Rectification
Cases
Rose v Pim
FREDERICK E. ROSE (LONDON) LTD. v. WILLIAM H. PIM, JNR.
Court of Appeal (1953] 2 Q.B. 450; (1953] 3 W.L.R. 497; [1953] 2 All E.R. 739;
70 R.P.C. 238; 97 S.J. 556
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DENNING L.J.: … The buyers now, after accepting the goods, seek to rectify the contract. Instead of it being a contract for ” horsebeans ” simpliciter, they seek to make it a contract for “horsebeans described in Egypt as feveroles” or, in short, a contract for ” feveroles.” The judge has granted their request. He has found that there was ” a mutual and fundamental mistake ” and that the defendants and the plaintiffs, through their respective market clerks, ” intended to deal in horsebeans of the feverole type “; and he has held that, because that was their intention-their “continuing common intention “-the court could rectify their contract to give effect to it. In this I think he was wrong. Rectifi cation 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 docu ment; but nothing less will suffice. 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 Corporation [1936] Ch. 375); but, formalities apart, there must have been a concluded contract. There is a passage in Crane v. Hegeman-Harris Co. Inc. ([1939] 1 All E.R. 662,664) 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 after wards 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 v. Wall, per Lord Cozens Hardy M.R., and per Buckley L.J. ( (1911) 104 L.T. 85, 88, 93), but not that they intended something different.
The present case is a good illustration of the distinction. The parties no doubt intended that the goods should satisfy the inquiry of the Egyptian buyers, namely, “horsebeans described in Egypt as feveroles.” They assumed that they would do so, but they made no contract to that effect. Their agreement, as outwardly expressed, both orally and in writing, was for “horsebeans.” That is all that the defendants ever committed themselves to supply; and all they should be bound to. There was, no doubt, an erroneous assumption under lying the contract-an assumption for which it might have been set aside on the ground of misrepresentation or mistake-but that is very different from an erroneous expression of the contract, such as to give rise to rectification.
The matter can best be tested by asking what would have been the position if the contract between the defendants and the plaintiffs had been for “feveroles.” Surely, then, the defendants on their side would have stipulated with their Algerian suppliers for the delivery of ” feveroles,” and the plaintiffs on their side would have agreed with their sub-buyers to deliver “feveroles.” It would not be fair to rectify one of the contracts without rectifying all three, which is obviously impossible.
Whiteside v Whiteside
WHITESIDE v. WHITESIDE
Court of Appeal [1950] Ch. 65; 66 T.L.R. (Pt. I) 126; [1949] 2 All E.R. 913; [1949] T.R. 457
EVERSHED M.R.: . . . The fact of there having been that rectification inter partes is, to my mind, the vital element in this case. The learned judge based his refusal to exercise this discretionary remedy of rectification (which, as has been said, must be cautiously watched and jealously exercised) on n ore than one ground. One of them was based upon observations of my own in an earlier case of Van der Linde v. Van der Linde ([1947] Ch. 306)……………………………………………………………………………………… Thpaerticular
passage which the learned judge cited and relied upon is to be found in the report of the case. I am reported as saying, in reference to the argument then put forward on behalf of the Crown: ” Where on the facts it is shown that there never was any obstacle as between the two parties to the deed to put right any mistake, it would not be a case in which on any view the court should exercise its discretion more particularly where the object is on the plaintiff’s part to obtain, so to speak, by a side wind an advantage which he could have obtained and which he only lost through the error which was made.” . . . The ground of the decision was failure on the part of the plaintiff to prove as a fact that he ever intended that the document which he executed should take any particular form with regard to the resulting tax position.
As I have referred to that case I will also now mention [ another decision to] which Harman J. referred. [This] was the decision of P. 0. Lawrence J. in Burroughes v. Abbott ([1922] 1 Ch. 86). That was a case of an order made by the Divorce Court which, though expressed to be that the husband should pay x pounds per annum free of tax, was held to mean and intend that by whatever form the order was implemented the obligation should be to pay such a sum as, after deduction of tax, would leave x pounds. In that case, the deed followed the strict terms of the order of the Divorce Court, and the result was that the wife was only entitled to the smaller sum: the action arose because in t e circumstances the husband, or those who represented him, stood on the stnct legal obligation and the wife therefore sued for rectification so that the true position, as the Divorce Court had ordered it, should b_e re ected accurately_ by the instrument prepared by conveyancing counsel which, 1t was held, failed adequately to reflect it. So there was-and this was, I think, the essence of the matter and distinguishes the present case from it-a substantial issue between the parties. And the question was: Would the court in the exercise of its equitable powers call upon or order the defendant husband to give effect to what the Divorce Court had said he should do? The learned judge held that, although the trouble had arisen from a misapprehension common to both parties of the effect of conveyancing counsel’s document, nevertheless there was a ground for exercising the equitable remedy vested in the court. I do not see that there is any ground for suggesting that the decision in Burroughes v. Abbott cannot stand with the view which I have already indicated is the right view in this case, i.e., that no order for rectification ought to be made….
Inthe course of his judgment [ in the present case], Harman J. further
referred to the statement in Kerr on Fraud and Mistake, 6th Ed. 620 and cited it as a correct statement of the law. The passage is this: “Though the court will rectify an instrument which fails through some mistake of the draftsman in point of law to carry out the real agreement between the parties, it is not suffi cient in order to create an equity for rectification that there has been a mistake as to the legal construction or the legal consequences of an instrument.” I do not read that passage as meaning that if the mistake made is in using language to perfect an agreement which in law has some result different from the com mon intention, that is not a case in which there can be rectification. I do not read the passage as so stating, and I think, as at present advised, that if it did it would be too wide. I think it may well be that if the mistake has arisen from the legal effect of the language used that may provide a ground for the exercise of the court’s reforming power. Subject however to that qualification, I think that the passage cited is correct.
I have dealt with the legal aspects of the matter first to get them, so to speak, out of the way, because there were other grounds upon which the learned jud e came to his conclusion. It is upon those grounds that I think he rightly decided the case. I have already referred to the fact that here-and it is a curious feature of the case-the husband, through his solicitor, deliberately altered the draft from the form which it originally took to the form to which he now objects. The learned judge, in the course of his judgment, said that here the agreement, as evidenced by the draft as altered, was in precisely the form which the document took, and that it was a deliberate agreement in so far as it involved a change from the form of words which the plaintiff now prefers to the form to which he now objects. I do not say that that of itself would be fatal to the husband’s case, but I am bound to say that I think it is material, in considering whether the court should exercise its equitable jurisdiction, that it should be asked to do so at the suit of a plaintiff who has to come forward and say: ” This error was due to my own alteration of the draft; it is true that my wife accepted it, but, as appears from the evidence, I cannot show that this question of tax was ever a matter with which she was concerned or that it was ever present in the least in her mind.” If the unfortunate result is due to the mistake made by the legal adviser of the plaintiff, that does not seem to me to be a good ground for saying that there should now be rectification, and rectification at a time when inter partes there is no issue or substantial question.
The only real matter of substance is that, as a consequence of the mistake,
the position of the plaintiff as regards the taxing authorities has been affected and, as it turns out, adversely affected. The ground, however, upon which I prefer to base my conclusion is that which I have already indicated-that, having regard to the rectification deed which followed and was a consequence of the absence of any issue at any time between the parties as to their true rights inter se, the necessary condition for the exercise of the reforming powers of the court is really absent.
CoHEN L.J.: . . . [Counsel for the plaintiff] submitted that the effect of refusing it would be to deprive their client of the benefit which, from the point of view of surtax, it was intended he should have; but there is no evidence that it was the common intention of the parties to secure him that benefit. The defendant’s solicitor, who conducted the negotiation on her behalf, made it plain that his mind was never directed to the surtax position. If therefore this ele ment can ever be material in influencing the judge in deciding whether to exercise his discretion and grant rectification, this is not a case where it should be granted. . . . I must observe that if the husband had refused to execute the supplemental deed and the wife had commenced proceedings for rectification against him, and had supported her claim by the evidence of the solicitors given in this action and by the documents, that claim would have succeeded.
Paget v Marshall
Chancery (1884) 28 Ch.D. 255; 54 L.J.Ch. 575; 51 L.T. 351; 33 W.R. 608; 49 J.P. 85
BACON V.-C. : . . . In all these cases on the law of mistake it is very difficult to apply a principle, because you have to rely upon the statements of parties interested, and upon not very accurate recollections of what took place between them. But the law I take to be as stated this morning by [ counsel for the plaintiff]. If it is a case of common mistake-a common mistake as to one stipulation out of many provisions contained in a settlement or any other deed, that upon proper evidence may be rectified-the Court has the power to rectify, and that power is very often exercised. The other class of cases is one of what is called unilateral mistake, and there, if the Court is satisfied that the true inten tion of one of the parties was to do one thing, and he by mistake has signed an agreement to do another, that agreement will not be enforced against him, but the parties will be restored to their original position, and the agreement will be treated as if it had never been entered into. . . .
The law being such as I have said, it is not necessary to say anything about how easily you can make holes in a partition, and how you can knock down a partition; you can pull down the front of a house with equal ease if you have proper appliances and proper workmen to do it. The way it is forced on my attention is the reason why the partition was first made, why it was found to be in existence when the Defendant first inspected it, why he knew from that time as well as he knows now that it never was the intention of the Plaintjff that he should have that ” magnificent” room which formed one of two rooms which constituted the business place intended by the Plaintiff for his own use, and to which the access was made by one staircase communicating with nothing but the upper room.
But without being certain, as I cannot be certain on the facts before me, r whether the mistake was what is called a common mistake-that is, such a common mistake as would induce the Court to strike out of a marriage settlement a provision or limitation-that there was to some extent a common mistake I must in charity and justice to the Defendant believe, because I cannot impheute to him the intention of taking advantage of any incorrect expression in this letter. He may have persuaded himself that the letter was right; but if there was not a common mistake it is plain and palpable that the Plaintiff was mistaken, and that he had no intention of letting his own shop, which he had built and carefully constructed for his own purposes.
Upon that ground, therefore, I must say that the contract ought to be annulled. I think it would be right and just and perfectly consistent with other decisions that the Defendant should have an opportunity of choosing whether he will submit, as the Plaintiff asks that he should submit, to have the lease rectified by excluding from it the first floor of No. 48, whether he will choose to take his lease with that rectification, or whether he will choose to throw up the thing entirely, because the object of the Court is, as far as it can, to put the parties into the position in which they would have been if the mistake had not happened. Therefore I give the Defendant an opportunity of saying whether he will or will not submit to rectification. If he does not, then I shall declare that the agreement is annulled. Then we shall have to settle the terms on which it should be annulled.
Roberts v Leicestershire CC
A. ROBERTS & CO. LTD. v. LEICESTERSHIRE COUNTY COUNCIL
Chancery [1961] Ch. 555; [1961] 2 W.L.R. 1000; [1961] 2 All E.R. 545; 59 L.G.R. 349;
Pennycuick J.
.: . . . The second ground rests upon the principle that 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. [Counsel] for the council formulated the principle in slightly different terms, as follows, viz., the plaintiff must show that his intention was that the term sought to be introduced by rectification should be included in the contract and (so far as now relevant) that the omission of the term was occasioned by the dishonest conduct of the defen dant in acceptance of the formation of the contract without the term in the knowledge that the plaintiff thought the term was included. [Counsel for the council] thus introduces into his formulation of the principle the word ” dis honest,” but he accepts that such conduct by the defendant in his formulation is of its nature dishonest, so that the word ” dishonest ” appears to carry the matter no further. I do not think that there is any substantial disagreement as to the scope of the principle.
The principle is stated in Snell on Equity, 25th ed. (1960), p. 569 [now 26th ed. (1966), p. 684], as follows: ” By what appears to be a species of equitable estoppel, if one party to a transaction knows that the instrument contains a mistake in his favour but does nothing to correct it, he (and those claiming under him) will be precluded from resisting rectification on the ground that the mistake is unilateral and not common.”
The exact basis of the principle appears to be in some doubt. If the principle is correctly rested upon estoppel it seems to me that it is not an essential ingre dient of the right of action to establish any particular degree of obliquity to be attributed to the defendants in such circumstances. If, on the other hand, the principle is rested on fraud, obviously dishonesty must be established. It is well established that a party claiming rectification must prove his facts beyond reasonable doubt, and I think this high standard of proof must equally apply where the claim is based on the principle indicated above….
Inmy judgment, these facts raise beyond reasonable doubt the inference that Smith did know at latest by the end of the meeting on April 5 that the company believed the period for completion under the contract to be 18 months. Only if he was unusually stupid or unusually heedless could he have failed to under stand the company’s state of mind at least by the end of this meeting. I am satisfied he was neither stupid nor heedless, and it seems to me he did realise the company’s mistake….
As I have said, this issue appears to me to depend upon the state of Smith’s knowledge, and I do not feel myself concerned either to criticise or to excuse his conduct.
I propose, accordingly, to order that the contract be rectified by the insertion of September 30, 1955, in place of September 30, 1956, as the date for completion.
McCormack v McCormack
[1877] 1 LR Ir 119
Ball C: The jurisdiction of a Court of Equity to reform a settlement, in which it is established by evidence that error or mistake has occurred, is undoubted. Parol evidence will suffice, but it is obvious that when the claim for relief rests upon testimony exclusively, and is not supported by any written record of the intention of the parties, especially should time have elapsed since the deed was executed, much vigilance and caution are required on the part of the tribunal which is called upon to exercise the jurisdiction. Still if, after due deliberation, it arrives at the conclusion that the actual contract which was made between the parties differs from that expressed in the instrument, it is, in my judgment, as much bound to act as in any other case depending upon testimony.
The only question in this suit relates to a matter in its nature simple and easy to be understood by any person of ordinary intelligence-was it intended that a particular sum of 352 should have been included along with other property in a post-nuptial settlement? We may well distrust the recollection of witnesses as to what is complicated or difficult, such as an elaborate train of limitations of an estate, or a portion of them, subjects in respect of which the intention may very easily not have been clear at the time, and naturally the memory not retentive, but here this ground of distrust does not exist. It is also to be kept in mind, that although the subject of controversy be simple, yet the language of the instrument in relation to it is not simple; on the contrary, it is by no means free from ambiguity, and its construction has been debated before the Master of the Rolls, and again before the Vice-Chancellor, both of whom have, upon inferences from a minute examination of particular words, and not from any plain declaration of intention, held that this sum of money, whether it was so designed or not, is affected by the trusts of the settlement. I am myself clearly of opinion that an unprofessional person might have heard read, or himself have read, the deed without perceiving that this money was settled. The matter in question is, therefore, one in its nature easy to be remembered, and we are not embarrassed by any plain declaration in the deed under the hands of the parties, in conflict with their present statements.
Then comes what must always be an important inquiry in a case of this character-have the parties acquiesced all this time-thirty six years, for the deed bears date in 1841? Has the provision complained of been acted upon? Nothing of the kind. The acts of the parties are inconsistent with the expressed contract, and consistent with that now asserted. Before the settlement was executed, and again, contemporaneously with its execution, portions of this sum of 352 were paid to the husband, and, afterwards, the balance not then paid was handed to him. The person who held the money for the wife was to be the trustee of the settlement, and seems himself to have negotiated, and given instructions for its terms; and unless what is alleged be true-that it was neither intended nor supposed that the 352 was settled-how can this conduct on his part be explained?
Let us now examine the evidence which, under such circumstances, comes before us. There never could have been more than four persons aware of the real nature of the agreement: viz, the husband, the wife, Mr Tener, who was the trustee originally of the money and afterwards of the settlement, and Mr Holmes, the solicitor. The last died in 1848; and the other three all coincide in saying this money was not to be a subject of settlement. Mr Tener must know all about it; he told the husband he ought to make a settlement; he personally communicated with the solicitor as to its preparation, and told him what was and what was not to be included; there never were any written directions or instructions; the whole rested in parol, and was conducted by him. Then his acts at the time – paying the husband, when by so doing he must, if the money were settled, have involved himself in liability to make good the money for the settlement – are in exact conformity with what he says was then intended, and as he supposed effected by the deed. I regard this as satisfactory confirmation of the testimony of the three surviving persons acquainted with the treaty, and having this confirmation, notwithstanding the interest which the husband, and for his sake the wife, have in the case they support, and being favourably impressed with the testimony itself, I feel bound to act upon it.
As for delay – I think the topic answered by the fact that, from the ambiguous nature of the language of the deed, the parties seem not to have perceived its effect until the argument before the Master of the Rolls in 1871.
The decree appealed from will be altered, by declaring this sum of 352 was by mistake introduced into the settlement; the husband must pay the costs of his minor children, who have properly been brought as defendants before the Court, and whose rights have been with much ability protected by their counsel.
Christian LJ: I am quite of the same opinion; and I must add that it appears to me that unless the Court of Chancery were prepared to abdicate this head of its jurisdiction, it could not refuse to apply it in the present case; for we have here a convergence of almost every circumstance by which Courts of Equity have been induced to reform settlements – unreasonableness in their provisions, and the consequent improbability of their truly representing the intentions of the parties; their contemporaneous acts at variance with those provisions; incongruities apparent on the face of the settlement itself; and, finally, a perfect concurrence of evidence from the parties themselves, all of whom fortunately happen to be still living in this instance, and who give unanimous consent and assent to the view to which the mind would naturally be led. In addition to that, no resistance is offered by the only persons competent to express an opinion upon the subject – I mean the adult children; and against all that evidence, which is all on one side, nothing on the other except the passive resistance, the non possumus, of the two minor children. Though I speak of their passive resistance, their counsel has argued this case with an energy and a zeal which became him, acting as he was on behalf of minors. This lady had no actual fortune at the time of her marriage. Her husband had a perpetual real estate, but he did not think proper to make any settlement. In process of time this sum of 352 became available, and was in the hands of Tener as trustee. The state of rights under these circumstances was that the husband was entitled to reduce that chose in action into possession, and call for payment of the money; but the trustee could have said, I insist on the wife s equity to a settlement, and that the whole sum, as it is so small, be settled. The husband could then say, I would rather get the money and give you a settlement on my real estate . The two properties produced about the same sum yearly. Seeing that McCormack had already refused to make a settlement when he was married, it was plain that he did not intend to settle anything afterwards but what the trustee had a right to require him to settle. Therefore the probabilities of the case were, that the husband should get the money, and make a settlement out of his real estate. What else have we before we come to the deed itself? We have the fact that before the settlement was suggested, Tener had paid a large part of the money to the husband; and therefore the first thing Tener should have done, if it was to be put into settlement, in duty to himself as well as to the other members of the family, was to call upon McCormack to refund what he had got, so that the whole might be united as a subject of the settlement. Instead, however, of doing that, upon the execution of the deed he handed over the rest of the fund to McCormack. Whatever suggestion can be made as to Tener s being an interested witness, he is swearing upon this point from memory refreshed by entries from his books which were refused to be admitted in evidence; also, he is here in Court now, and might have been cross-examined. With these facts and probabilities then before us, we come now to the consideration of the settlement itself. (His Lordship having then read and analysed the provisions of the settlement seriatim down to the beginning of the clause as to the appointment of new trustees, with the view of showing that they pointed to the exclusion of the 352 from its operation, proceeded:) If there were no further indication of intention to deal with the money, I think I should say, as a mere matter of construction, that the lady s fortune was not included. What makes the difficulty is the proviso as to the appointment of new trustees. (His Lordship read the clause). There unquestionably it is stated that the moneys were part of the trust fund; that alone gives rise, in my opinion, to the necessity of a suit for reformation, and the question is, whether any sufficient case for that has been made. I think that, even if all the parties were dead a prima facie probability would be sufficient to show that the introduction of the word moneys was a mistake. In Smith v Iliffe LR 20 Eq 167 the Court went upon the inherent improbabilities of the settlement. (His Lordship stated the facts of that case.) There a great difficulty in the way was the existence of previous articles with which the settlement agreed. The parol evidence was worthless; there was only the lady s own affidavit, and she knew nothing of the terms of the contract which she admitted had been arranged by her mother and her advisers without reference to herself. Are not the improbabilities here quite as great? Is it not improbable that the husband agreed to settle anything more than he was obliged to settle? Is it not improbable that Tener would pay over the money to the husband and execute a deed which would fasten a breach of a trust round his own neck? Even without the parol evidence here, I should be disposed to hold, following Smith v Iliffe, that it was a mistake to introduce the word moneys .
But what have we after that? Why it appears that though a very long time has elapsed, all the parties to the settlement are still living. A search, which I have no doubt was bona fide, has been made among Mr Holmes papers, and nothing has been found; and Mr Tener, whom I called up, says that his instructions were verbal, that none were given to include the 352 in the settlement, and that the doing so was a mistake. I do not know what would be required if that be not sufficient. Of course the parties have an interest, but parties always have an interest in these cases; and if there be any of the parties on the other side who have an adverse interest and deny the statements of those opposed to them, the difficulty of reforming a settlement under such circumstances would probably be insuperable. But where we have all the parties agreeing, I do not know what the most fastidious of Courts could further require. This power of reforming deeds is one of the most useful features of our laws and I must repeat, what I have already said, that we might as well strike this head of our jurisdiction out of our books altogether, as refuse to apply it in this instance, and to make an order in favour of the Appellants. I agree with the Lord Chancellor as to the form which our decree should take; the declaration should be indorsed on the deed.
