] AC 1101 can be illustrated by reference to the facts of that case itself. As noted earlier, on the facts found, the directors of Chartbrook honestly believed that there was no mistake in the final contractual document and that the ARP formula as expressed both in that document and in the pre-contractual correspondence meant what Chartbrook contended in the proceedings that it meant. The House of Lords was considering Persimmon's claim for rectification on the assumption that the Chartbrook directors were wrong about the objective meaning of the pre-contractual correspondence but right about the objective meaning of the final contract. We cannot in these circumstances see any equity in treating Chartbrook as bound by the objective meaning of communications which were not intended by either party to be binding rather than the objective meaning of the final document by which the parties intended to be bound. As Christopher Nugee QC, who argued the case successfully for Persimmon, subsequently observed: “[Chartbrook] admittedly agreed to the letter but they also agreed to the draft contract. Why are they stuck with the consensus objectively shown in the letter and not the consensus objectively shown in the draft contract?” A conclusion that Chartbrook was bound to the earlier, informal objective consensus in priority to the objective meaning of the contract would, in his view, have been “rather unfair”: see C Nugee, “Rectification after Chartbrook v Persimmon : where are we now?” (2012) 26 TLI 76. We agree.'