The material portion of the decree was as follows:
THEIR LORDSHIPS do order that the said decretal order of the Vice-Chancellor, bearing date the 16th day of November 1876, be and the same is hereby reversed, and instead thereof the Court doth declare that the post-nuptial settlement bearing date the 13th day of October 1841, is not in all respects in conformity with the intention or agreement of the parties to the said deed, or any of them, to settle by the said deed any property except the tenements and premises in the town of Coal Island and county of Tyrone thereby assigned. And doth further declare that the word moneys in line sixteen of the second page, and line twenty-six of the third page of the said deed, was inserted therein by mistake, and ought to be omitted. And it is hereby ordered that the said deed be construed and take effect as if the same had been framed accordingly, and that the foregoing declaration and order be indorsed on the said settlement, and that the same be certified by the Registrar of this Court to be a true copy thereof.
Irish Life Assurance Co Ltd v Dublin Land Securities Ltd
[1986] IR 332 (High Court); [1989] IR 253
Keane J: It is a truism that the sale of one ground rent in Dublin for fifty pounds can cause more nightmares to lawyers than that of an office block for millions of pounds. The difficulties involved in a sale of over nine thousand ground rents can scarcely be exaggerated and it is hardly surprising that it has given rise to a problem of spectacular dimensions in the present case.
It is many years since the plaintiff began investing some of the funds at its disposal in ground rents, principally in the Dublin area. In those days, they represented a not unattractive form of investment. The fact that they generally produced a fixed income for the investor was not so important when inflation was comparatively low and the cost of collecting them could be maintained at a reasonable level. While some householders regarded them as an irritating feudal survival, organised and militant campaigns against them were virtually unknown.
All that had changed by the mid 1970s. Inflation was now rampant, the cost of collection had increased significantly and extremely vocal resistance to ground rents had developed in many areas. This last development was a source of particular embarrassment to the plaintiff which numbered among its policy-holders, or potential policy-holders, many people who also paid it ground rents. In addition, there was now on the statute book legislation enabling householders to buy out their ground rents and at the time of the events giving rise to these proceedings the ceiling price which had to be paid by a person wishing to buy the freehold represented just over six years purchase. Not surprisingly, the plaintiff from this time onwards was actively interested in disposing of its ground rents portfolio if a buyer could be found at a reasonable price.
In April 1981, Mr Peter White, a partner in the firm of Messrs Gilbert Leon and White, Estate Agents and Auctioneers, introduced such a purchaser to the plaintiff. He was Mr Philip Frederick, a London property developer, who had extensive interests in the United Kingdom and elsewhere, but had no experience of the Irish property market and, indeed, prior to the events giving rise to this litigation, had never been in this country.
Having regard to the number of properties involved, it was obvious to both parties that the most practical method of arriving at a price for the acquisition of the portfolio was to agree on an appropriate multiplier of the rental received. Mr Frederick suggested a multiplier of 3.36 which would mean a purchase price in the region of 425,000. Mr William Nowlan, the property portfolio manager of the plaintiff, agreed to recommend this offer to his Board for approval, which was eventually forthcoming. Both parties instructed solicitors to act on their behalf in the transaction, Mr Frederick retaining Mr Stephen Miley of Messrs Miley and Miley and the plaintiff s side of the transaction being handled by its in house solicitor, Mr James Devlin.
It was accepted by both parties that included in the ground rents portfolio there were properties which would provide a purchaser with some profitable opportunities. Thus, in some cases, the leases under which the ground rents were payable might have a relatively short reversion, giving rise to the possibility of an increased rent (or even vacant possession) on expiry. More relevantly in the context of these proceedings, it was not uncommon to find in residential estates in the Dublin area that not all the land was in the occupation of the householders or taken in charge by the local authority. These vacant sites offered possibilities for development which represented a major attraction of the transaction from the purchaser s point of view. They were variously described during the course of the proceedings as odds and ends (by the plaintiff) and plums or jewels in the potatoes (by Mr Frederick).
Among the unbuilt sites in the ownership of the plaintiff was a stretch of land at Palmerstown of over seven acres which straddled the boundary of Dublin city and county. This land had been reserved for road improvement purposes in the development plans of the two local authorities concerned for many years. In the case of the lands in the county, notice of the making of a compulsory purchase order had been given by the Council on the 7th April 1977, and the order had been confirmed by the Minister for the Environment on the 19th November 1979. A compulsory purchase order had been made by Dublin Corporation in respect of the lands in the city on 17th April 1975, but was not confirmed by the Minister until the 13th December 1983. It was proved at the hearing that the total amount of compensation payable in respect of all these lands and adjoining lands acquired by agreement together with interest accrued was 594,761. No ground rents were payable out of these lands. Mr Nowlan had no intention of including these lands in the sale of the ground rents portfolio to Mr Frederick or any other purchaser and he said in evidence that he so informed Mr White at a meeting in his (Mr Nowlan s) office on the 23rd May 1981, at which a member of his staff, Miss Angela McGauran, was also present.
Mr White, in seeking a possible purchaser for the ground rents portfolio, was armed by the plaintiff with what was called the Blue Book containing details of the properties in the portfolio and the approximate rental income. It was accepted that the Blue Book was in many respects out of date: a significant number of the ground rents had, for example, been purchased by the tenants since it was originally compiled. In addition, there were a number of properties which, although included in the Blue Book, the plaintiff wished to be excluded from the sale, since they did not form part of the ground rent portfolio proper, but were ground rents payable out of the plaintiff s own property or sites which it was in the process of developing. Conversely, there were properties not included in the Blue Book which the plaintiff considered did form part of the portfolio. Mr Nowlan, accordingly, informed Mr Devlin s department of properties that were to be either excluded from or added to the properties being sold to Mr Frederick. Such information was conveyed to Mr Devlin s department before the contracts giving rise to the present proceedings were actually executed and exchanged on the 23rd December 1981, and among the properties expressly specified for exclusion were vacant lands at Palmerstown . The process of either excluding the properties or adding them back in continued after the execution of the contract on that date.
The properties agreed to be sold were described in the contract as those specified in the Schedules A, B and C attached to the contract. The contract also contained provisions, which it is not necessary to notice in detail, dealing with the arrears of rents owing and the future collection of rents. The details of the rents payable out of the property were set out in a computer print out which was given the name of Schedule D.
Mr Miley was not happy about closing the sale on the 23rd December, since he was not satisfied that all the properties which his client was entitled to acquire had been included in the draft contract proffered to him by Mr Devlin. Mr Devlin was, however, equally concerned for his part to have the transaction completed without delay and he indicated to Mr Miley at the closing that if the contracts as drafted were not signed and exchanged on that day the transaction would be at an end. Mr Miley telephoned his client in London and received his authority to proceed as he (Mr Miley) thought best and, accordingly, Mr Miley agreed to the contracts being executed and exchanged.
The Palmerstown lands consisted partly of registered freehold land and partly of unregistered leasehold land. The unregistered leaseholds were described in reference 75 of Part I of Schedule C as excluding : those parts of the said lands … which are subject to Dublin County Council Compulsory Purchase Order. The freehold lands were described at reference 57 in Part II of Schedule A as : the lands comprised in Folio 5245 County Dublin, being the lands of Redcow Farm, Palmerstown, County Dublin.
Other than the reference to the exclusion of part of the unregistered leasehold lands, there was no mention anywhere in the contract of the exclusion of the Palmerstown lands which were the subject of compulsory purchase orders. This was the result of an oversight in the legal department of the plaintiff when the schedules were being prepared: Mr Nowlan had advised the department that the vacant Palmerstown lands were not to be included, but this had been lost sight of in the course of the preparation of the contract.
Following the execution of the contract, there were further alterations to the schedules involving the removal of properties which it was thought should not be included in the sale and the addition of ones which it was thought should be. There was no serious difference between the parties as to these matters.
It was not until March 1982, that Mr Devlin, while checking a matter in relation to the Palmerstown lands, realised for the first time that they had been included in error in the contract. At a meeting in his office on the 23rd March 1982, with Mr Miley, Mr Devlin s law clerk, Mr John Hester, handed Mr Miley a letter in the following terms:
I refer to my reply to general requisition number 6 dated 11th March 1982.
It has now been brought to my attention that the Compulsory Purchase Order referred to at Schedule C Part I Lot 75 should also have been referred to as affecting Schedule A Part II Lot 57 part of the lands comprised in Folio 5245 County Dublin.
Consequently the parts so affected by the CPO will not be transferred to your clients, Dublin Land Securities Limited, and will continue in the ownership of my clients, Irish Life Assurance Company Limited.
Perhaps you would note accordingly.
Mr Frederick on the advice of both Mr White and Mr Miley, had decided to form an Irish company – the present defendant – to take the conveyance of the ground rents and to administer their collection in the future. The contract had been executed in the name of this company. Difficulties were experienced, however, in completing the transaction because, among other things, of the concern of Mr Miley that his clients should acquire everything to which they were entitled under the contract. Eventually an arrangement was arrived at whereby the defendant furnished Mr Devlin with a bank draft for the estimated amount of the money due on completion – 374,972.83 – which Mr Devlin undertook to place on deposit pending the closing. The purchase deed was engrossed in Mr Miley s office and forwarded to the plaintiff which indicated that it required certain alterations to be made to it. Mr Miley eventually took back the deed and it was still in his possession when the proceedings were instituted.
Mr Miley said in evidence that, although he had placed the letter from Mr Devlin of the 23rd March concerning the Palmerstown lands on his file, he did not appreciate its significance at the time. He said that towards the end of May he had a conversation with Mr Hester when for the first time he realised that it was the intention of the plaintiff to exclude the Palmerstown lands and also appreciated the significance of the mistake that had been made. He so informed Mr Frederick at the time.
At this time also, Mr Nowlan learnt for the first time from Mr Devlin of the error that had occurred. The correspondence continued between the solicitors as to the finalising of the transaction during the summer of 1982 and ultimately on the 2nd September 1982, Mr Miley, in the course of a letter to Mr Devlin dealing with a number of outstanding matters, said :
I am aware of quite a large property at Palmerstown which is subject to a CPO and in respect of which I understand substantial moneys will be paid by the local authority. As far as I am aware this property was originally included in the sale to my clients and it will be a matter for them to decide now how to deal with this.
Obviously concerned by the implications of this letter, Mr Nowlan spoke to Mr White about it. Mr Nowlan said in evidence that Mr White told him that Mr Frederick did not expect to get the Palmerstown lands. This was conveyed by Mr Devlin to Mr Miley in a letter of 8th September 1982, but there was no indication from the defendant that it was prepared to agree to the exclusion of these lands from the sale. It further emerged that two residential properties in Palmerstown, numbers 5 and 9 Turret Road, had also been erroneously included by the plaintiff in the draft contract: erroneously because the plaintiff was in receipt of rack rents and not ground rents from them.
Ultimately, in an effort to resolve the outstanding matters, a meeting was held in Dublin at the plaintiff s offices in November 1982, which was attended by all the parties concerned, including Mr Nowlan, Mr Frederick and Mr White. In the course of the meeting, Mr Frederick said that he was quite prepared to accept that a mistake had been made in the preparation of the contract, but that he also considered he was entitled to benefit from any such mistake. Mr Frederick said in evidence that his attitude was that he had been required to sign the contract in the form presented to his solicitor on the 23rd December 1981, and that since he was prepared to accept it with whatever consequences that might entail for him he considered that the plaintiff should adopt the same approach.
An impasse having thus been reached, the present proceedings were instituted in which the plaintiff claims:
(i)Rectification of the contract dated 23rd December 1981, so as to embody the agreement alleged to have actually been made between the parties or their true intentions at the time of executing the same and
(ii)An order for specific performance of the agreement as so rectified.
The defendant in its defence and counterclaim seeks:
(1)A declaration that the defendant is the owner of the Palmerstown lands.
(2)A declaration that the plaintiff duly executed and delivered a conveyance of these lands.
(3)If necessary, an order for specific performance of the contract.
It is necessary at the outset to consider the status of Mr White in this transaction. It was contended on behalf of the plaintiff throughout the proceedings that he never at any stage acted as agent for it and that he was at all times the agent of Mr Frederick. (I may say in passing that it was agreed at the Bar that nothing turned on the fact that the pre-contractual negotiations were between the plaintiffs and Mr Frederick, although the contract was actually executed in the name of the defendant). While it was conceded on behalf of the defendant that Mr White ultimately became the agent of the defendant since Mr Frederick decided to retain him for the purpose of administering the ground rent portfolio and collecting the rents, it was submitted on its behalf that he was not the agent of Mr Frederick prior thereto, but was acting on behalf of the plaintiff. In particular, it was submitted that he was not acting as the agent of Mr Frederick in May 1981, when Mr Nowlan said that he told him expressly that the Palmerstown lands were being excluded from the sale. Mr Nowlan said that in February 1981, he was invited to lunch in Messrs Gilbert Leon and White and was asked during the course of the lunch whether he had any properties for sale. He mentioned the ground rents portfolio and a house at 133 Lower Leeson Street, Dublin. Mr White subsequently contacted him about the Leeson Street property and arranged to inspect it. Having inspected it, he told Mr Nowlan that he had not got a client for it, but asked him if he would give his firm authority to sell. Mr Nowlan got the necessary authority from his superiors and conveyed this in writing to Messrs Gilbert Leon and White. Mr White in due course put up the property for auction and was paid his fees by the plaintiff. On the 24th April 1981, Mr White wrote to Mr Nowlan saying:
I have had an enquiry from an English client, Philip Frederick Investments Limited, who are interested in acquiring substantial ground rent portfolios in Ireland. I have taken the liberty of giving them brief details of your collection which I had.
He added in the same letter:
I should add that Messrs Philip Frederick Investments Limited are a substantial English fund, who have specialised in ground rent collections in England, and I am relatively optimistic that we may be able to obtain a satisfactory offer from them, in which case, we would like to know that we had been retained by Irish Life if a sale does arise.
Mr Nowlan replied on the 28th April 1981, confirming the plaintiff s interest in disposing of the portfolio and said :
Finally, I would like to confirm that Irish Life will pay your fees in the event of a sale to a party introduced by you. I must however advise you that Irish Life are in the process of negotiating the sale of its portfolio with another prospective purchaser from the UK and introduced by a UK firm of estate agents and surveyors. Although nothing conclusive has been agreed, perhaps you should keep your client fully informed of the situation.
Mr Nowlan said that he had been deliberately cautious in his wording of this paragraph, since he was aware of the complications that could ensue for the plaintiff if Mr White purported to negotiate a sale of the portfolio to a purchaser as the plaintiff s agent. Mr White wrote on the 3rd June 1981, to Mr Nowlan as follows :
Mr Frederick, while somewhat concerned about the collection difficulties, has confirmed to me that, subject to contract, and his solicitor being satisfied with the titles being offered, he will, on my advice form an Irish company for the proposed acquisition of the entire portfolio subject to the following terms and conditions …
There followed the agreement as to the appropriate multiplier to determine the purchase price. As I have already mentioned, the parties had at a relatively early stage instructed their respective solicitors in relation to the transaction. Mr Miley, having received a copy of the proposed contract, wrote on the 17th September 1981, to Mr White in the following terms:
Dear Peter,
As arranged I enclose a copy of the letter which I have now received from Irish Life, together with a copy of the proposed contract. Subject to what you say it appears to me to be substantially in order so far as it goes. There are quite a few amendments which I would like to make, but I do not think these would upset the other side too much.
I think we should meet as soon as you have read through the documents so that we can decide on the precise amendments we require.
I note also that the contract is in the name of Philip Frederick Investments, but as the new company is available I think we should use this to sign the contract.
I look forward to hearing from you.
Yours sincerely.
On the 11th September 1981, Mr White wrote to Mr Frederick as follows:
Dear Philip,
I send you herewith a photocopy of a letter which I have received from Irish Life, together with a photocopy of my reply.
I have today spoken to Stephen Miley who tells me that he has just received a very lengthy and involved draft contract.
You mentioned to me that you are arranging funding with the Lombard Bank and I think it is important at this stage that their solicitors should be brought in also to vet the contract. Stephen is in agreement with me regarding this, and accordingly, perhaps you would like to let us know with whom you are dealing with in the Lombard so that we can make the necessary arrangements.
As I told you during my visit, when we have had an opportunity to go through all the individual properties in the portfolio, we can start taking steps to rationalise the situation. I would prefer however to wait until contracts have been exchanged before starting to do this for obvious reasons.
You will of course require an Irish company for the acquisition and perhaps you would like to speak to Conor Davitt or Tom Phelan of Phelan Prescott and Company, both of whom you met with me, regarding this. They should be able to provide you with nominee Irish directors so that your name does not appear in the situation.
Should you like to give me a call about any of the above items, perhaps you would do so at my home number which is Dublin 970467, as I told you, I am gradually withdrawing from my role as an estate agent and will be working more from my house in future. I hasten to add, however, I will still be keeping a watching brief on your behalf on the ground rent situation.
There followed various letters from Mr White to Mr Miley and Mr Frederick concerning details of the formation of the proposed company. It was arranged that Mr Phelan and Mr White should be joint signatories on the account for the new company. On the 17th December 1981, Mr White wrote to Mr Frederick as follows:
I had a look through the contract myself and I must say it will take us some time to wade through all the plots and sites which are mentioned. When the contracts have been exchanged, we can really get down to business on this. I have a feeling that there are so many areas which nobody from Irish Life has ever visited, we may have some pleasant surprises. Let s hope so in any case. I also have received details of parties who are interested in buying out their rents which Irish Life have been good enough to forward to me. We can deal with these once again in due course.
Mr Frederick in evidence said that Mr White only acted as his agent after the contract had been signed. Mr White did not give evidence.
I accept Mr Nowlan s evidence that he never at any stage intended to appoint Mr White as the agent of the plaintiff and that he did no more than agree to pay Mr White a commission in the event of his (Mr White s) introducing a purchaser for the portfolio. It is also clear from the correspondence to which I have referred that Mr White regarded himself as acting on behalf of Mr Frederick and in his interest. Mr Frederick may not have considered Mr White to be his agent in a formal sense until after the execution of the contract and his retention to manage the portfolio, but it is perfectly clear from the correspondence that Mr Frederick made his offer to acquire the ground rent portfolio through Mr White and that in turn the plaintiff s acceptance of his offer was communicated to Mr White as Mr Frederick s agent. Mr Farrell submitted that the letters in question were equally consistent with the actions of an agent (Mr White) reporting to his own principal (the plaintiff) on an offer made by a third party (Mr Frederick), but I think so to hold would be to ignore the realities of the situation as abundantly demonstrated by the correspondence to which I have referred.
I also accept Mr Nowlan s evidence that at the meeting with Mr White on the 23rd May 1981, he informed him that there was a significant holding of land at Palmerstown which was subject to a compulsory purchase order and which was not to be included in the sale.
Mr Brian Hughes, who was employed by the plaintiff as a valuation surveyor, said that at the signing of the contract on the 23rd December 1981, he recalled saying to Mr Miley that the vacant Palmerstown land was not included in the sale. Mr Miley said in evidence that he had no recollection of this having been said. Mr Devlin said that he remembered when the contract was being signed that he flicked over the schedules and told Mr Miley that he did not want the land in reference 75 in Part II of Schedule C included. He was not referring to the land comprised in reference 57 of Part II of Schedule A. He did not recall Mr Hughes making any reference to the Palmerstown lands.
I accept the evidence of Mr Miley that nothing was said to him at or before the execution of the contract which drew his attention to the plaintiff s intention that the lands at Palmerstown should be excluded.
In summary, I am satisfied that the evidence establishes:
(1)It was at all times the intention of the plaintiff to exclude the lands the subject matter of the two compulsory purchase orders together with the adjoining land acquired by agreement at Palmerstown and the houses at Turret Road from the contract.
(2)Mr Nowlan on behalf of the plaintiff informed Mr White, who was then acting as the agent of Mr Frederick, that a significant holding of land the subject of a compulsory purchase order at Palmerstown was to be excluded from the sale at the meeting of the 23rd May 1981.
(3)The lands at Palmerstown the subject of the two compulsory purchase orders, the adjoining lands acquired by agreement and the houses in Turret Road were included in the contract of the 23rd December 1981, because of an oversight in the legal department of the plaintiff.
(4)Neither Mr Miley nor Mr Frederick was aware of the mistaken inclusion of the Palmerstown lands or its significance until late May 1982. Mr White had not said anything to Mr Frederick about their exclusion from the sale and, while Mr Miley received the letter of the 23rd March 1982, from Mr Devlin, he did not appreciate its significance at the time and had forgotten about it until he was reminded of its existence at the meeting in November 1982.
The plaintiff says that, in these circumstances, the contract of the 23rd December 1981, was drawn up and signed under a mutual mistake of fact and that it is accordingly entitled to rectification of the contract so that it carries out the actual intentions of the parties. It was submitted by Mr Keane on its behalf that it was not necessary for the plaintiff to establish that there had been an antecedent agreement enforceable in law: all that was required was that there had been a common continuing intention in regard to the particular provision of the agreement which had found expression in outward agreement together with convincing proof that the concluded instrument did not represent the parties common intention. He relied in this context on the decisions of the Court of Appeal in Joscelyne v Nissen [1970] 2 QB 86 and of the Northern Ireland Court of Appeal in Rooney & McParland v Carlin [1981] NI 138. He submitted that both the plaintiff and Mr White, as the agent of the defendant, intended to exclude the lands at Palmerstown, and had manifested that intention at the meeting of the 23rd May 1981. Since that common continuing intention had not found expression in the written contract, the plaintiff was entitled to have it rectified so as to give effect to that common intention.
Mr Farrell submitted on behalf of the defendant that there was no mistake in the contract of the 23rd December 1981: the plaintiff intended to sell and the defendant intended to purchase the properties set out in the schedules whatever they might be. While accepting that it was not necessary that there should have been an enforceable antecedent agreement, he argued that there must at least have been a concluded antecedent agreement certain in its terms. He submitted that the reference by Mr Nowlan at the meeting of the 23rd May to a significant holding of land the subject of a CPO at Palmerstown was so lacking in precision that the parties could not be said to have reached a concluded agreement in regard to this particular matter which was certain in its terms. It was not clear, he said, whether the reference was to the lands included in both the compulsory purchase orders or one or other of them. Moreover, not all the lands which the plaintiff was now seeking to exclude from the agreement were in fact the subject of either compulsory purchase order: some of the adjoining land had been sold to the County Council by agreement. Nor had there been any reference to the houses at Turret Road which it was now sought to exclude.
Mr Farrell further submitted that this was in truth a case of unilateral mistake, even though not pleaded as such. He submitted that there could be no rectification where the mistake is merely unilateral, as where one party (in this instance Mr Frederick) had never even heard of the term sought to be inserted, and that this would be so even if Mr White could be regarded as being Mr Frederick s agent, since Mr White had never told him of the term in question. Mr Farrell relied in support of this latter proposition on Fowler v Scottish Equitable Life Insurance Society (1858) 28 LJ Ch 225. He submitted that the present case fell within none of the established exceptions to the principle that the court will refuse rectification in such cases of unilateral mistake.
The conditions which must be satisfied before a court will order rectification of a written contract on the ground of mutual mistake were defined as follows by Lord Lowry LCJ in Rooney & McParland v Carlin [1981] NI 138 at p 146:
1.There must be a concluded agreement antecedent to the instrument which is sought to be rectified; but
2.The antecedent agreement need not be binding in law … nor need it be in writing: such incidents merely help to discharge the heavy burden of proof; and
3.A complete antecedent concluded contract is not required, so long as there is prior accord on a term of a proposed agreement, outwardly expressed and communicated between the parties, as in Joscelyne v Nissen.
It had been held by Dixon J in Monaghan County Council v Vaughan [1948] IR 306 adopting the view of the law taken by Clauson J in Shipley UDC v Bradford Corporation [1936] Ch 375 that, in the case of mutual mistake, the power of the court to order rectification did not depend on the existence of an antecedent agreement capable of being enforced: it was sufficient that there was such an agreement, whether enforceable or not. Joscelyne v Nissen [1970] 2 QB 86 and Rooney & McParland v Carlin [1981] NI 138 make it clear that one additional element is required, namely, that the antecedent agreement or common continuing intention , to use the phrase preferred by Russell LJ in Joscelyne v Nissen and Lord Lowry LCJ, has been reflected in some outward expression of accord. In addition, these later decisions place renewed emphasis on the heavy burden of proof which lies upon a plaintiff in such cases and which was referred to by Haugh J in Nolan v Graves and Hamilton [1946] IR 376 at p 389 as a very onerous burden .
It is, I think, clear that the principles to which I have referred, supported as they are by eminent authority, represent the law in this jurisdiction. Accordingly, if the plaintiff has discharged the heavy burden of proof which lies upon it and established that there was a common continuing intention on the part of Mr Frederick and the plaintiff to exclude the lands at Palmerstown from the sale which was mistakenly not embodied in the contract but was outwardly expressed and communicated between the parties thereto, the plaintiff would be entitled to rectification of the contract in accordance with the legal principles to which I have referred.
I have already found that Mr Frederick was unaware until May 1982, of the intention of the plaintiff to exclude the lands at Palmerstown. The plaintiff, of course, relies on the fact that the intention to exclude the lands had been communicated by Mr Nowlan to Mr White as Mr Frederick s agent and say that the knowledge thus obtained by Mr White must be imputed to Mr Frederick.
The law is stated as follows in Bowstead on Agency 15th ed, at p 412:
When any fact or circumstance, material to any transaction, business or matter in respect of which an agent is employed, comes to his knowledge in the course of such employment, and is of such a nature that it is his duty to communicate it to his principal, the principal is deemed to have notice thereof as from the time when he would have received such notice if the agent had performed his duty, and taken such steps to communicate the fact or circumstance as he ought reasonably to have taken; provided that where an agent is party or privy to the commission of a fraud upon or misfeasance against his principal, his knowledge of such fraud or misfeasance, and of the facts and circumstances connected therewith, is not imputed to the principal.
While this is no doubt a correct statement of the law, it does not of itself lend support to a further proposition which is an inherent part of the plaintiff s case. The learned editors do not say that where such knowledge takes the form of the agent s awareness that a particular term is to be included in a proposed contract, the principal is not merely deemed to have notice of the proposed term but is also deemed to have assented to its inclusion in the proposed contract and to be bound by it, even where it is omitted from the contract because of a mistake by the party seeking to rely on it. No authority has been cited for that proposition and such authority as there is appears to be against it.
It is of course an important feature of the efficient conduct of business that parties should be able to rely on notice to an agent as adequate notice to his principal within the limitations to which I have already referred. But in a case such as the present, those considerations may have to yield place to a principle of fundamental importance, viz, that the courts will not reform a contract in writing save on convincing proof that the contract, as the result of a mistake, has failed to give effect to the common intention of the parties previously manifested in outward accord. The authorities eloquently underline the anxiety of the courts to ensure that uncertainty is not introduced into freely negotiated commercial transactions by the successful invocation of rectification except within these strict constraints.
Thus, in Shipley UDC v Bradford Corporation [1936] Ch 375 Clauson J remarked (at p 396 of the report) that many, perhaps even most, rectification cases dealt with the reforming of a final instrument, such as a conveyance or a settlement, so as to accord with a previous instrument, such as a contract for sale or articles for a settlement. He added that the high standard of mutual mistake which the court requires made cases where mutual mistake could be proved, in the absence of any previous written instrument very rare . Within this framework, it seems contrary to principle that, in a case such as the present, the court should infer from the knowledge of the agent of the disputed term the assent of the principal to its inclusion in the contract, where the principal had no actual knowledge of the omitted term and the omission was due to a mistake by the party seeking to rely on it.
In this context, the circumstances of the present transaction must constantly be borne in mind. Mr Frederick was not simply making an investment which would yield him a fixed income. He was buying the ground rents portfolio in the knowledge that it would contain at least some opportunities for profitable exploitation of vacant sites and short reversions. It was wholly impractical for him or anyone acting on his behalf to conduct a detailed investigation of all the properties comprised in the folio with a view to establishing how worthwhile such opportunities were within the time scale insisted on by the plaintiff. He was, in short, taking a calculated business risk in the hope that it would yield him a substantial bonus above and beyond the fixed income which would be singularly unattractive to most investors in these times. The Palmerstown lands were not, as I have already said, the only property which the plaintiff intended to exclude from the sale, although technically forming part of its ground rents portfolio. The evidence establishes that a list of these properties was furnished by Mr Nowlan to Mr Devlin s department with a view to ensuring that they were excluded from the contract. Accordingly, when it came to signing the contract, Mr Miley found himself in a position where he had to advise his client that he was not at that stage satisfied that the contract proposed by the plaintiff included all the properties to which Mr Frederick might have thought himself entitled. Mr Frederick was nonetheless prepared to take the risk that the contract would still prove commercially attractive from his point of view. To conclude in these circumstances that there had been a prior concluded agreement between Mr Frederick and the plaintiff that the Palmerstown lands should be excluded which by a mistake common to both parties was not embodied in the written contract seems to me wholly unreal and I would be reluctant to come to such a conclusion, unless I were coerced so to do by authority.
The law is stated as follows in Snell s Principles of Equity (28th ed) at p 614:
The general rule is that there can be no rectification where the mistake is merely unilateral, as where one party had never even heard of the term sought to be inserted because his agent had not told him of it.
Mr Farrell conceded that the only authority cited in the text for this proposition (Fowler v Scottish Equitable Life Insurance Society (1858) 28 LJ Ch 225) did not support the statement of law in the wide terms in which it appears in the text. But the case does afford an interesting example of the reluctance of the courts to allow rectification on the ground of common mistake where one of the parties has never heard of the proposed term. In that case, R and K who carried on business as merchants in the City of London agreed to give credit to TH. Since he lived abroad and had no property in England, R and K decided to effect a policy of insurance on his life and to that end negotiations were conducted between K and C, the London agent of the defendants. H, in the course of his business, was in the habit of visiting ports in the Mediterranean and on the coasts of Africa and of Asia and it was made clear by him and K to C that the policy should not be vitiated by reason of his visiting ports out of Europe. In fact, however, the policy as executed by the defendants contained a clause which only entitled H to visit ports within the Mediterranean. H, in the course of his business, visited Casa Blanca on the Atlantic coast of Morocco and died there. The assignee of R and K brought proceedings claiming rectification of the policy to give effect to what was alleged to be the real agreement. Their claim was rejected by Stuart VC and, in the course of his judgment, he had this to say at p 229 of the report:
… One of the contracting parties to the instrument which is now sought to be reformed confessedly never heard of that which is said to be the real agreement. The result, upon the whole, is plain, that the agent in London agreed to something which he never communicated to his principals. The agent in London communicated that which was a mistaken proposal. K, who made the agreement with the London agent, never intended to be bound by the stipulation which he himself framed in a mistaken form. The result is that there is no agreement at all. That being so, the plaintiffs seem entirely to have mistaken their remedy …
He accordingly declined to order rectification, but ordered that the premiums which they had paid should be refunded to the plaintiffs and the policy delivered up to the defendants. I observe in passing that the plaintiffs in the present proceedings have at all times confined their claim to one of rectification and this is a point to which I shall return at a later stage.
I am satisfied that the present is also a case of unilateral mistake rather than common or mutual mistake. Even if Mr White s knowledge could be treated as an adequate basis for Mr Frederick s notional assent to the inclusion of the disputed term, the difficulty remains as to what that term is alleged to have been. Mr Nowlan went no further than saying to Mr White that there was a significant holding of land at Palmerstown subject to a CPO which was not included in the sale of the portfolio. He did not specify – and, of course, is not to be criticised in the slightest for not specifying – whether he was referring simply to the lands in the County Council CPO or those in the Corporation CPO or both. Nor did he indicate whether the exclusion was confined to the CPO lands or included those portions which were ultimately transferred to the local authority by agreement. Nor was there any reference, at least so far as the evidence goes, to the houses in Turret Road which were also mistakenly included in the contract and which it is now sought to exclude. So far as the vacant lands at Palmerstown are concerned, I think there is no doubt that it was Mr Nowlan s intention to exclude them all, whichever CPO they were in and indeed whether they were in a CPO or not. But he did not say so, and understandably so since he had no reason to suppose that the written instructions which were in due course conveyed to the legal department to exclude them would not be implemented, and such uncertainty can only be fatal to a plaintiff seeking to discharge the heavy burden of proof in a case such as this.
I am satisfied accordingly that the plaintiff has failed to discharge the onus of proof that lies upon it of establishing that the exclusion of the Palmerstown lands in the contract was the result of a common or mutual mistake which entitles it to rectification. It was at one time thought to be the law that rectification could not be granted to a party on the ground of unilateral mistake and that his remedy, if any, was rescission: see Gun v M Carthy (1883) 13 LR Ir 304. Later authority suggests, however, that rectification may be granted in cases of unilateral mistake, provided that there has been some element of fraud or sharp practice on the part of the person against whom the relief is sought; or, to put it at its lowest, where it would be inequitable in the circumstances to allow that person to retain a benefit derived from the mistake. Since the defendant takes no point on the absence of any plea of unilateral mistake, I have considered whether those authorities lend any support to the plaintiff s claim for rectification.
In approaching this question, it is necessary for me to emphasise that there was not the slightest element of fraud, dishonesty or even sharp practice, in Mr Frederick s conduct during this transaction. He was wholly unaware of the mistake until long after the contract which it is sought to rectify had been executed. Nor would it be proper to impute anything amounting to sharp practice to Mr White simply because he did not report the conversation with Mr Nowlan to Mr Frederick. It may be that Mr White considered that this was a matter which in any event would have to be sorted out by the solicitors in due course and that Mr Miley, as a prudent and experienced solicitor, would let his client know of any significant exclusions in the contract before it was signed. But it is not for me to speculate as to what Mr White s reasons may have been for not communicating the substance of this conversation to Mr Frederick, since he was not called by either party.
The first of the later decisions is Roberts (A) & Co Ltd v Leicestershire County Council [1961] Ch 555. In that case, the plaintiff company had put in a tender with the defendant for the erection of a school specifying that the works would be completed within eighteen months. The tender was accepted, but two officers of the Council altered the period for completion to thirty months. This alteration was for their benefit and not for the benefit of the company: the lower price at which the works were tendered for related to the eighteen month period. The company was unaware of the alterations when the contract was executed and, although one of the officers knew that it (the company) was under a mistaken impression as to the period for completion, he did nothing to draw their attention to the mistake. In an action for rectification, Pennycuick J held that the company was entitled to rectification. In the course of his judgment, he says (at p 570) :
The second ground [of the plaintiffs claim] rests upon the principle that 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. [Counsel] for the council formulated the principle in slightly different terms, as follows, viz, the plaintiff must show that his intention was that the term sought to be introduced by rectification should be included in the contract and (so far as now relevant) that the omission of the term was occasioned by the dishonest conduct of the defendant in acceptance of the formation of the contract without the term in the knowledge that the plaintiff thought the term was included. [Counsel] thus introduces into his formulation of the principle the word dishonest , but he accepts that such conduct by the defendant in his formulation is of its nature dishonest, so that the word dishonest appears to carry the matter no further. I do not think that there is any substantial disagreement as to the scope of the principle.
He also cited the following passage from the 25th edition of Snell at p 569:
By what appears to be a species of equitable estoppel, if one party to a transaction knows that the instrument contains a mistake in his favour but does nothing to correct it, he (and those claiming under him) will be precluded from resisting rectification on the ground that the mistake is unilateral and not common.
He adds the following comment:
The exact basis of the principle appears to be in some doubt. If the principle is correctly rested upon estoppel it seems to me that it is not an essential ingredient of the right of action to establish any particular degree of obliquity to be attributed to the defendants in such circumstances. If, on the other hand, the principle is rested on fraud, obviously dishonesty must be established. It is well established that a party claiming rectification must prove his facts beyond reasonable doubt, and I think this high standard of proof must equally apply where the claim is based on the principle indicated above.
It may be that this passage puts the burden of proof on the plaintiff at too high a level (see the observations of Brightman LJ in Bates (Thomas) & Son Ltd v Wyndham s (Lingerie) Ltd [1981] 1 WLR 505 at p 521). It is of more relevance in the present context, however, to note that in that case there was the clearest evidence that the defendant, through its officer, executed the contract in the knowledge that it contained a term which the plaintiff never intended to include and refrained from drawing its attention to it. The facts are, accordingly, clearly distinguishable from the facts as found by me in the present case.
The next decision is Riverlate Properties Ltd v Paul [1975] Ch 133. In that case, the plaintiff company made a lease of a maisonette to the defendant.
As executed, the lease imposed the entire responsibility for the exterior and structural repairs of the building on the lessors. It was, however, the lessors intention that the lessee should contribute to those costs, but neither the lessee nor her solicitor appreciated that that was the case. It was not the lessee s solicitor s intention that the lessee should be liable for such a contribution, but when he was examining the draft lease he did not appreciate that the clauses which relieved her of that liability were the result of erroneous draftsmanship. The lessor brought an action in which it was claimed, inter alia, that there had been a unilateral mistake of such a character as to entitle the lessor to rescission of the lease, subject to the lessee being put to her election whether or not to retain the lease but rectified so as to impose on her the appropriate contribution originally intended by the lessor. Templeman J dismissed the action and his decision was upheld unanimously by the Court of Appeal. Delivering the judgment of the court, Russell LJ said (at p 140) :
It may be that the original conception of reformation of an instrument by rectification was based solely upon common mistake: but certainly in these days rectification may be based upon such knowledge on the part of the lessee: see, for example A Roberts and Co Ltd v Leicestershire County Council. Whether there was in any particular case knowledge of the intention and mistake of the other party must be a question of fact to be decided upon the evidence. Basically it appears to us that it must be such as to involve the lessee in a degree of sharp practice.
The judgment goes on to deal with the claim for rescission. Because that claim has not been made in the present proceedings, it is unnecessary to consider in any detail whether it would lie in the circumstances of the present case. The observations of Russell LJ on the merits of such a claim are, however, peculiarly apposite, in my view, in the present context. He says at pp 140-141:
Is the lessor entitled to rescission of the lease on the mere ground that it made a serious mistake in the drafting of the lease which it put forward and subsequently executed, when (a) the lessee did not share the mistake, (b) the lessee did not know that the document did not give effect to the lessor s intention, and (c) the mistake of the lessor was in no way attributable to anything said or done by the lessee? What is there in principle, or in authority binding upon this court, which requires a person who has acquired a leasehold interest on terms upon which he intended to obtain it, and who thought when he obtained it that the lessor intended him to obtain it on those terms, either to lose the leasehold interest, or, if he wished to keep it, to submit to keep it only on the terms which the lessor meant to impose but did not? In point of principle, we cannot find that this should be so. If reference be made to principles of equity, it operates on conscience. If conscience is clear at the time of the transaction, why should equity disrupt the transaction? If a man may be said to have been fortunate in obtaining a property at a bargain price, or on terms that make it a good bargain, because the other party unknown to him has made a miscalculation or other mistake, some high-minded men might consider it appropriate that he should agree to a fresh bargain to cure the miscalculation or mistake, abandoning his good fortune. But if equity were to enforce the views of those high-minded men, we have no doubt that it would run counter to the attitudes of much the greater part of ordinary mankind (not least the world of commerce), and would be venturing upon the field of moral philosophy in which it would soon be in difficulties.
He goes on to review a number of older decisions which were cited as authority for the proposition that the plaintiff was entitled to rescission of the lease on the ground of mere unilateral mistake or, at the least, to put the defendant to her election. The judgment concludes that, insofar as the cases lent support to such a proposition, they were wrongly decided, but, as I have already indicated, since no such claim is made in the present proceedings, it is unnecessary to say anything further on this aspect of the case.
The final case in the series is Bates (Thomas) & Son Ltd v Wyndham s (Lingerie) Ltd [1981] 1 WLR 505. In the case, there was omitted from a rent review clause in a lease a provision for arbitration in the event of the parties failing to agree the rent. The omission of the arbitration clause was due to a mistake on the part of the managing director of the lessors and it is also clear that when the lessees executed the lease they were aware of the omission and did not draw the lessors attention to it. However, in the Court of Appeal, Buckley LJ declined to associate himself with the strictures passed by the trial judge on the conduct of the then lessees managing director. He nonetheless upheld the finding of the trial judge that the plaintiff was entitled to rectification.
Having referred to one of the passages which I have already cited from the judgment of Russell LJ, in Riverlate Properties Ltd v Paul [1975] Ch 133 he says at p 515:
In that case the lessee against whom the lessor sought to rectify a lease was held to have had no such knowledge as would have brought the doctrine into play. The reference to sharp practice may thus be said to have been an obiter dictum. Undoubtedly I think in any such case the conduct of the defendant must be such as to make it inequitable that he should be allowed to object to the rectification of the document. If this necessarily implies some measure of sharp practice , so be it; but for my part I think that the doctrine is one which depends more on the equity of the position. The graver the character of the conduct involved, no doubt the heavier the burden of proof may be; but, in my view, the conduct must be such as to affect the conscience of the party who has suppressed the fact that he has recognised the presence of a mistake.
It is perhaps somewhat over fastidious to shrink from applying the description of sharp practice to the conduct of a party who recognises that the other party to the contract is executing it under a mistake which can only be detrimental to him and deliberately suppresses his recognition of that fact. But it is unnecessary to consider such fine distinctions any further in the present case, because it is clear that Mr Frederick was not aware that a mistake was being made in the execution of the contract and there was accordingly neither sharp practice on his part nor anything in his conduct prior to or at the time of the execution of the contract which rendered it unconscionable for him to take his stand on the contract as it was executed by both the parties. It follows that the plaintiff in my opinion is not entitled to rectification on the ground of unilateral mistake.
One further matter remains to be noticed. Notices to treat in respect of the lands comprised in the Dublin County Council compulsory purchase order were served on the 25th September 1980. In the case of the lands comprised in the Dublin Corporation compulsory purchase order, the notice to treat was not served until the 5th April 1984. It was submitted on behalf of the plaintiff that, in the case of the land comprised in the Dublin County Council compulsory purchase order, the plaintiff had ceased to be the owner of the land as of the date of service of the notice to treat and that, accordingly, it would in any event be impossible for it to comply with any decree of specific performance in relation to those lands. In support of this submission, Mr Keane relied on the decision of the Supreme Court in In re Green Dale Building Co [1977] IR 256. I am satisfied, however, that the service of the notice to treat did not of itself vest any estate or interest in the land in Dublin County Council. This is made clear by the following passage in the judgment of Henchy J in In re Green Dale Building Co at p 265 of the report:
The service of the notice to treat does not, of itself, pass any estate or interest in the land to the acquiring authority, nor does it constitute a contract; but it creates a relationship which ripens into an enforceable contract when the compensation has been either agreed by the parties or assessed by the arbitrator.
Accordingly, when the contract was executed on the 23rd December 1981, the legal and equitable estate in the CPO lands was vested in the plaintiff. This it had agreed to convey to the defendant in the present proceedings and the defendant thereupon became entitled in equity to the lands or to any compensation that might be paid by the County Council, whether as a result of agreement or by arbitration: see also Hillingdon Estates Co v Stonefield Estates Ltd [1952] Ch 627.
It follows that the plaintiff s claim must be dismissed. The defendant is entitled to a declaration in the terms of paragraphs 1 and 3 of the counterclaim and an order for specific performance of the contract for sale.
Supreme Court
Keane J s decision was confirmed by the Supreme Court, as follows.
Finlay CJ: I agree with the judgment of Griffin J.
Griffin J: The facts have been very fully set out in the judgment of Keane J, the learned trial judge, as a result of which, and of certain unappealed findings of the learned trial judge, a much shorter version of the facts will suffice.
The main business of Irish Life Assurance Company Limited (the appellant) is that of selling life assurance. In the 1940s and 1950s it acquired a ground rents portfolio with the object of securing rental income. At that time, when mortgage interest rates averaged 5 per cent, ground rents were worth acquiring. However, that had changed drastically by the mid-1970s. Legislative changes had taken place and were in contemplation, tenants associations throughout the country had commenced agitating, inflation was rampant, the ground rents were difficult to collect, and the cost of collection was out of all proportion to the income derived from the ground rents. Worst of all, however, was the effect on the appellant s main business due to what Mr Nowlan, the property manager, described in evidence as the bad publicity created by the tenants associations in housing estates, advantage of which was no doubt taken by the appellant s competitors.
By 1979 the board of directors of the appellant had decided to sell its ground rents portfolio in a single transaction. Mr Nowlan engaged in negotiations with a few potential buyers but those discussions proved fruitless. In April 1981, he had discussions with Mr White, a member of the firm of Gilbert Leon and White, auctioneers and estate agents, who introduced a London property developer named Mr Frederick. Strange as it may seem in this day and age the number of properties to be sold was uncertain but they would be approximately 10,000. In the course of discussions which took place between Mr White, Mr Nowlan and Mr Frederick it was agreed that in respect of any sale the most appropriate way in which to arrive at a price would be an appropriate multiplier of the gross rental. In May 1979, the plaintiff had prepared a document, referred to as the blue booklet , of what was believed to be the ground rent portfolio. This stated that the portfolio currently comprised 11,055 ground rents generating 155,700 per annum in income. In April 1981, the blue booklet was accepted to be inaccurate and out of date – a large number of the ground rents had been purchased by the tenants in the intervening period, and the properties set out in the portfolio included properties which the appellant did not intend to include in the sale, and there were several properties which were not included in the blue booklet although they formed part of the portfolio of the appellant. On the last page of that booklet the following note appeared:
Please note that this document is not intended as an offer or an acceptance. Irish Life will not be bound except by exchange of contracts under its seal.
On the 26th May 1981, a meeting took place between Mr Nowlan and Mr White, whom the learned trial judge found to be the agent of Mr Frederick, a finding which has not been appealed. At that meeting Mr Nowlan explained to Mr White the deficiencies in the blue booklet and also told him about what he called certain bits and pieces which would give to a purchaser opportunities for profit. These included leases in which there was a comparatively short reversion, and vacant sites in residential estates, especially in the Dublin area, in which all of the land had not been built on or taken in charge by the local authority. Although the appellant referred to them as bits and pieces and odds and ends , Mr Frederick referred to them as plums or jewels . Mr Nowlan, having told Mr White about the bits and pieces , then told him about other pieces of land and as this is central to the appellant s case I propose to quote the following extracts from questions No. 40, 41 and 43 in Book No 1 of the transcript:
40…. I told him about other pieces of land which surfaced as a result of enquiries made by adjoining owners. I made it clear to him that we had a significant area of land the subject of a CPO at Palmerstown which was not included.
41.Q. Were the variations in the blue book pointed out to Mr White at this meeting?
A.He was told there would be variations in the blue book and that they would appear in time. The administration of our commercial ground rent properties had been put into one pot, so to speak, and I wanted to make it clear that we would be taking items out of the blue book. There is a caveat on the front of the book saying it might require modification and I wrote to him to that effect.
43.A. Significant was the word I used. I said there were significant vacant lands in Palmerstown.
At the meeting Mr Nowlan asked for a price based on a rental of four years purchase. Negotiations took place in the succeeding weeks and Mr Frederick offered a multiplier of 3.36, a figure which was acceptable to the appellant. The purchase price using that multiplier would exceed 400,000.
Included in the portfolio of the appellant was substantial land at Palmerstown, out of which it had some hundreds of ground rents. Some of that land was held by the appellant on long lease and the remainder in fee simple. That land included an area of approximately 7 acres on which building had not taken place as it had been reserved for road improvement in respect of what is now the main dual carriageway which by-passes Palmerstown. Part of that land was in the area of Dublin Corporation, and part in that controlled by Dublin County Council. In respect of that portion situate in the Dublin Corporation area a compulsory purchase order was made on the 17 April 1975, but had not yet been confirmed at the time of the agreement the subject matter of these proceedings. In respect of approximately two thirds of this land in the Dublin county area a compulsory purchase order had been made by Dublin County Council on the 7th April 1977, and this order had been confirmed by the Minister on the 19th November 1979. The balance of the land in the Dublin county area was not the subject of any compulsory purchase order. It adjoined the lands sought to be acquired by the Dublin County Council, and the appellant had agreed with the Council to sell this portion to them.
Mr Frederick appointed as his solicitor Mr Stephen Miley of Messrs Miley & Miley, and the appellant was represented by what was called their in-house solicitor Mr Devlin. As might be expected in a transaction of this nature, with so many properties involved, almost continual discussions and joint investigations took place between Mr Miley and Mr Devlin and the members of their respective staffs. Mr White did not tell his principal, Mr Frederick, of the mention of the vacant lands at Palmerstown the subject of a compulsory purchase order. Mr Nowlan informed Mr Devlin that the lands at Palmerstown were to be excluded from the sale, but did not again mention the particular lands to anyone on the respondent s side. Strange as it may seem, in none of the very many discussions between the solicitors or their staffs was mention again made of the exclusion of these lands either at the signing of the contract on the 23rd December 1981, or at anytime prior thereto. In evidence there was a suggestion by one witness that mention was made to Mr Miley on the date of the signing that the vacant Palmerstown land was not included in the sale, but the learned trial judge rejected that evidence and was satisfied that nothing was said to Mr Miley either at or before the execution of the contract which drew his attention to the intention of the appellant that the lands at Palmerstown should be excluded.
Mr Frederick acquired the respondent company, for the purpose of taking over the portfolio of the appellant. After several months of discussions and of examination of documents, the draft contract for the sale of the appellant s portfolio to the respondent was drawn on conventional lines, ie the sale of the appellant s freehold and leasehold interests subject to and with the benefit of the leases under which the ground rents were payable, but excluding from the sale lands not intended to be transferred to the respondent. The lands to be transferred were identified in schedules, but for the purposes of this appeal it is necessary only to refer to two, namely, part 1 and part 2 of schedule A in which the estates in fee simple were specified, and schedule C in which the leasehold interests were specified in part 1 and part 2. In schedule A part 2, amongst the registered freeholds to be sold there was included at no 57 The lands comprised in Folio 5245 County Dublin being the lands of Redcow Farm, Palmerstown, County Dublin . The lands comprised in that folio included approximately six and a quarter acres of the vacant land in Palmerstown. It is abundantly clear from the documents and the evidence given in the High Court that the appellant never had any intention of including that property in the sale. Amongst the leasehold interests included in part 1 of schedule C, at No 75, was the following:
75.Parts of the land of Palmerstown in the County of Dublin held under lease dated 27th November 1947, Thomas A. Bruton, Moira Gladys Bruton and John Bruton to Clontarf Estates Limited for 999 years from 29th September 1947, at an annual rent of L236 AND by assignment dated 7th July 1950, Clontarf Estates Limited to vendors registered 5 August 1950, book 42 no. 228 except those parts of the said lands known as nos. 21 and 23, Kennelsfort Road Lower which are subject to Dublin County Council compulsory purchase order.
The inclusion of the entire of Folio 5245 in the lands to be sold was due to an error in drafting in Mr Devlin s office; it was at all times intended by the appellant that the part of Folio 5245 already referred to should be excluded from the sale.
The date fixed for the completion of the contract was the 23rd December 1981. On that day however, Mr Miley was unhappy about completing the contract since he was not satisfied that all the properties to which his client would become entitled had been included in the draft. Mr Devlin, on the other hand, was insistent that the transaction should be completed on that day and informed Mr Miley that if the documents, as drafted, were not exchanged on that day, the deal was off. Faced with this ultimatum Mr Miley telephoned Mr Frederick in London for instructions, and was, in the circumstances, authorised to exchange the drafted documents, which had already been executed. That was duly done.
Even after the completion of the contract some properties were, by agreement, included in the sale, and others excluded, but the error in respect of Folio 5245 was not discovered by the appellant for approximately three months. On the 23rd March 1982, Mr Devlin wrote to Mr Miley and that letter was handed to Mr Miley on the same day. It was in the following terms:
Dear Mr Miley,
Re: Sale of Ground Rent Portfolio
I refer to my reply to general requisition no. 6 dated 11th March 1982.
It has now been brought to my attention that the compulsory purchase order referred to at schedule C part 1 lot 75 should also have been referred to as affecting schedule A part 2 lot 57 part of the lands comprised in Folio 5245 County Dublin.
Consequently the parts so affected by the CPO will not be transferred to your clients Dublin Land Securities Limited and will continue in the ownership of my clients Irish Life Assurance Company Limited.
Perhaps you would note accordingly.
Not appreciating the significance of the letter, Mr Miley put the letter on his file – this is understandable, as there would be no reason to suspect from the terms of that letter that what was being dealt with, and being excluded from the sale, was property worth over 500,000. It was not until towards the end of May that Mr Miley learned for the first time that it was the intention of the appellant to exclude the Palmerstown lands and the significance of the mistake which had been made in the drafting of the agreement. Apart from observing that ultimately the parties took entrenched positions, what happened subsequently is not relevant.
The appellant instituted proceedings for the rectification of the agreement of the 23rd December 1981, claiming that the portion of Folio 5245 included in the compulsory purchase orders should be excluded from the sale, and claiming an order for specific performance of the contract as so rectified. The defendant counterclaimed for a declaration that it was the owner of and beneficially entitled to the lands comprised in Folio 5245 and a declaration that the said lands were comprised in and formed part of the subject matter of the contract for sale dated 23rd December 1981, and, if necessary, an order for specific performance of the contract for sale. (The appellant also claimed in respect of other property at Turret Road, Palmerstown, which is no longer in dispute).
In the High Court, as indeed in this Court, the appellant claimed that in the circumstances hereinbefore set out, the agreement of the 23rd December 1981, was drafted and executed under a mutual mistake of fact and that the appellant was accordingly entitled to rectification of the agreement so as to ensure that it represented and carried out the actual intention of the parties. As Mr White was the agent of Mr Frederick, and as he had been informed of the intention to exclude a significant area of land the subject of a CPO at Palmerstown , the knowledge of the agent was, it was claimed, sufficient and what transpired between the agent and the principal is a matter of no concern to the appellant. In those circumstances, it was submitted, the principal is taken as knowing that the lands are excluded and must therefore complete the sale with this exclusion.
After a full and complete hearing in the High Court, the learned trial judge reserved judgment, and, in his judgment, he fully reviewed all the facts and the considerable body of law to which he was referred. His conclusions may, I think, broadly be summarised as follows:
1.In the circumstances of the case, although the principal (Mr Frederick) may be deemed to have notice of what was communicated by Mr Nowlan to his agent, Mr White, he was not deemed to have assented to the inclusion of a term to that effect in the proposed contract and to be bound by it where it was omitted from the contract because of the mistake by the appellant who was the party seeking to rely on it;
2.That it was a principle of fundamental importance that the courts will not reform a contract in writing in the absence of convincing proof that the contract, as the result of a mistake, has failed to give effect to the common intention of the parties previously manifested in outward accord;
3.The appellant had not discharged the heavy burden of proof which lay on it to establish that there was a common continuing intention on the part of Mr Frederick and the appellant to exclude the vacant lands at Palmerstown from the sale, which was, through mistake, not embodied in the contract and was outwardly expressed and communicated between the parties;
4.The mistake in question was a unilateral mistake rather than common or mutual mistake, and there was no element of fraud, dishonesty or sharp practice on the part of Mr Frederick or his agents, Mr White or Mr Miley;
5.Even if the knowledge of Mr White could be treated as an adequate basis for the notional consent of the respondent to the inclusion of the disputed term in the contract, the uncertainty in the description of what was to be excluded was fatal to the appellant s claim, and the appellant had failed to discharge the onus of proof on it of establishing that the exclusion of the lands in Palmerstown was the result of a common or mutual mistake.
He dismissed the appellant s claim for rectification of the agreement, and on the respondent s counterclaim made a declaration that the respondent was the owner of and lawfully entitled to the lands in Folio 5245, and that the same were comprised in and part of the subject matter of the contract of sale of the 23rd December 1981, and he made an order for the specific performance of the contract for sale. From that decision and the conclusions of the learned trial judge the appellant has appealed to this court.
It should be emphasised that the claim of the appellant in this case is solely for rectification of the contract for sale. There is no claim for rescission although it is quite clear, and the learned judge so held, that it was at all times the intention of the appellant to exclude the lands in question. In Monaghan County Council v Vaughan [1948] IR 306 at p 312, Dixon J, in contrasting rescission and rectification, stated that where the parties contract under a mutual mistake of fact the agreement is liable to be rescinded at the instance of either party, since in such a case no contract came into being; likewise, where there is a unilateral mistake, and one of two or more parties is not ad idem with the other party or parties, there is no real agreement between them and rescission may also be appropriate. During the course of the hearing of this appeal the Court indicated to counsel for the appellant that, even at this late stage, it would consider an application to amend the pleadings to include a claim for rescission of the agreement if the appellant wished to apply for such amendment, in case it should transpire that this was a more appropriate remedy when all the matters in issue were being considered. The appellant however steadfastly refused to apply for any such amendment, as it did not seek nor did it want rescission of the agreement. The appellant s attitude is readily understandable having regard to its reasons for selling the rent roll in the first instance. The appellant was supported in this attitude by the respondent, so that neither party wished to contemplate rescission of the agreement. In these circumstances, this Court is solely concerned with the issue of rectification, upon which the claim of the appellant must stand or fall, and I would express no view on the question as to whether the remedy of rescission is appropriate or otherwise.
Rectification is concerned with defects in the recording, not in the making, of an agreement.
Courts of Equity do not rectify contracts; they may and do rectify instruments purporting to have been made in pursuance of terms of contracts – per James VC in Mackenzie v Coulson (1869) LR 8 Eq 368 at p 375.
As a general rule, the courts only rectify an agreement in writing where there has been mutual mistake – ie where it fails to record the intention of both parties. Although that was the original conception of reformation of an instrument by rectification, nowadays a party who has entered into a written agreement by mistake will also be entitled to rectification if he establishes by convincing evidence that the other party, with knowledge of such intention and mistake, nevertheless concluded the agreement – see Kenny J in Lucey v Laurel Construction Co Ltd (Unreported, High Court 18th December 1970); Roberts and Co Ltd v Leicestershire County Council [1961] Ch 555; Riverlate Properties Ltd v Paul [1975] 1 Ch 133. In the last case it was considered by the Court of Appeal that the knowledge of such other party must be such as to involve him in a degree of sharp practice. On the hearing of this appeal the appellant s counsel conceded that there was no suggestion or allegation on the appellant s part of mala fides or improper conduct or sharp practice on the part of Mr Frederick or Mr Miley or Mr White, a very proper concession in view of the holding of the learned trial judge that neither Mr Frederick nor Mr Miley was aware of the appellant s mistake either before or at the time of entering into the agreement in writing.
It was formerly considered that the court could not rectify a document in writing unless it was preceded by a concluded oral contract. In taking this view, Kenny J in Lucey v Laurel Construction Co Ltd (Unreported, High Court 18th December 1970) cited with approval what was said by Denning LJ (as he then was) in Rose v Pim [1953] 2 QB 450 at p 461:
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. [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 Corporation [1936] Ch 375) but, formalities apart, there must have been a concluded contract]. There is a passage in Crane v Hegeman-Harris Co Inc [1939] 1 All ER 662, 664 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 around 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 v Wall, per Lord Cozens-Hardy MR, and per Buckley LJ (1911) 104 LT 85, 88, 93, but not that they intended something different.
Two things need to be noted – the emphasis was Denning LJ s; and the sentence inside square brackets was inadvertently omitted from the quotation by Kenny J, presumably in transcription.
Kenny J does not appear to have been referred to Joscelyne v Nissen [1970] 2 QB 86, a decision of the Court of Appeal reported some months before Lucey v Laurel Construction Ltd (Unreported, High Court 18th December 1970). In Joscelyne v Nissen [1970] 2 QB 86 the judgment was delivered by Russell LJ and was the judgment of the court. In giving judgment he reviewed what he himself described as the train of this undoubtedly formidable array of judicial opinion from the decision of MacKenzie v Coulson (1869) LR 8 Eq 368 (one hundred years earlier) onwards. Amongst the cases considered was Crane v Hegeman-Harris Co Inc [1939] 1 All ER 662 decided by Simonds J. Buckley LJ at p 95 (inter alia) cited the following passage from the judgment of Simonds J at p 664 of [1939] 1 All ER:
I am clear that I must follow the decision of Clauson J, as he then was, in Shipley Urban District Council v Bradford Corpn [1936] 1 Ch 375, the point of which is that, in order that this court may exercise its jurisdiction to rectify a written instrument, it is not necessary to find a concluded and binding contract between the parties antecedent to the agreement which it is sought to rectify. The judge held, and I respectfully concur with his reasoning and his conclusion, that it is sufficient to find a common continuing intention in regard to a particular provision or aspect of the agreement. If one finds 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 …
Secondly, I want to say this upon the principle of the jurisdiction. It is a jurisdiction which is to be exercised only upon convincing proof that the concluded instrument does not represent the common intention of the parties. That is particularly the case where one finds prolonged negotiations between the parties eventually assuming the shape of a formal instrument in which they have been advised by their respective skilled legal advisers. The assumption is very strong in such a case that the instrument does represent their real intention, and it must be only upon proof which Lord Eldon, I think, in a somewhat picturesque phrase described as irrefragable that the court can act, I would rather, I think, say that the court can only act if it is satisfied beyond all reasonable doubt that the instrument does not represent their common intention, and is further satisfied as to what their common intention was. For let it be clear that it is not sufficient to show that the written instrument does not represent their common intention unless positively also one can show what their common intention was.
In Joscelyne v Nissen [1970] 2 QB 86 Russell LJ in considering what was said in Rose v Pim [1953] 2 QB 450 said at p 97:
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.
He then referred to the passage from the judgment of Denning LJ already cited, and said:
In so far as this passage might be taken to suggest that an antecedent complete concluded contract is necessary it would be in conflict with the views of both courts in Crane v Hegeman-Harris [1939] 1 All ER 662 and is not supported by the other judgments (those of Singleton LJ and Morris LJ who were the other members of the Court in Rose v Pim [1953] 2 QB 450).
And at p 98 he said:
In our judgment the law is as expounded by Simonds J in Crane s case with the qualification that some outward expression of accord is required. We do not wish to attempt to state in any different phrases that with which we entirely agree, except to say that it is in our view better to use only the phrase convincing proof without echoing an old fashioned word such as irrefragable and without importing from the criminal law the phrase beyond all reasonable doubt .
In Rooney and McParland Ltd v Carlin [1981] NI 138 at p 146 Lord Lowry LCJ summarised the principles clarified by Russell LJ in the following terms:
1.There must be a concluded agreement antecedent to the instrument which is sought to be rectified; but
2.The antecedent agreement need not be binding in law (for example, it need not be under seal if made by a public authority or in writing and signed by the party if relating to a sale of land) nor need it be in writing: such incidents merely help to discharge the heavy burden of proof; and
3.A complete antecedent concluded contract is not required, so long as there was prior accord on a term of a proposed agreement, outwardly expressed and communicated between the parties, as in Joscelyne v Nissen.
Like the learned trial judge, I would adopt what was said by Russell LJ and Lord Lowry LCJ as representing the law on the subject in question in this jurisdiction.
Applying those principles to the facts of this case, and bearing in mind the heavy burden of proof that lies on those seeking rectification, the question to be addressed is whether there was convincing proof, reflected in some outward expression of accord, that the contract in writing did not represent the common continuing intention of the parties on which the court can act, and whether the plaintiff can positively show what that common intention was in relation to the provisions which the appellant says were intended to exclude the vacant lands at Palmerstown.
None of the lands was inspected by or on behalf of the respondent – with upwards of 10,000 properties included in the sale it would be wholly unrealistic and virtually impossible to walk the lands as is usually done in a normal sale. Daily meetings took place between and discussions were held by the legal representatives of the parties. Mr Devlin put his board room at the disposal of Mr Miley and his assistants for a period of six months prior to the completion of the agreement. It is somewhat extraordinary, but nevertheless was accepted by the learned trial judge, that there was no reference whatever to the significant vacant land in Palmerstown between March 1981, and the completion of the contract on the 23rd December 1981. In these circumstances, in my opinion, Mr Frederick was entitled to assume, when the time for completion of the contract came, that any problems as to what lands the appellant intended to be included in the sale would have been ironed out, and that having regard to the note on the last page of the blue booklet that the appellant would be bound by exchange of contracts under its seal.
Having regard to the conclusion at which I have arrived on the question of common intention, I do not consider it necessary to consider the extent to which the knowledge obtained by Mr White from Mr Nowlan should be imputed to Mr Frederick. Like the learned trial judge, I am quite satisfied that the instant case is one of unilateral mistake and not of common or mutual mistake. Assuming, though not deciding, that the knowledge obtained by Mr White could be treated as an adequate basis for what the learned trial judge described as Mr Frederick s notional assent to the inclusion of the disputed term, what was said by Mr Nowlan to Mr White falls very far short of establishing that there was a common intention of the parties that the vacant lands at Palmerstown, or any part of them, should be excluded from the sale. What Mr Nowlan referred to in evidence as a significant area of land the subject of a CPO at Palmerstown , and significant vacant lands in Palmerstown completely lacked the precision necessary to enable a court to conclude what was the common intention of the parties. The lands could very readily have been described by reference to the Folio or their precise area. Although reference was made to a significant holding of land the subject of a CPO at Palmerstown , and to significant vacant land at Palmerstown , there were in fact two CPOs, not one, but combined they did not exhaust the area of the vacant land. The learned trial judge, in my view correctly, posed the question as to whether Mr Nowlan was referring to the County Council s CPO, or Dublin Corporation s CPOs, or to both combined, or to both combined together with the portion of land not included in either CPO but which was ultimately sold to the local authority by agreement. In common with the trial judge, I am quite satisfied that the appellant has failed to discharge the onus of proof which is on it of establishing that the exclusion of the lands at Palmerstown was the result of a common or mutual mistake which would entitle it to rectification.
What occurred on the completion of the contract is also of considerable importance. Mr Miley was not satisfied that all the properties to which his client would become entitled were in fact included in the schedules. He was given what amounts to an ultimatum that his client either completed the contract on that date in the form presented to him by the appellant, and including such properties only as were included in the draft contract, or the deal was off. Mr Frederick was thus required to accept the contract and to complete it on the basis that all the properties to which he became entitled were included in it. This he agreed to do, and if there had been omissions he would in the circumstances have found it extremely difficult to obtain rectification of the document. What the appellant in effect is now claiming is that although Mr Frederick had to take the contract in its then form, and with such properties as were included in it, nevertheless, without any contribution to the mistake on his part, the appellant was not to be bound by the contract in writing even though the mistake was a unilateral one on its part. If that claim was to prevail, it would in my view be unjust to the respondent.
In my judgment the learned trial judge was correct in refusing to rectify the contract for sale and I would affirm his order both in respect of rectification and the counterclaim, and would accordingly dismiss this appeal.
McCarthy J: I agree.
Fitzgerald v Fitzgerald
[1902] 1 IR 477; 36 ILTR 18
Lord Ashbourne C: The question in this appeal arises on the terms of a marriage settlement, executed in the year 1859, by which certain lands were settled, which are now represented by the funds in Court. The estates in the lands limited by the settlement are – first, a life estate to Miss Maria Fitzgerald, the settlor; then a life estate to her brother Stephen, on whose marriage the settlement was made, with remainder to the use of the children of the marriage for such estates as Stephen Fitzgerald should by deed or will appoint, and in default of such appointment, if there should be only one child of the marriage, to the use of such only child in tail. There was only one child born of the marriage, the plaintiff in this action. Miss Maria Fitzgerald has died, and Stephen Fitzgerald has died without exercising the power of appointment conferred on him by the settlement. On these facts the question is now raised – Is there evidence of an intention on the part of the settlor to confer an estate tail in the property on the plaintiff, and should the deed be rectified so as to carry out this intention? It is not a question of construction. It is admitted by the plaintiff that in construing the deed the words used are not sufficient to effectuate the intention of the parties, but she seeks to have the deed rectified by the substitution of appropriate words in order to carry out that intention. It has been argued on her behalf that there is on the face of the settlement itself abundant evidence of the settlor s intention to give an estate tail to the plaintiff in the events that have happened, and that this intention would be set at naught by the rules of construction if the deed is not rectified.
It was argued by the appellant that for the purpose of establishing a case for rectification you must gather the intention of the parties from evidence dehors the deed itself, and Mr Ronan contended that the cases in which the Court gathered the intention from the recitals did not violate this supposed rule, because the recitals were evidence of antecedent agreements. Mr Ronan further contended that no inference of the intention of the parties could be drawn from the words in tail, because as those words occurred in the operative part of the deed they could afford no evidence of an intention to confer any larger estate than they actually gave by the rules of law.
The usual object of the parties to a marriage settlement is to provide that the settled property shall ultimately devolve upon the issue of the marriage. By the express terms of this settlement a power was given to the plaintiff s father by which – if he had executed it – he could have bestowed on her the fee-simple of these lands. Because he did not execute this power, it is said that, as the settlement omits the usual words of inheritance and only uses the words in tail, we are to shut our eyes to the obvious import of what those words imply. To my mind it would be painful to be driven by any technical rule to such a conclusion. In interpreting the language used for the purpose of ascertaining the intention of the parties, as distinct from the construction of the deed, I can see no supreme difference between the different parts of the document. The powers of leasing and of sale were rightly relied on by the respondent s counsel. No doubt they coincide with the view that it was intended that the plaintiff should take more than a life estate. But I put all these matters aside as insignificant beside the words in tail. I find in them a plain indication of the intention of the parties, so strong that I do not feel at liberty to disregard it. The cases cited by the Master of the Rolls and in the course of the argument before us show that there is ample authority for the conclusion at which I have arrived. I regard this case as one in which I should do violence to the obvious meaning of the parties if I refused the relief asked for by the plaintiff.
In my opinion, the decision of the Master of the Rolls is right, and should be affirmed with costs.
FitzGibbon LJ: I am duly deferential to the venerable authorities which have been cited. I absolutely accept, as a rule of law resting upon foundations which it would be sacrilegious to shake, that, apart from the Conveyancing Act, no deed can create an estate tail without the words heirs of the body, or equivalent words of procreation. Further, I think that the language of the Conveyancing Act plainly shows that a deed previously executed, which contained words which the Act made sufficient to create an estate tail, had not the effect which the Act gave for the first time to those words. The restriction of the Act to deeds executed after its passing prohibits its application to any earlier instrument. This deed, therefore, as it stands, does not give an estate tail to the plaintiff, and the only open question is – Can it be rectified?
In my opinion it can – on clear and recognized rules of equity. The opposition to rectification rests upon an endeavour to restrict those rules in a manner not warranted by authority. The intention of the parties here may be gathered from – (1) the fact that this is a marriage settlement, the object of which is to provide for the issue of the marriage; (2) the use in the habendum of the words in tail ; (3) other provisions in the settlement which indicate that, in the events which have happened the plaintiff was intended to take more than a life estate. The use of the words in tail in the habendum proves the intention – in fact – of the parties that, in the events which have happened, the estate should pass to the only child of the marriage. The fact that the draftsman blundered by using popular language incapable of conferring the estate cannot obscure the evidence of the intention, though – if we cannot rectify the deed – it may defeat the object of the instrument. It is admitted that if the intention had been declared in a recital, the omission of effective words of limitation from the operative part, or the use of wrong words therein, could be cured in the case of a marriage contract, or other contract for value.
The contention that words occurring in the habendum are not evidence of the same intention which they would evidence if they were in a recital, has no intelligible foundation, and would limit the jurisdiction of equity to rectify deeds to cases where the blunder took the form of a contradiction between a recital and the habendum. For this restriction there is no authority. But here we also have the additional evidence of intention supplied by the marriage consideration, and by the other provisions to which I have referred. This supplies a technical answer to the appellant s contention as satisfactory as the substantial one which the habendum establishes beyond doubt.
In rectifying this deed, the Master of the Rolls has, in my opinion, expressed a jurisdiction to rectify mistakes which Courts of Equity have possessed from the earliest times, and which was exercised, under circumstances peculiarly like the present, by Lord Sugden in Averall v Wade Ll & G temp Sug 252.
It is conceded that an order in the form which he has adopted is now the recognised mode of rectification, and that it is equivalent to an actual alteration of the deed.
Walker LJ: I concur. I think the Court might well feel ashamed if it could not grant the relief sought. The venerable authorities cited by Mr Ronan establish beyond all doubt what is the legal construction of this deed. But these authorities are not what we have to consider. They supply the reason why the plaintiff s advisers resorted to this action, which is brought not to construe but to rectify the deed. The parties here have said that the only child of the marriage – the plaintiff – shall take in tail, though the unhappy draftsman has failed to carry out their object by the terms he has used. Hence it is to the Court of Equity in which deeds are rectified that the plaintiff comes for help to remedy the draftsman s blunder.
In looking for the intention of the parties it is a powerful consideration that we are dealing with a marriage settlement, because the object of such a deed is to provide for the issue of the marriage, not to give merely a life estate to the children or an only child. Again, the estate which is given back to the settlor here is expressly limited to her in default of issue of the marriage. But powerful as these considerations are in gathering the intention of the parties to the deed, they fade to almost nothing beside the words in the habendum. If these words had occurred in a recital, it is not disputed that they would have been enough to correct a blunder in the operative part of the deed. I am unable to see why they should be less potent in the habendum than in a recital.
On these grounds I should be quite prepared, apart from authority, to rectify this deed by introducing words of limitation. But I find that a similar course was taken in Bird s Trusts 3 Ch D 214, a decision of which I entirely approve.
Holmes LJ: The jurisdiction of the Court of Chancery to rectify a deed or other instrument, for the purpose of correcting a material mistake and making it conform to the intention or contract of the parties, has been applied in this case by the Master of the Rolls to what is, perhaps, a new state of circumstances; but I think that it has not been extended beyond its legal and logical limits. The principle of rectification is, I think, in its strict sense only applicable, except under exceptional circumstances, to cases where there is valuable consideration and mutual mistake. Where mistake is shown in a voluntary deed, the appropriate remedy at least in most cases is for the grantor or settlor to have it set aside; and the mistake of one of the parties to a contract for valuable consideration is a ground for rescission, although the other party may be offered rectification as an alternative. Where, however, it is shown that a deed executed in pursuance of and for the purpose of carrying out a contract for valuable consideration fails in any substantial particular to do so, a party to it or a person within its consideration is entitled to have it brought into conformity with the contract; provided that subsequent rights and interests acquired in good faith by outsiders would not be prejudiced thereby. Mere lapse of time is not in itself an answer to an action for rectification, although it may make it more difficult to prove mutual mistake. I take an illustration from the most common and usual kind of deed – a conveyance carrying out the purchase of lands. This is generally preceded by either a formal contract in writing, or the agreement can be ascertained from documentary evidence. Now, if by ignorance, or inadvertence, where the vendor has contracted to sell an estate in fee-simple, the lands are granted to the purchaser and his assigns, without any words of inheritance, the deed would be rectified upon proof of the true agreement and intention of the parties. Even if the mistake were discovered after the deaths of the grantor and grantee by the heir or devisee of the latter, it would not be too late for him to apply for relief. It may be, however, that there is no evidence of a written contract before the deed, and no account can be given of the transaction beyond a recital in the conveyance that the grantor has agreed in consideration of a certain sum then paid to grant the lands for an estate in fee-simple to the grantee . In this instance I should think that rectification would be as much a matter of course as in the other. But there may be yet a third case. By deed, executed before the Conveyancing Act, without a recital or any other evidence of the contract beyond the instrument itself, A B, in consideration of a large sum of money grants lands to C D to hold for an estate in fee-simple. Would this be a case for rectification? Mr Ronan would say no. The Master of the Rolls would, I think, be of opinion that it was, and I can see no good reason to the contrary. In this instance, just as clearly as in the two others, the contract and intention of the parties are shown. The only argument the other way is that by a rule of law a grant in the words suggested must be construed as giving a life estate only, and that the Court is not at liberty to infer from them any other intention. But to hold this would, I think, be to confuse two things that are distinct. By the rule of law the words for an estate in fee-simple, are not sufficient to convey an estate of inheritance, but why can they not be referred to for the purpose of seeing what was intended ?
I admit that if I am wrong in what I have said, I should be obliged to allow this appeal. We are here dealing with a marriage settlement, without knowing anything of the negotiations that preceded it. The instrument is one by which estates tail are frequently created; and therefore it does not violate probability to find an intention to give such an estate. But this does not bring one very far, for estates for life and estates in fee-simple are often given by a marriage settlement. There is, however, no difficulty in ascertaining the intention; for it is declared in the clearest language in the deed itself. The words in tail as applied to an estate are not merely a legal term of art but are familiar to educated men. When a man says that he is granting lands to a grantee in tail, it must be assumed that he is not intending to convey an estate for life or an estate in fee-simple, but the estate usually described in those terms. If those words were not there, I should be unable to infer the intention from any other parts of the deed; but with them, I am left in no doubt as to what were the contract and intention of the parties, and that such intention was not carried out by mistake arising from ignorance or carelessness. I am of opinion that, under these circumstances, the deed ought to be rectified.
King v King-Harman
[1873] IR 7 Eq 446 (Rolls Court)
Sullivan MR: The bill in this case was filed by Lady Blanche Sybil King by her mother and next friend, the Hon Augusta Dowager Countess of Kingston, to have the settlement executed on the marriage of her father and mother, and dated the 15th of July 1854, reformed. The facts of the case on which the bill is rested are as follow: On the 15th of July 1854, a marriage took place between the Hon Robert Edward King, afterwards seventh Earl of Kingston, and the Hon Augusta Chichester. It appears that at that time, Viscount Lorton and the Hon Robert King, the father of the Hon Robert Edward King, had power to limit a considerable portion of the Lorton estates to such uses as they should think proper; and accordingly a settlement was executed on the 15th of July 1854, between Viscount Lorton of the first part, the Hon Robert King, his eldest son, of the second part, the Hon Robert Edward King, the eldest son of the said Robert King, of the third part, the Hon Augusta Chichester, of the fourth part, and certain other persons named as trustees therein, by which settlement the Lorton estates were settled in the manner which I shall now describe. The settlement recited that upon the treaty for the marriage it was agreed, in order to make a suitable provision for the intended wife and the issue of the intended marriage, that the Lorton estates should be settled in the manner thereinafter mentioned, and it proceeds, in consideration of the intended marriage and of 5000 the fortune of the Hon Augusta Chichester, to convey the estates to the use of trustees for a term of years to secure an annuity of 1000 to Robert Edward King during the joint lives of his father and grandfather; and in case of the death of either of them an increased annuity of 2250 during the joint lives of himself and the survivor of them; and, subject to that annuity, to trustees for a term of one hundred years; and, subject thereto, to the use of Lord Lorton for life, with remainder to his eldest son for life, with remainder to Robert Edward King for life, and after his death to the use that the said Augusta Chichester, in case she should survive him, should receive the jointure therein mentioned; and, subject thereto, to a third set of trustees for 500 years; and subject thereto, to the use of the first son of Robert Edward King and of the said Augusta Chichester, and the heirs male of the body of that son; with successive remainders to each of the sons of Robert E King and Augusta Chichester in tail male; with remainder to the use of the sons of Robert Edward King by any after-taken wife in tail male in succession; and in default of such issue to the use of Laurence Harman King-Harman, second son of Viscount Lorton, for life; with remainder to Edward Robert King-Harman, his eldest son, for life, and after his death to the use of the first son of ER K-Harman, and the heirs male of his body; with further remainders over, and an ultimate limitation to Lord Lorton in fee. The settlement then proceeds to declare the trusts of the third term of 500 years, by which it was intended that portions for the younger children of the marriage should be secured, as follows: in case there should be issue of the intended marriage an eldest or only son, and also one or more other child or children, then the trustees, &c, should on the decease of the said Robert Edward King, but subject and without prejudice to the jointure thereinbefore provided for the said Augusta Chichester, by sale or mortgage, &c, raise such sum or sums of money for the portion or portions of the said younger child or children as thereinafter mentioned, that is to say, in case there shall be but one younger child of said intended marriage, the sum of 5000 for the portion of such younger child, to be paid and payable to and to become a vested interest in such younger child, at such time and in such manner, after the death of the said Viscount Lorton and Robert King, as the said Robert Edward King shall by any deed or instrument under his hand direct or appoint; and in default of such direction or appointment to vest in such younger child, being a son, at twenty-one years, or being a daughter, at her age of twenty-one years or day of marriage, whichever shall first happen; and in case there should be two children of the said intended marriage, and no more, other than and besides and eldest or only son, then the sum of 10,000 for the portions of such two younger children; and in case there should be three or more children of the said intended marriage, other than and besides an eldest or only son, then the sum of 15,000 for the portions of such three or more younger children. After giving directions in reference to those portions as to maintenance and other matters, the settlement proceeds to declare the trusts as to the fortune of the Hon Augusta Chichester, which was to be applied by the trustees either towards payment of any of the charges or incumbrances mentioned in the schedule thereto, which were charges affecting the Lorton estates, or towards payment of the portions thereby provided for the younger children of the intended marriage; with a provision that, until the principal was so disposed of, the dividends might be applied towards pin-money for the Hon Augusta Chichester, and that the residue should go to the Hon Robert Edward King for his life, and, after his death, that the whole of the dividends should be applied towards payment of the interest which should from time to time become due on the said incumbrances specified in the schedule. Then follows a provision that, in the event of Robert Edward King becoming entitled to the Mitchelstown estate, which then stood limited to him in remainder, he should do and execute all such acts and deeds as should be necessary for effectually charging all the lands and premises, to which he should become entitled, with an additional jointure for his wife and to increase the portions thereinbefore provided for the younger children of the intended marriage; that is to say, in case there should be only one younger child of the said intended marriage, then to the sum of 10,000; and in case there should be two younger children and no more, then to the sum of 20,000; and in case there should be three or more younger children, then to the sum of 30,000, with all and such or the like powers as are hereinbefore limited with respect to the portions hereby provided.
The marriage took place, and on the 19th of November 1854, the then Lord Lorton died, and was succeeded by the Hon Robert King, who became Viscount Lorton. The bill then proceeds to state the effect of a deed of the 10th of August 1869, by which a certain term of 500 years was created out of the Mitchelstown estate, in trust to raise the sum of 120,000 for the benefit of Robert Edward King. James, the 5th Earl of Kingston, died without issue, on the 9th of September 1869, and he was succeeded by Robert Lord Lorton, who became 6th Earl of Kingston. That Robert died on the 16th of October 1869, and Robert Edward King, who was married to Augusta Chichester, thereupon became 7th Earl of Kingston, and, under the limitations of the settlement which I have read, entitled to an estate for life in the Lorton estates. He was also, as I mentioned, the owner of the charge of 120,000 on the Mitchelstown estates. This Robert Edward King, the 7th Earl of Kingston, died on the 21st of June 1871, leaving the plaintiff the only surviving issue of his marriage with the Hon Augusta Chichester; and, on his death without male issue, Laurence Harman King-Harman became entitled to the Lorton estates for life, with remainder to Robert Edward King-Harman, his eldest son, for life, with remainder to the first and other son of RE K-Harman successively in tail male. Under the will of Robert Edward, 7th Earl of Kingston, dated the 14th of June 1871, the plaintiff Lady Blanche Sybil King will, at all events after her mother s death, be entitled to an apparently large fortune, the precise value of which is not before me, but is stated to amount to a very large sum. The result of the settlement which I have read, having regard to the contingencies that have happened, is quite apparent, viz, that the only daughter of the marriage of 1854 is unprovided for under the limitations of that deed; and the case of Lady Blanche Sybil King, is that the settlement has been the result of a common mistake made by the two contracting parties in 1854 in relation to the trusts of the term of 500 years, which only provides portions for the younger children of the marriage in case there shall be an eldest or only son. It is said, on behalf of Lady Blanche Sybil King, that the true contract, entered into between her father and mother, was that the portions should not be made dependent on the fact of there being an eldest or only son born, but that they should be raisable whether a son was born or not – in other words, that daughters, or a daughter, were intended to be the objects of the settlement and entitled to portions. Now, that is a very plausible and intelligible case, and undoubtedly it is very difficult to conceive how a marriage contract, dealing with estates of this description, and contemplating the birth of issue of the marriage then intended, should have excluded an only daughter, or more daughters than one, if there happened to be no son, more particularly when the ultimate limitation of the estates was not to the father, but was made to collaterals, and the daughters themselves were excluded from all the limitations of the estates.
The fact that Lady Blanche Sybil King will have property, either in her own right or through her father s will outside the settlement cannot, I think, affect the question raised here. The case must be disposed of independently of that circumstance, particularly as it does not appear that it was ever contemplated, when the marriage contract was entered into, that a daughter or daughters would have any provision outside the settlement then intended to be made. In aid of the case made by the plaintiff, her counsel have called attention to this remarkable circumstance, that the settlement recites on the face of it that it was made in order to have a suitable provision made for the wife of the marriage then contemplated and also for the issue of the marriage; and in addition they rely on the ante-nuptial contract in writing for the settlement, the original of which has been produced and laid before me. That document is of the greatest moment to the case made by the bill, as constituting the undoubted contract of both parties at a period before the marriage and the execution of the settlement. It is called Heads of settlement to be executed on the intended marriage of RE King, Esq, with the Hon Augusta Chichester, and is as follows:
Estates to be settled subject to the life estate of Lord Lorton, and to all existing incumbrances, with like powers of sale for payment of the principal of such incumbrances, as are in last family settlement of 3rd January 1850, and subject thereto the use of the Hon Robert King for life: remainder to the first and other sons of the now intended marriage; remainder to the issue male of Mr RE King by any after-taken wife, in the event of his surviving Miss Chichester; remainder to the Hon King-Harman, and his first and other sons, with like remainders as are in the said settlement of the 3rd of January 1850.
Now so far as I have read, the settlement of 1854 is in strict conformity with those heads of settlement. After stating what was to be the present provision for Robert Edward King, which I have already mentioned as contained in the settlement, and providing for the jointure of the intended wife, this document proceeds in these words: Portions for the younger children 5000 in the event of there being only one younger child; 10,000 in the event of there being two younger children, and 15,000 in the event of there being three or more. Then it provides for the disposition of the wife s fortune, and it contains a clause as to increasing the portions for younger children, if the Mitchelstown estates fell into possession, up to 10,000, 20,000 or 30,000 respectively.
It is contended on behalf of the plaintiff that these heads of settlement, according to their legal construction, would have been carried out in such a way as to provide portions for an only daughter, or for two or three or more daughters; and I entirely agree with that view, and entertain no doubt that if these heads of settlement had been properly carried out according to their legal construction, the settlement should have provided for daughters, even though no son was ever born. Now there is no doubt that this settlement does not carry out that view, because it is clear and distinct in its operative part, that the only children who are to get portions under its provisions are children who should be in existence other than and besides an elder or only son; and the question now arises, have I sufficient materials before me to make the settlement conformable to the true meaning of the articles entered into before the marriage was solemnized and this settlement existed? In consequence of the death of many of the parties surrounding this contract the case is destitute of much evidence, but we have the benefit of the evidence of Lady Blanche Sybil King s mother, the effect of which is that the paper called Heads of Settlement was the marriage contract, and that, up to the time the settlement was executed, there was none other. I have before me the draft of the settlement, as revised by counsel, before it was engrossed, and the affidavit of the counsel who revised that draft. That affidavit throws little light as to what was the view that was taken by him of that portion of the document called Heads of Settlement , which is conversant with the younger children s portions: and that fact impressed me much during the hearing of the cause, because there is not in that affidavit any assertion or statement that a mistake had been committed in carrying out these heads of settlement, or otherwise. But this, I think, is to be gathered from the affidavit – meagre as it is – that the attention of counsel was particularly directed only to that part of the settlement that secured the Lorton estates in the line that would make them go in accordance with, and in analogy to, the settlement of 1850, the last settlement of these estates. The present tenant in tail of Lorton estates, affected by the reformation of this settlement to the extent of 5000, is a minor. The present tenants for life of the Lorton estates are adult and do not dispute the plaintiff s right to relief, they believing that the settlement has miscarried in the very point alleged by the plaintiff. The counsel for the minor, the tenant in tail, have done their duty by him most properly, and they have argued with great ability that there are not sufficient materials before me for reforming the settlement by charging 5000 on the estates for the plaintiff. The view presented on behalf of the minor, tenant in tail, is, that the settlement not reciting the marriage contract or not purporting to be made in pursuance of it, even though it departs from the ante-nuptial contract, may have resulted from some other arrangement made between the drawing up of the Heads of Settlement and the execution of the settlement itself; and it is argued that the operative part of this settlement is clear and unambiguous, and that it cannot be controlled by any recital.
The latter proposition in the abstract is true. If the operative part of a deed is clear and unambiguous, you cannot put a different construction on it by reason of a recital; and it is by no means necessary for the plaintiff to contravene that proposition. It is also no doubt true that there is no express reference in the settlement to the ante-nuptial contract as an existing document. But it appears to me, after having given all these arguments due consideration, that it is impossible in this case to separate or disconnect the settlement which was executed, and which, on the face of it, purports to be made in order to have a provision for the issue of the marriage, from these Heads of Settlement which preceded it, and that there is in the settlement itself, coupled with the evidence, sufficient to show that the contract, which the heads of settlement import as to younger children s portions, continued, unaltered and in full force, down to the moment when the settlement was executed. Accordingly, I have come to the conclusion, aided by the authorities to which I shall refer, that the trust of this deed ought to be reformed, so as to entitle the only daughter of the marriage to her portion. Against the evidence of the then Augusta Chichester, who afterwards became Countess of Kingston, there really is none. This, therefore, is not a case of conflicting evidence. To reform a settlement, the evidence of one party against another resisting would be totally insufficient, as the mistake must be shown to have been a mutual mistake. The law as to the reformation of settlements is, I think, stated with great accuracy in the case of Fowler v Fowler 4 De G & J 264, where the Lord Chancellor says:
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 had been frequently and most usefully exercised. But it is also one which should be used with extreme care and caution. To substitute a new agreement for one to which the parties have deliberately subscribed ought only to be permitted upon evidence of a different intention of the clearest and most satisfactory description.
He then quotes the language of Lord Thurlow in Lady Shelburne v Lord Inchiquin 1 Br CC 341, and says (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, and also must be able to show exactly and precisely the form to which the deed ought to be brought. For there is a material difference between setting aside an instrument and rectifying it on the ground of mistake. In the latter case, you can only rely upon the mutual and concurrent intention of all parties for whom the Court is actually making a new written agreement.
My opinion in this case is, that I have satisfactory evidence that there was a mutual and concurrent intention, down to the execution of the settlement, that the issue of the marriage should be provided for. I have a document prepared with the consent of both contract parties, which, if it had been followed, would have provided for an only daughter – younger child having been frequently construed to mean a child not entitled to the settled estates. In this case there is every reason for putting that construction on the contract. The settlement itself recites that it was intended to provide for the issue of the marriage; the mother s fortune was taken away and applied to purposes of the estates from all limitations of which the female issues are excluded; and the affidavit of the plaintiff s mother proves in substance that there was but the one agreement, viz., the Heads of Settlement . I think that Bold v Hutchinson 5 De G M & G 568 is an authority expressly warranting me in holding that there are satisfactory grounds for reforming this settlement. Bold v Hutchinson is a case of the highest authority. It is a decision of Lord Cranworth after taking time to examine all the authorities bearing upon the point before him. At p 568 of the report, Lord Cranworth says:
The doctrine now is, that when a settlement purports to be in pursuance of articles entered into before marriage and there is any variance, there no evidence is necessary in order to have the settlement corrected; and although the settlement contains no reference to the articles, yet if it can be shown that the settlement was intended to be in conformity with the articles, yet if there is clear and satisfactory evidence showing that the discrepancy had arisen from a mistake, the Court will reform the settlement and make it conformable to the real intention of the parties.
And in p 569:
In these and other cases referred to by Lord St Leonards, the settlements were rectified and the later authorities have put the matter upon the true footing, ie, that if it is perfectly palpable that there has been a mistake on which the settlement has been made, the Court will admit evidence to correct it. The question before me is, whether I am satisfied that the settlement here has been made in error. I think in this case it is put beyond all doubt. The agreement was written out by the son in the shape of articles which were shown to Sir W Hutchinson, his father, and approved by him. It was argued, that they were only Mr Bold s instructions, but there was no attempt on the part of Sir W Hutchinson to alter them after they were submitted to him. On the whole, I am clearly of opinion that the settlement was framed in error. I do not, however think that this is a legitimate deduction from the settlement itself; and if the Master of the Rolls was of that opinion, I disagree with him; but I am not satisfied that such was his opinion.
The case of Murray v Parker 19 Beav 305 proceeded before Sir John Romilly and was rested upon similar views.
In the case before me, I could not, from the settlement itself, as Lord Cranworth says, draw a legitimate deduction that it has been framed in error; but having regard to the written ante-nuptial contract and the evidence in the case, I can, I think, safely come to the conclusion that the settlement has been framed in error in respect of the matter contended for by the plaintiff.
Lac Minerals Ltd v Chevron Mineral Corporation of Ireland
[1995] 1 ILRM 161 (High Court)
Murphy J: For some time prior to the summer of 1989, Chevron Mineral Corporation of Ireland (CMCI) and/or some other company in the Chevron group held prospecting licences for mineral extraction at Lisheen in the County of Tipperary and elsewhere in the Republic of Ireland. Chevron (and in this context I use the word as including CMCI or other companies in the same group) were anxious to exploit these mineral rights in conjunction with another interested party. For that purpose they identified Ivernia West plc, a company incorporated in Ireland of which Mr David Hough was at all material times the managing director. On 15 November 1989 an agreement known as the IPL joint venture agreement (to which I shall refer as the JVA ) was concluded. As the name implies this was a joint venture agreement. Under it CMCI held a 52.5% interest and Ivernia a 47.5% interest.
The JVA provided at s 15.1 thereof that in general a participant (that is to say a person having an interest in the assets or other rights the subject matter of the JVA) should have the right to transfer, grant, assign, encumber, pledge or otherwise commit or dispose of to any third party all or any part of its participating interest but subject to the other provisions of s 15 aforesaid. Those limiting or restrictive provisions included the pre-emptive rights which are all important to the present case and which are specified in s 15.3 of the JVA. For convenience I am incorporating the entire of s 15.3 aforesaid as an appendix to this judgment. For the purposes of introducing the issues between the parties it is sufficient to observe that s 15.3.1.4 provides that where a participant desires to transfer all or any part of any participating interest he is bound to give a written notice to each other participant and that that notice must state (among other things) that the offer is open for acceptance for a period of 45 days after receipt of such offer by the offeree . Unhappily, s 15.3.2 specifies the rights of the offeree – as opposed to the duties of the offeror – in the following terms:
The offeree shall have the right and option for a period of 60 days after receipt of the offer, unless enlarged pursuant to ss 15.3.3 or 15.3.4 to state by notice in writing (the acceptance) to the offeror whether or not any offeree elects to acquire the subject interest, pro rata in proportion to its participating interests.
Whilst many difficult questions of fact and law (both Irish and New York) arise the essential problem has been whether these two apparently irreconcilable time limits can be harmonised and, if not, which should be rejected.
Some time about June 1993, Dr Westoll, a senior geologist with Lac Minerals Ltd (Lac) learnt that Chevron intended to dispose of some of its mineral assets situate in South America and Ireland. As there were a number of interested parties the transaction was carried out by a system of private tenders in which Lac was successful and ultimately an agreement was executed on 31st August 1992 by virtue of which Lac agreed to acquire – albeit indirectly – the interest of Chevron under the JVA. Whilst the original proposal had been that Lac would purchase the tangible and intangible assets, the subject matter of that agreement, it was subsequently proposed and agreed that the transaction would be carried out by means of a transfer of shares of a new company (Newco) to which would have been transferred the assets in question. I believe that both Chevron and Lac were bona fide of the opinion that if this procedure were adopted, a right of pre-emption under s 15.3 of the JVA in favour of Ivernia would not arise, I do not believe that the actions of either party in this regard involved any improper conduct. Indeed it seems clear that Ivernia were kept fully advised as to what was taking place.
The agreement of 31st August 1992 (the Lac agreement) expressly referred to the pre-emption clause in schedule 3 thereof under the heading sellers disclosure schedule which at s 7.10A stated as follows:
lvernia West plc contends that it has pre-emptive rights under s 15.3 of the Lisheen joint venture agreement.
The Lac agreement was accompanied by a letter of 31 August 1992 (generally referred to as the August side letter). That letter having repeated the statement that Ivernia claimed the pre-emptive rights aforesaid, went on in the third paragraph thereof to state as follows:
This is to confirm our agreement that, notwithstanding any provisions in the agreement to the contrary, neither seller nor buyer shall have any obligation to consummate the transaction contemplated by the agreement unless and until:
(i)Ivernia acknowledges that such rights do not apply to the transaction contemplated by the agreement or waives such rights, such acknowledgement or waiver to be in form and substance satisfactory to both seller and buyer, or
(ii)a court of competent jurisdiction or arbitrator pursuant to the terms of the Lisheen joint venture agreement shall have issued a final and binding order to the effect that such rights do not apply to the transaction contemplated by the agreement. In the event either Ivernia or seller commences arbitration or a court action to determine such rights, buyer agrees that the date set forth in s 4.2 shall be amended to be a date 30 days after such final and binding order is issued.
Whilst the August side letter was clearly and obviously designed to protect both parties in the event of a claim by Ivernia succeeding or, more particularly, in the event of that claim not being resolved and disposed of, the alternative method of dealing with the problem would have been to include a provision in the Lac agreement itself dealing with the matter. It was explained in evidence that the parties were reluctant to highlight the problem by including it in the agreement of which Ivernia would have sight.
The contention of Ivernia that the purported or conditional sale of stock by Chevron in Newco to Lac, by the Lac agreement, triggered off the pre-emption clause in the JVA was submitted to the arbitration of Mr AL Marriott, an English solicitor, who published his award on the issue on 15th March 1993. He found in favour of the contention put forward by Ivernia. That being so, it was the clear and undisputed duty of Chevron to give the appropriate pre-emptive offer notice to Ivernia in accordance with s 15.3.1 of the JVA. That they did by letter dated 19th March 1993, a copy of which was circulated to Lac. That letter expressly invokes s 15.3 aforesaid and expressly – as it is required by that subsection so to do – provides that the offer was to be open for acceptance for a period of 45 days after Ivernia s receipt of the offer.
Attention was also drawn to the fact that the letter also notes as follows:
Ivernia has previously been provided with a copy of the Lac agreement.
It was that agreement – as was recited in the arbitrator s award – which gave rise to the exercise of the pre-emptive right.
Between 19th March 1993 and 7th May some communications took place between the legal advisers of Chevron and of Lac. In a letter of 23rd March 1993 Mr Straub, the vice president and chief legal officer of Lac, made proposals to prevent the Lac agreement terminating prior to the period within which Ivernia might exercise its pre-emption right. To that extent, at the very least, he was recognising the continued validity of that agreement.
In a letter described as a draft dated 30th March 1993, Chevron confirmed agreement (apparently reached in telephone conversation) dealing with the alternative situations which would necessarily arise in the coming weeks, that is to say, depending on whether or not Ivernia exercised its right of pre-emption under s 15.3. The draft letter provided that in the event of Ivernia exercising its right that Transocean Chevron company would return the deposit paid to it and that the Lac agreement would terminate and that neither party should have any further obligation to the other thereunder. The other alternative would arise in the case of Ivernia not exercising its pre-emptive right. In that event the Lac agreement was to be superseded by the form of purchase agreement accompanying the notice and that the closing date should be 30 days after Ivernia notified CMCI that it did not intend to exercise or that the period within which it had the right to exercise had expired. In that event the deposit was to be held as a deposit under the new assets sale purchase agreement. Lac contends that this letter was, at the very least, a recognition that the Lac agreement was subsisting at the date thereof. It would cease in the event of the due exercise of the pre-emption right and it might be superseded in the event of its non-exercise but, as of the date thereof, the letter constituted the recognition and indeed the insistence upon the Lac agreement which was required and desired by both Lac and Chevron at that stage.
By letter faxed from Lac to Chevron on 7th May 1993, it was contended that the period available to Ivernia for exercising their pre-emptive right had been 45 days and that that deadline had then expired. In a reply bearing the same date, the lawyers on behalf of Chevron claimed that Lac were wrong in asserting that the period was 45 days. They claimed that the appropriate period was 60 days and that even if there had been any doubt or inconsistency on the matter, this was removed by the arbitrator s award which stated that 60 days were available for the exercise of the right. Again, counsel on behalf of Lac advert to a passage in the Chevron letter stating that in the circumstances it is therefore premature for Lac and Chevron to proceed to complete their transaction . By letter dated 9th April 1993 and in a telephone conversation of 4th May 1993, Chevron or their agents had confirmed to Ivernia that 60 days were available for acceptance of the offer made in pursuance of the JVA. I do not accept that Mr Straub or any other agent of Lac agreed to this extension of time or to that interpretation of the pre-emptive clause.
On 14th May 1993, that is to say, outside the 45 day period but within the 60 day period from the date of the offer, Ivernia purported to accept the same in exercise of the rights conferred upon them by the JVA. In those circumstances the plaintiffs on 19th May 1993 issued these proceedings claiming that the period for acceptance of the offer was 45 days from the date of the receipt thereof by Ivernia.
That claim (as subsequently amended) was based on two contentions. First, that the JVA as properly construed required the right of pre-emption to be exercised within the 45 day period and, secondly, that if, contrary to the foregoing assertion, the JVA does prescribe a period of 60 days that the inclusion of that period was due to a mistake and that the document should be rectified so as to provide for a period of 45 days which had been the intention of the parties to that agreement.
It is beyond question that such rights as Lac have in these proceedings derive from the Lac agreement. As that agreement expressly provides that it is to be governed by and construed in accordance with the laws of the state of New York expert evidence was called on behalf of each of the parties with regard to the law of that state. Whilst there was a large measure of agreement between the distinguished lawyers who gave this expert evidence, there were significant areas of disagreement also. There are serious obstacles for Lac to overcome before it can rely on the basic contentions contained in the pleadings herein.
Notwithstanding these preliminary problems it seems to me that the most helpful approach to this case is to deal, in the first instance, with the core problems of construction and rectification which are the issues which the parties wish to have resolved and then to return and deal with, or at least, comment on the other issues raised in the case.
I think that it may be said now that all of the American lawyers would agree that if the Lac agreement and the August side letter had continued in full force and effect that Lac would be entitled to maintain these proceedings and to obtain the decision of the court as to whether Ivernia had complied with the provisions of the pre-emption clause as that was a condition – be it a condition precedent or subsequent – to the liability of Chevron to Lac on foot of the Lac agreement. The matter was expressed in different ways by different witnesses but there is no doubt but that the JVA in general and, in particular, the pre-emptive rights of Ivernia thereunder were brought to the attention of Lac by virtue of the Lac agreement and the August side letter. It may be said that Lac had notice of the pre-emptive rights or it can and has been said that the JVA was incorporated in the Lac agreement but at the end of the day it seems to me that the clear effect of the transaction between Chevron and Lac was that their obligations one to another would or might come to an end if Ivernia exercised the pre-emptive rights conferred on them by the JVA. In the circumstances, therefore, Lac is, in my view, entitled to institute these proceedings for the purpose of establishing whether, in the events which happened, Ivernia validly and effectively exercised its pre-emptive rights and for that purpose it would be necessary for the court to construe the relevant provisions of the JVA.
The construction issue
Whilst the Lac agreement is governed by the law of the State of New York, the JVA clearly and expressly provides that it is to be governed and construed in accordance with the law of the Republic of Ireland. In their written and oral submissions counsel on behalf of Lac analysed at length the general principles to be applied by a court of law in this country in construing documents. In fact, there was little dispute between the parties in relation to these principles.
It was agreed that the court should attempt to give meaning to every provision of the contract and that it was only in the case of an irreconcilable inconsistency that a term of the agreed document should be rejected. In deference to that principle counsel on behalf of Lac did suggest that s 15.3.2 which refers to the period of 60 days might be construed as relating only to those cases where the offer was made to or accepted by a multiplicity of offerees. Even allowing for the fact that the court leans heavily in favour of harmonisation rather than rejection, it is impossible to accept this submission. Section 15.3.2 is the only acceptance provision contained in the contract and the first and crucial sentence in that clause which contains the reference to the 60 day period refers to the offeree in the singular. In my view, there could be no justification for concluding that s 15.3.2 is confined to the case where there is a multiplicity of participants.
On any reading of the JVA, either as a whole or in relation to the material provisions of it, one is forced to conclude that there is a manifest inconsistency between the provisions of s 15.3.2 which provides for a period of 60 days for acceptance of the offer and s 15.3.1.4 which provides that the offer is open for acceptance for a period of 45 days. The issue then is which of these provisions should be rejected.
Counsel on behalf of Lac put forward a number of reasons why the 45 day provision should be preferred to the 60 day provision. It is contended that the court should prefer the term which would cause the least disruption to the operation of the agreement. In that context attention was drawn to the fact that s 15 of the JVA refers to the offer on twelve occasions, where it refers to the acceptance only twice. Furthermore, it is pointed out that the acceptance is referred to in only one sub-paragraph of s 15 whereas the offer is referred to in four sub-paragraphs. Again, it is argued (on the questionable authority of Forbes v Git [1922] 1 AC 256) that an earlier provision in a document should be preferred to a later one. Again, it is said that the provisions of an offer cannot be varied by the terms of the acceptance. In addition the plaintiff invokes the contra proferentem rule. It is claimed that the document should be construed and enforced in favour or in ease of Lac and against Chevron and Ivernia who were parties to the drafting thereof.
None of the arguments put forward on behalf of Lac in this context is very convincing. One would not expect the position to be otherwise. The court is called upon to resolve a problem that is fundamentally insoluble. The draughtsman of the JVA inserted in clear and unequivocal terms two irreconcilable time limits which the parties in executing the document failed to observe or correct. As pointed out by counsel, there must be some measure of clutching at straws in determining how this issue, petty in its origin but vital in its present application, must now be resolved.
For the purpose of the present case, it is important to distinguish between the substantive right of pre-emption conferred by s 15.3 of the JVA and the procedures which each or all of the participants are required to adopt when an event occurs which gives rise to the pre-emptive right. When a participant desires to transfer all or any part of its interest, it is bound by s 15.3.1 to give notice in writing of his intention to the offeree and that written notice, (which the draughtsman designated as an offer ), is bound to incorporate the information set out in sub-paragraphs 1 to 5 inclusive of s 15.3.1.
In my view, it is not correct to equate this written notice with an offer in the sense in which that word is used in the general law of contract. The written notice prescribed by s 15.3.1 is not an originating offer. It is merely machinery, prescribed to put the parties to the JVA on notice that one of their co-participants has or intends to engage in a transaction which triggers off the pre-emptive right. No doubt the contents of the written notice or offer required by s 15.3.1 are important in the sense that a party bound to give such notice has a contractual obligation to comply with its terms. However, the obligation imposed on the offeror, is to give particular information in particular circumstances to the co-participants. It is not the offer which creates the pre-emptive right or defines the limits thereof. The rights of the offeree in relation to pre-emption are defined by the JVA in ss 15.3.2 to 15.3.4 (inclusive). For the purpose of the present case the most important of those rights is stated unequivocally in the following terms:
The offeree shall have the right and option for the period of 60 days after receipt of the offer … to state by notice in writing … to the offeror whether or not any offeree elects to acquire the subject matter pro rata in proportion to its participating interest.
In the circumstances it seems that, notwithstanding the fact that the offeror is required to state in the notice to be delivered by him that the offer is open for acceptance for a period of 45 days, the actual right of the offeree to exercise the right and option extends for a period of 60 days from the date of receipt of the notice.
There is another reason for preferring s 15.3.2 over s 15.3.1 as the clause which effectively prescribes the time for acceptance of an offer. There is provision in s 15.3.3 for an extension of the time for acceptance of an offer where the offeror is intending to dispose of its participating interest to a third party for a consideration other than cash and it is necessary to obtain an estimate of the value which the offeror places on the consideration. In that event, time is not to run for acceptance until the offeree receives the offeror s estimate (see s 15.3.3). The offeror s estimate is also material for s 15.3.4, and s 15.3.5 expressly provides that the time for acceptance by the offeree is to be extended until the decision of an arbitrator is received by the offeree in case a dispute arises as to the reasonableness of the offeror s estimate. Section 15.3.6 deals with the rights of the offeror where the offeree neglects to exercise his (or their) rights of pre-emption within the prescribed time limits. The offeror is given only 30 days in which to consummate the transfer to a third party and, thereafter, the right of pre-emption revives. However, the immediate significance in the present case of s 15.3.6 is that it identifies the period for acceptance in the following terms:
If each other participant failed to elect within the period provided for in s 15.3.2 as that period may be enlarged by ss 15.3.3 or 15.3.4 then the transferring participant etc.
Whilst there may be an error in regard to the sections by which the period for acceptance may be enlarged, s 15.3.6 clearly identifies s 15.3.2 as the section which fixes the basic period which is capable of enlargement. That is to say, the period of 60 days is the period which may be enlarged and there is no reference in s 15.3.6 to s 15.3.1. The time that may be enlarged is the operative time for acceptance of the offer namely, the 60 days prescribed by s 15.3.2. There is no provision purporting to extend or enlarge the time limit – the erroneous time limit – required to be set out in the transfer notice.
In these circumstances, it seems to me that the JVA as properly construed in accordance with Irish law, affords the offeree or participating party and, in this case, Ivernia a basic period of 60 days from receipt of the written notice or offer to exercise the right of pre-emption.
The claim for rectification of the JVA
In my view, it is impossible for Lac, whose claim derives solely from the Lac agreement, the August side letter and the alleged variations thereof, to maintain a claim for the rectification of the JVA to which they are not parties and under which they derive no estate.
The burden falling on a party claiming rectification – as opposed to rescission – of a document on the basis of mutual mistake is a heavy one. The Supreme Court – in upholding the order of the High Court – in Irish Life Assurance Co Ltd v Dublin Land Securities Ltd [1989] IR 253 reiterated that such was the case in the following terms at p 263:
Applying those principles to the facts of this case, and bearing in mind the heavy burden of proof that lies on those seeking rectification, the question to be addressed is whether there was convincing proof, reflected in some outward expression of accord, that the contract in writing did not represent the common continuing intention of the parties on which the court can act, and whether the plaintiff can positively show what that common intention was in relation to the provisions which the appellant says were intended to exclude the vacant lands at Palmerstown.
However, it is not the extent of the evidence, but the nature and availability of the remedy, which is of decisive importance in the present case.
Spry on Equitable Remedies (3rd ed at p 572) explains the remedy in the following terms:
The rectification of documents is a remedy that has been granted by courts of equity for many centuries. It is not ancillary to other remedies such as specific performance, but is independent, and its basis is the relief of an applicant so that he is not put at risk or prejudiced by the existence of a document reliance on which would, without rectification, be unconscionable. Rectification is, like other equitable remedies, discretionary.
In another passage (also quoted by Lac) from Chitty 26th ed at para 375 the matter is put in the following terms:
It has long been an established rule of equity that where a contract has by reason of a mistake common to the contracting parties been drawn up so as to militate against the intentions of both as revealed in their previous oral understanding the court will rectify the contract so as to carry out such intentions so long as there is an issue between the parties as to their legal rights inter se. If there is no such issue or if no substantive relief is sought and no practicable purpose will be achieved rectification may be refused.
The claim for rectification was based largely on the evidence of Mr James D Mancuso, a highly qualified geologist, who joined the Chevron group in 1984 as manager in charge of business development and subsequently as vice-president in charge of exploration. Apparently, Chevron had inherited the mineral interests at Lisheen in Co Tipperary from Gulf Oil and in 1989 sought to dispose of all or part of their interest therein. It was that general intention which led to the execution of the JVA on 15 November 1989. Negotiations leading to the execution of that document were conducted between Mr Mancuso and originally a Mr Schaffalitzky but subsequently Mr Hough on behalf of Ivernia. Certainly, it was the evidence of Mr Mancuso that all of the material negotiations were conducted with Mr Hough who was the managing director of Ivernia. These negotiations were conducted by means of transatlantic telephone call and by fax. There were no face to face meetings between the negotiators. Three drafts of the agreement were produced but only the first and third were transmitted by Mr Mancuso to Mr Hough. It was the evidence of Mr Mancuso that the first draft included the figure of 60 days in both clauses of ss 15.3.1 and 15.3.2. Mr Mancuso gave evidence that Mr Hough, having perused the first draft of the contract, suggested that the period of 60 days was too long and that a proposal was made that, instead, a period of 30 days should be substituted. Mr Mancuso says he proposed a compromise of 45 days and that this was accepted by Mr Hough. It was Mr Mancuso s evidence that he forwarded the notes of his telephone conversation with Mr Hough and the correspondence or fax from Ivernia s solicitors to Mr James H Harris, Chevron s in-house solicitor, and that it was Mr Harris who purported to implement the particular changes agreed between Mr Hough and Mr Mancuso. Whilst Mr Harris did not give evidence before the court his memorandum to Mr Mancuso dated 25 September 1989 expressly records in s 20 thereof that amendments had been made by the legal advisers by reference to notes on Mr Mancuso s draft of the agreement. These amendments included the following: s 15.3.1.4 is changed to 45 days.
Perhaps even more dramatic evidence in support of Mr Mancuso s account is to be found in the draft agreement which apparently was before Mr Hough at the time when he was discussing its contents with Mr Mancuso. That draft shows the figure of 45 days inserted opposite s 15.3.1.4. Moreover, it would appear that the figure of 45 in blue ink was superimposed on a figure of 30 in black ink. As this document only came to the attention of Mr Mancuso following discovery thereof by Ivernia it does corroborate to an extraordinary extent the evidence given by Mr Mancuso.
Mr Hough rejected the account given by Mr Mancuso as to the circumstances in which the 60 day time limit in s 15.3.1.4 came to be altered to 45 days. He says emphatically that it was never his intention that the 60 day time limit should be altered to 45 days. In particular, he denies that he ever had a discussion with Mr Mancuso prior to the execution of the JVA agreement with regard to the time limits for the exercise of the pre-emptive right. That version of the evidence leaves Mr Hough with the burden of explaining how it was that the figures, originally 30 and subsequently 45, came to be written – admittedly in his writing – opposite s 15.3.1.4 on his draft. He says that sometime after receiving the first draft and perhaps in the month of September 1989 he had a telephone conversation with his adviser Mr Schaffalitsky in which they discussed how the Amax Preussag JVA pre-emption clause (the A-P clause) could or should be reconciled with the Chevron/Ivernia pre-emption clause in the JVA. He explained that Mr Schaffalitsky drew his attention to the fact in the first instance that the A-P clause involved a 30 day period and that subsequently Mr Schaffalitsky contacted him again to point out that in fact the A-P clause involved a further 15 day period and accordingly the original estimate of 30 days was altered to 45. It was, explained Mr Hough, in those circumstances that the figures of 30 and subsequently 45 were written in on the margin to the draft JVA. I find this explanation extraordinarily unsatisfactory and indeed the coincidence between the figures discussed between Mr Schaffalitsky and Mr Hough with those discussed between Mr Mancuso and Mr Harris improbable in the extreme. Whilst it would be explicable that Mr Hough and his advisers would be concerned to ensure that the A-P clause would fit within the terms of the JVA, it is stunning that he should have recorded the outcome of the debate in that context immediately opposite s 15.3.1.4 and that it was that section which was subsequently amended by a direction or comment communicated by Mr Mancuso to Mr Harris, with the result that the figure which originally had appeared there was varied to 45. Apart from finding Mr Hough s explanation unconvincing the fact is that Mr Mancuso is the only witness who offered any explanation as to how the regrettable blunder occurred. Mr Hough simply dismisses it as a mystery . I accept that some misgivings arise with regard to the evidence of Mr Mancuso as to the date or dates in which his discussions with Mr Hough took place and, more particularly, I recognise that, in cross-examination by counsel on behalf of Ivernia, questions were raised which impugned seriously Mr Mancuso s credibility. Having regard to the concessions made by Mr Mancuso under cross-examination as to discussions which he had with officials of Ivernia as to the evidence which he could or would give and the terms on which he was prepared to do so in relation to the matters in issue, I think that the evidence of Mr Mancuso must be approached not merely with care but with suspicion. However, even making that allowance it seems to me that I am forced to conclude on the balance of probabilities that an agreement was reached between Mr Hough and Mr Mancuso that the period for the exercise of the pre-emptive right contained in s 15.3 of the JVA should be 45 days from receipt of the offer and not 60 days as included in the original draft.
If this evidence had been presented on behalf of CMCI in, say 1991 in support of an application for rectification I am by no means certain that the court would have granted such relief. If neither party was at the time engaged in negotiations for the sale of its interest under the JVA the time limit as between 45 days and 60 days would surely be a matter of very limited importance. A court in its discretion might well prefer to leave it to the parties to resolve the patent ambiguity in whatever way they thought fit. If, on the other hand, some third party had acquired rights under the JVA the court would not permit rectification in such a way as to prejudice the rights of such a party. In any event the court in the exercise of its jurisdiction would be bound to take into account the conduct of both parties and to consider, in particular, whether the party seeking relief had moved with reasonable expedition to rectify the mistake after it had been adverted to. On balance, I think it unlikely that the courts exercising what is conventionally described as their equitable jurisdiction would have ordered the rectification of the JVA to substitute the figure of 45 days for 60 days throughout s 15.3, even accepting – as I have done – the evidence of Mr Mancuso as against that of Mr Hough.
If the parties adverted to the inconsistency between the time limits specified in s 15.3 of the JVA and neglected or declined themselves to rectify the error, their conduct might well be described as imprudent but I do not see it as being unconscionable having regard to the absence of any particular benefit or detriment to one party as against the other.
In the present action the claim for rectification is not made by either party involved in the original error but by Lac who are undoubtedly affected by the JVA but are and were in no sense privy to the manner in which that agreement was negotiated or the circumstances in which the error occurred.
Counsel on behalf of Lac argue that rectification is not restricted to the original parties to a contract. In support of that argument they rely in particular on two cases, namely, Majestic Homes Property Ltd v Wise [1978] QdR 225 and Shepheard v Graham (1947) 66 NZLR 654. It is true to say that in each of those cases the plaintiff was not a party to the first document which mistakenly recorded the bargain between the parties thereto. Indeed both cases expressly support the proposition that privity of contract is not an essential precondition to a claim for the rectification thereof. On the other hand, it is obvious that there must be some nexus between a plaintiff claiming rectification and the document in respect of which the reformation is sought. The two cases cited are very helpful in that regard.
In the Majestic Homes case, the Gartons leased certain property to David and Peter Wise for a period of three years from 1 February 1971 and gave to the lessees an option to renew the lease for a further three years. The Gartons sold the property to a Mr Hamilton subject to and with the benefit of the lease and this gave rise to a threat of litigation by the lessees against Mr Hamilton. Before those proceedings were commenced Mr Hamilton sold on the lessor s interest to a Mr Mitchell who was the nominee for Majestic Homes Property Ltd. The claim by the lessees against Mr Hamilton was compromised on the basis that the lessees would be given a lease in registrable form which would have certain priorities but the undoubted and admitted bargain between Mr Hamilton and the Wises was that the lease would be for the same term as that granted in 1971. However, it was accepted that instead of granting a lease for three years with an option to renew for a further three years that the new lease in registrable form would be for the full period of six years from February 1971. By what was admitted to be a mistake, the solicitors on behalf of the lessors drafted the registrable lease for the full term of six years but by error retained the option to renew for an additional three years. The error was not adverted to by Mr Hamilton but it was recognised by Mr Peter Wise when he signed the document. Indeed, he discussed the bonus of three years with his solicitor and both of them agreed, in the words of the evidence given by the solicitor, to let sleeping dogs lie . Not only was Mr Hamilton and his solicitor unaware of the error that had occurred, but the purchasers from him, Majestic Homes and its solicitors, had entered into the agreement to purchase the property subject to the 1971 lease and on investigation of the matter by their solicitors it was not appreciated that the new form of lease had altered significantly the term of years granted by the 1971 document.
In the circumstances, it is not surprising that the trial judge found that the position of the Wises was unmeritorious and that what they did amounted to sharp practice.
There could be no doubt but that Mr Hamilton was entitled to rectification of the lease granted in registrable form. The issue was whether a similar right was enjoyed by the purchaser from him. The trial judge held that Hamilton had in fact assigned his interest in the right of rectification to Majestic Homes. It is significant, however, that the Court of Appeal held in addition that the Wises had become trustees of their alleged interest for Hamilton. They referred to the decision in Craddock Brothers v Hunt [1923] 2 Ch 136 as authority for the proposition that title acquired by mistake is held on trust. They quoted the words of Lord Sterndale MR at p 155 as follows:
I can see no conscience or honesty in the defendant s claim, and I think he should be declared a trustee for the plaintiff s land to which he has by mistake got a title which he knew had been knocked down to them and which he never thought was intended to be sold to him or had been bought by him.
On the particular issue of privity of contract the Court of Appeal in the Majestic Homes case relied upon the decision in Shepheard v Graham (1947) 66 NZLR 654. In that case a Mrs Graham agreed in 1938 to sell property known as number 70 Idris Road to one Lady Clifford. The property was inspected and readily identifiable as a single residence which was surrounded by an appropriate fence. Undoubtedly an error was made as to the area involved in the take and that led the advisers on behalf of the purchaser to believe that the entire of 70 Idris Road was comprised in what was known as Lot 5 (which I presume represents a particular division for the purpose of the New Zealand registration of title legislation). Accordingly, the property was conveyed or transferred by reference to that lot number. In fact the property agreed and intended to be sold comprised two lots those numbered 2 and 5. Lady Clifford went into occupation of the entire of the premises without any objection by the vendor. About a year later Lady Clifford sold on the property to the plaintiff in the action. On that sale the same mistake was repeated. (Perhaps not surprisingly as the solicitor who had acted for Lady Clifford also acted for the purchaser). In any event both Lady Clifford and the purchaser from her – the plaintiff in the action – clearly understood that the property for sale was that known as 70 Idris Road fenced as a single unit. The transfer to Lady Clifford in the first instance and to the plaintiff in the second instance in describing the property as Lot 5 did not give effect to that understanding. It was eight years later before it was discovered that the property intended to be transferred to the successive purchasers comprised more than Lot 5. In those circumstances the second purchaser instituted proceedings against the second named defendant as legal personal representative of Lady Clifford for rectification of the transfer to him and against the first named defendant, who was the legal personal representative of Mrs Graham for the rectification of the transfer by Mrs Graham to Lady Clifford.
The Supreme Court in New Zealand held – following the decision in Craddock v Hunt (above) – that the absence of privity between the plaintiff and the first named defendant was no bar to the claim for rectification. It was held that a mutual mistake occurred in the first sale and was repeated on the second sale with the result that Mrs Graham retained the legal title thereto but as it had been sold to Lady Clifford and the vendor had received the consideration under the contract that she, Mrs Graham, held that the land in question merely as trustee for Lady Clifford or her assignee .
It seems to me that whilst those cases demonstrate that the action for rectification does not require that the parties to the litigation should be privy to the same contract, they must be privy to or affected by the same mistake in such a way that it would be unconscionable for the defendant in such proceedings to seek to rely on the document which erroneously recorded or mistakenly implemented the true agreement. In the Shepheard v Graham case there was that specific finding that the original mutual mistake was repeated in and carried forward to the transaction involving the plaintiff with the result that property erroneously omitted from the first transfer was held in trust by the original vendor (or her successor in title) for the plaintiff. In the Majestic Homes case it was clear that the mistaken addition of an option to increase the term from six years to nine years misled the particular lessor and the purchaser from him. Both were under the impression – as was the lessee – that the maximum term intended to be granted was the term of six years. Again, therefore, the third party was affected by the error with the result that such interest as the lessee acquired under the mistaken document was held by him on trust for the plaintiff in the case. It is clear that in those cases that if relief had not been granted the defendants would have retained a wholly unconscionable benefit to the detriment of the plaintiff in the action rather than his predecessor in title.
So far from drawing a parallel between those actions and the present case, it seems to me that crucial distinctions must be made. In the first place Lac and their representatives were wholly unaware at any material time of the agreement which I accept was reached between Mr Mancuso and Mr Hough. Whilst a lawyer reading the JVA on behalf of Lac would have recognised that there was an inconsistency between certain provisions in the document, there was nothing which would have indicated how this came about. The 60 day time limit for acceptance may have been a mistake which should have been corrected but it was not a mistake which conferred a property right which could be the subject matter of a trust by one party in favour of another. It was an erroneous statement as to a procedural matter which, if uncorrected, might operate for the benefit or detriment of either party. It seems to me that the crucial distinction between the cases which have been analysed and the present matter is the fact that the mistake between Chevron and Ivernia was in no sense repeated or extended to Lac. Lac were presented with the JVA in the form in which it had been executed and it was that document and in that form which was incorporated into their transaction with Chevron. The transaction between Lac and Chevron (and in particular the August side letter) focused on the right of pre-emption conferred on the participating parties. The material clauses must have been considered by the legal advisers to both Lac and Chevron with some care as both parties felt in a position to reach the conclusion that the bargain between them involving as it did a transfer of shares rather than underlying assets – did not trigger off a right of pre-emption in favour of Ivernia. It seems to me, in those circumstances that, as between Lac and Chevron (and indeed Ivernia in so far as it concerned them) the JVA fell to be considered in accordance with the terms contained therein and that none of the parties could procure the rectification of the JVA no matter how strong the evidence might have been of a mutual mistake having been made by the original parties to the JVA. The very basis on which the plaintiffs present their case for construction of the JVA is that it was the document in those terms upon which they had relied.
I can see no basis on which it could be inferred that Lac were bound by or entitled to the benefit of any agreed term not contained in the documents presented to them. Clearly a claim for rectification, if permitted, could result in far-reaching alterations of the written record which could be wholly unfair to a third party in the position of Lac. This problem was discussed by Mr Robert Mullen, an attorney at law, called on behalf of Lac to give evidence of the law of the state of New York. In the course of his cross-examination he was asked to express a view as to whether, under New York law, Lac would be entitled to apply for rectification (or reformation as it is described in New York) of the JVA. After some research, Mr Mullen expressed the view that Lac would have that right but he accepted that the matter did not appear to be covered by legal authority in New York. However, it was significant that when he was faced with the problem that reformation in accordance with the intention of the parties might throw up terms wholly unfavourable to Lac, such as, a time limit for acceptance of 200 days, he expressed the view that reformation would arise from the obvious inconsistency between the time limits of 45 days and 60 days and that rectification would be confined within those parameters. In my view rectification as understood and granted in this country cannot be limited in that way. Effectively this would be doing no more than allowing in parol evidence to explain a patent error. If one admits the concept of rectification, I think the plaintiff must accept that the true bargain – whatever it may be – is to be substituted for the mistaken version. I can see no basis on which a plaintiff should be entitled to pick and choose as to what alterations he would accept. Perhaps this dilemma is another consequence of the fact that the plaintiffs were never privy to or misled by any mistake so that they had no prospect of asserting that an error had been made until they became aware of Mr Mancuso s evidence and no interest in making that case until they were aware that his version of the bargain coincided with the case which they were anxious to make. In my view, the defendants are correct in their contention that Lac has no locus standi to maintain a case for rectification of the JVA or any term thereof.
Preliminary issues
Whilst my rulings aforesaid on the basic issues dispose of the matter, a number of other issues were raised in the pleadings and in argument as to the rights of the parties, and in particular Lac, under the Lac agreement and alleged variations thereof. It was these issues which were said to create the obstacles to be overcome by Lac before they could hope to maintain, less still succeed in, the present proceedings. In deference to the arguments addressed to me on these issues and in case my views may be of assistance to the Supreme Court in the event of an appeal, I feel that I should comment thereon.
The material points may be considered under the following headings:
1.Were the conditions precedent to the obligations of Lac and Chevron contained in the August side letter fulfilled?
2.
(a)Was the performance of those conditions waived by the parties?
(b)Was the Lac agreement or the August side letter varied effectively and validly in accordance with the terms of a letter from Transocean Chevron to Lac dated 30 March 1993 (generally referred to as the extension letter )?
3.Whether the acceptance by the solicitors on behalf of Chevron of 60 days as the period for notification of acceptance of the offer to Ivernia to purchase the participating interest was effective:
(a)as against Lac, and
(b)in favour of Ivernia.
4.Whether Transocean Chevron Co and CMCI should be treated as a single legal entity for the purposes of the acts done or obligations undertaken in the name of either of them in respect of any aspect of the transaction as respects:
(a)Lac, or
(b)Ivernia.
1 and 2. The Lac agreement was entered into on the basis and in the belief that the sale by Transocean Chevron Co of shares in Newco, which at that stage would hold the participating share of CIMI and the JVA – would not give rise to a right of pre-emption in Ivernia. I infer that Chevron had some reason for believing that Mr Hough, on behalf of Ivernia, would agree that that was so and certainly, both Chevron and Lac were of the opinion that this view would in any event prevail as a matter of law. Notwithstanding their expectations or beliefs, it was clear that Lac would not contemplate paying US $66 million for the shares in Newco unless it was positively established that Ivernia had no claim to the assets of that company. This reality lies at the root of the August side letter. Neither Lac nor Chevron were to be bound to consummate the Lac agreement unless and until either Ivernia had conceded that no pre-emption right arose or that view was upheld by the decision of a competent tribunal.
So far from concurring in the view taken by the other parties, Ivernia pursued their claim that the Lac agreement did give rise to a pre-emption right in their favour and that contention was upheld by the arbitrator to whom the issue was submitted. When the arbitrator delivered his award on 15 March 1993, the issue facing Chevron and Lac was crystal clear. Would they proceed with the transaction between them even though, contrary to their expectations, it now fell to be treated as a disposition of the underlying assets of Newco and to trigger off the right of pre-emption which they both had understood would not arise? If the parties were to proceed with the transaction in the altered circumstances, the first and most obvious consequence would be the need for Chevron to give notice of the intended transfer to Ivernia in accordance with the provisions of the pre-emption clause of the IVA. Secondly, it would be logical, though not essential, to implement the transaction by way of the transfer of underlying assets (as the raison d etre for the shareholding transaction had ceased to exist) and, thirdly, it was necessary to adjust the time table if the transaction was to be completed after the expiration of the time limited for the exercise of the pre-emption rights by Ivernia.
Clearly the unexecuted extension letter in catering for these changes presupposes a decision by the parties to proceed with the transaction notwithstanding the mistaken basis on which they had entered into it. It brought the Lac agreement into the machinery of the pre-emption clause and dealt with the two contingencies which could arise thereunder:
(1)the exercise by Ivernia of its right, and
(2)the non-exercise of that right.
A major issue between the experts on the law of the state of New York was how far the Lac agreement could be amended otherwise than by an instrument in writing. The Lac agreement provided in s 13.10 thereof as follows:
No amendment or waiver of the terms of this agreement shall be binding on the parties unless in writing and signed by authorised representatives of both parties hereto.
That contractual bargain was reinforced by the provisions of LY Gen Oblig Law 15 – 301(1) (1989) which provides:
A written agreement … which contains a provision to the effect that it cannot be changed orally, cannot be changed by an executory agreement unless said executory agreement is in writing and signed by the party against whom enforcement of the change is sought or by his agent.
Notwithstanding those contractual and statutory provisions, Mr Mullen was of the opinion that the August side letter was replaced or substantially altered by the extension letter and Mr Aksen, who gave expert legal evidence on behalf of Ivernia, was happy to accept that the parties became bound by the extension letter. It was Mr Sofaer, the lawyer called on behalf of Chevron, who strongly disagreed with that conclusion. In his evidence and in the authorities to which he refers, he made it clear that New York law requires that an intent to waive a condition:
Must be clearly established and cannot be inferred from doubtful or equivalent act or language, and the burden of proof is on the person claiming the waiver of the right … and the intention to waive must be clear and unambiguous and should not be lightly presumed.
He noted his agreement with Mr Mullen that there was no suggestion that Chevron had expressly waived its rights under the conditions precedent contained in the August letter and again he drew attention to the fact that, under the New York Statute of Frauds already referred to, a written agreement could not be changed by an executory agreement but only by an executed one . It was in that context that Mr Mullen contended that a positive and present extension of time did constitute an executed agreement (a proposition which finds support in Loper v O Rourke 382 NYS 2nd 663). Mr Sofaer drew attention to a series of New York decisions of undisputable authority which point out that the law requires that modification of written agreements cannot be achieved by the production of intermediate drafts of documents under negotiation. The authorities appear to show that in the absence of a signed final draft no agreement is established. However, Mr Sofaer recognised that an exception to the rule was where there was an oral or unsigned agreement it could be established and enforced where partial performance occurred which was unequivocally referable to the oral modification .
I am quite satisfied that such acts of part performance did exist in the present case.
I think that such disagreement as did exist between the American experts was due to a slight but significant difference in approach to the problem. As long as Lac and Chevron believed they were operating on the basis that the Lac agreement was outside the provisions of the pre-emption rights contained in the JVA, the conditions contained in the August side letter were of vital importance and it is impossible to envisage Lac waiving or even moderating its rights pursuant to those conditions. When the arbitrator delivered his decision Lac and Chevron were then in the position that without any change being made by them at all that the Lac agreement, if implemented, would be equivalent to a transfer of the underlying assets by CMCI and, more particularly, attract the operation of the pre-emption clause. In other words if they went ahead with the existing transaction it would be exactly as if CMCI had agreed to sell the underlying assets and in those circumstances the conditions in the August letter, which had been so important, would become not merely irrelevant but meaningless. In the circumstances it seems to me that the search is for clear evidence of a binding agreement by Chevron and Lac to proceed with the transaction notwithstanding the alteration in its status. In my view there is ample evidence in writing of this intention and of its implementation by both parties.
In addition and apart from such telephonic communications as were taking place between them, Mr Carl Straub, the vice-president and chief legal officer of Lac, wrote on 23rd March 1993 to Mr Tim Jacobs of Pillsbury, Madison and Sutro – a week or so after the arbitration decision – stating (among other things):
It is my understanding that the period during which Ivernia must exercise the pre-emptive right is a minimum of 45 days and a maximum of 60 days. As a result the purchase agreement could terminate prior to Ivernia electing to exercise its pre-emptive right, if one believes a final and binding order exists. As such, a second amendment to the agreement is necessary which would extend closing until 30 days after Ivernia s decision to not pre-empt.
What is being recognised there is the continuation of the Lac agreement notwithstanding its altered status or effect.
Shortly after the decision of the arbitrator, Chevron by letter dated 19 March 1993 informed Ivernia that they were abiding by the award and accordingly purported to operate the pre-emption clause contained in the JVA. Specifically in accordance with the provisions of the operative clause, they informed Ivernia among other things:
This offer is open for acceptance for a period of forty-five (45) days after Ivernia s receipt of this offer.
In addition Chevron expressly informed Ivernia that the offer was made in response to the bona fide offer from Lac Minerals and in that context referred to the Lac agreement, a copy of which had already been furnished to Ivernia.
Included with that letter was a form of purchase and sale agreement which Chevron contended would give effect to a sale of the assets in the event of acceptance by Ivernia. A copy of that offer together with a copy of the draft agreement was forwarded on the same date to Lac.
In addition to discussion between the parties or their representatives, Mr Straub, the vice-president of Lac, wrote to Chevron s legal advisers by letter of 23 March 1993 in which he stated that the pre-emptive right of Ivernia was a minimum of 45 days and a maximum of 60 days . He also pointed out that it would be necessary to extend the time provided for in the Lac agreement to take account of this fact.
It seems to me that on those two letters alone, that is to say, the letter of 19th March and 23rd March, both Lac and Chevron were indicating a clear common intention to proceed with the Lac agreement even though they were now forced to concede that that agreement constituted effectively a sale of the underlying assets and gave to Ivernia the pre-emptive rights which both parties had sought to avoid. When the decision was taken to proceed, it was then merely a matter of giving effect to the pre-emption clause and accommodating the exercise of that right within the time table fixed in the JVA.
To my mind that is precisely what the letter of 30 March purported to do. Clearly if Ivernia exercised its pre-emptive right under s 15 of the JVA, Lac had no further interest in the matter and any deposit paid by it would properly be refunded. Alternatively if – contrary to expectations – Ivernia did not exercise its right of pre-emption, the sale would proceed. While Lac did not execute the extension letter, the fact is that it continued to interest itself in the transaction and that on the footing that Ivernia did have a pre-emption right. I would accept that the agreement to replace the sale of shares with the sale of underlying assets was not agreed at any time prior to the letter dated 7th May 1993 and in the absence of due execution it may be that the agreement to that effect would not have been enforceable. However, in that regard I would prefer the views of Mr Mullen to the effect that the executed provisions of the extension letter were severable and enforceable. The reality is that both parties actively pursued the transaction subsequent to the decision of the arbitrator in the clear knowledge and understanding that the pre-emptive clause was now applicable to the transaction between them. It was that fact which rendered the conditions contained in the August side letter irrelevant.
In those circumstances I am of the opinion that there was a valid binding contract between Lac and Chevron which contained and was subject to a condition subsequent, namely, whether Ivernia exercised the right of pre-emption conferred upon it under s 15 of the JVA in accordance with their rights thereunder and accordingly Lac were entitled to maintain an action to have the relevant provisions of the JVA construed by the court in this jurisdiction to ascertain what the rights of the parties were so that the performance or otherwise of the condition could be determined.
3. In a letter dated l April 1993 the solicitors on behalf of Ivernia sought clarification from Chevron s legal advisers as to the period for the exercise of the pre-emption right. In their reply dated 9 April 1993 Messrs Pillsbury, Madison and Sutro confirmed (among other things):
The 60 day period for notification is accepted.
Insofar as the transaction was one between Chevron and Ivernia, the former were of course entitled not merely to clarify the existing ambiguity but to grant any extension that they thought fit. The problem is what rights they had having regard to the obvious interest of Lac in the question as to whether or not Ivernia were to exercise their pre-emption rights in accordance with the JVA.
The rights and duties of Chevron in this respect fall to be considered in accordance with the law of the state of New York and in this connection it is necessary to advert to a principle well-established in the law of that state but unknown in Ireland, namely, that is to say the covenant of good faith and fair dealing which is readily implied in contracts governed by New York law. This covenant requires that parties must act in good faith consistently with the intent expressed in the objectively discernible terms of the contract. It would appear from the legal decision in Genet v President of Delaware and Hudson Canal Co 136 NY 593 that a term or requirement that parties will exercise good faith one to another is implied where such a provision would have been agreed if the attention of the parties had been drawn to it.
Under this covenant parties are entitled and required to act reasonably and accordingly it is argued that Chevron applied this principle correctly when they were faced with the request to resolve the ambiguity between the 45 day period and the 60 day period. It is emphasised that the JVA provided (at s 10.5 thereof) as a condition precedent to the closing of the sale that:
No proceeding shall be pending (or threatened), and no investigation shall have been commenced (and be pending), seeking to restrain or prohibit (or questioning the validity or legality of) the consummation of the transactions contemplated by this agreement or seeking damages in connection therewith which the seller believes makes it undesirable to proceed with a consummation of the transactions contemplated hereby.
It is said that taking this provision in conjunction with the general principle of good faith, that it was reasonable and proper for Chevron to make the concession which it did. There was agreement between the experts that the decision in Seitzman v Hudson River Association (1987) 513 NY 2d 148 correctly sets out the principles in relation to the covenant of good faith in commercial dealings. However, the decision in Hartman v Windsor Hotel Co 132 WVA 307 illustrated the limitations imposed on a party seeking to make concessions in favour of a person entitled to a right of pre-emption.
In that case a lessor agreed to sell its interest in certain hotel properties for $315,000 plus $15,000 brokerage commission. The sale was conditional upon the lessee not exercising a right of pre-emption conferred on him by the lease to purchase the property on the same terms and conditions as those accepted by the lessor from the intending purchaser. The lessor claimed to be discharged from the contract on the basis that the lessee had exercised its right of pre-emption. In fact the lessor sold the property to the lessee for $300,000 free of commission.
On a claim by the brokers, who were not parties to either contract, the court held that there had not been a valid exercise of the right of pre-emption because of the reduced purchase price and that accordingly the original contract was binding to the extent that the agreement by the lessor to pay the plaintiff s brokerage commission continued in full force and effect. What Mr Sofaer points out, however, is that in the Hartman case the seller departed from the perfectly plain and simple statement of the pre-emptive right where in the present case the alteration was to cure a patent (or as the New York lawyers would describe it a facial ) ambiguity.
It seems to me that it would be impossible to treat the concession made by Chevron in relation to the acceptance time limit as conclusive and effective unless it was accepted by all parties that this ambiguity existed and should be resolved. Whatever the duty of good faith of Chevron to Ivernia, it seems to me that in the exercise of a comparable duty to Lac that, at the very least, Lac should have been consulted even if in the final analysis, it was the right and duty of Chevron to make the concession. In the circumstances, I take the view that the concession made by Chevron was not a bar to Lac s right to maintain the claim for the proper construction of the JVA.
4. It has been pointed out that there are two contracts, namely, the Lac agreement and the JVA, and there are two separate sets of parties and on the face of it not even one party common to both. On that basis CMCI and Ivernia contend that Lac cannot assert any contractual right against them.
This issue has come up in a number of forms in these proceedings and the arbitration which preceded it. It is the question whether this Court should, in accordance with the law of the state of New York or the law of the Republic of Ireland lift the corporate veil between Transocean Chevron Co and Chevron Mineral Corporation of Ireland.
There does not appear to be any significant difference between the law of the state of New York and the law of this country in relation to that issue. As I understand it, in both jurisdictions the basic principle is that restated by Lardner J in In re Frederick Inns Ltd [1991] ILRM 582 at p 587 in the following terms:
A fundamental attribute of a company in Irish Law is that of corporate personality. A company is a legal entity distinct from its members, capable of enjoying rights and being subject to duties which are not the same as those enjoyed or born by its members … Generally speaking this principle and the statutory rules of company law in which the principle is implicit apply to the relationship between holding companies and subsidiaries and to transactions between them and third parties.
However, the fact that the corporate veil may be lifted in the sense that the acts of one corporate body may be treated as those of another is now well established within this jurisdiction. It is clear from the decisions in Power Supermarkets Ltd v Crumlin Investments Ltd, High Court 1978 No 4539P (Costello J) 22nd June 1981 and the decision in the State (Thomas McInerney & Co Ltd) v Dublin County Council [1985] ILRM 513. In the latter case Carroll J laid down the following principle at p 518:
In my opinion the corporate veil is not a device to be raised and lowered at the option of the parent company or group. The arm which lifts the corporate veil must always be that of justice. If justice requires, as it did in the DHN case, the courts will not be slow to treat a group of subsidiary companies and their parent company as one.
In addition to the broad requirement of justice, it is clear that in both of the cited cases the allegation was that the affairs of associated companies were being carried on in such a manner that the decisions of one body corporate were dominated by the other so that there was no reality in the distinction between them. These two ingredients are required, first, the factual identification of the acts of one body corporate with those of another and, secondly, the requirement that justice would be served only if the court ignores the distinction between the separate corporate entities. In New York law the position is, as Mr Mullen emphasised, that the law has evolved to the extent that it is no longer necessary to prove that the manner in which the associated companies conducted their affairs constituted a fraud. It is sufficient if it resulted in some inequity to the plaintiff .
The issue in the present case is how those principles should be applied to the unusual facts thereof. What Lac says is that Ivernia itself having invoked the veil-lifting principle in the arbitration proceedings successfully cannot now deny the application of that principle to all the circumstances of the case. Ivernia contend, first, that the justice or inequity which the arbitrator had under consideration was the injustice perpetrated by the Chevron group against Ivernia in the manner in which they structured the sale to Lac so as to avoid the pre-emption clause. They say that no injustice was done to Lac and, furthermore, that Lac, having connived in an arrangement which they contended involved legal entities so separate from each other as to prevent the operation of the pre-emption clause, are now estopped from contending that all of the companies concerned should be treated as one entity.
In my view the beliefs and intentions of Chevron and Lac in entering into the Lac agreement are no longer relevant. The decision to proceed with the transaction in the knowledge of the award made by the arbitrator involved an acceptance by all of the parties, including in particular Ivernia, that the intended sale by Transocean Chevron Co to Lac fell to be treated as a disposition by CMCI itself. Certainly it imposed the duty on CMCI to give the notices required by the JVA and triggered off the exercise by Ivernia of its pre-emption right. It is not disputed that the affairs of Transocean Chevron Co and CMCI are dominated by the Chevron parent company and by implication all of the parties subsequent to the arbitrator s decision accepted the identification of the affairs of CMCI with Chevron Transocean. Accordingly none of the parties at this stage is entitled to rely upon the objective legal reality of the distinctive corporate personality of each of those companies.
I have no doubt that it was appropriate for Lac to join Ivernia in the proceedings which they instituted against the Chevron group. This was necessary if only to obtain an injunction to restrain them from implementing a transaction which would be in breach of the contractual duties which it was alleged the Chevron group owed to Lac. What is more questionable is whether Lac could have had any positive contractual rights as against Ivernia. Two of the United States decisions, first, Anderson v 50 East 72nd St Condominium 119 AD 2d 73; 505 NYS 2d 101, and, secondly, the decision in Hartman v Windsor Hotel Co (above) would suggest that a purchaser does have or may have rights against a person holding pre-emptive rights over the property agreed to be purchased. In any event in the special circumstances of the present case and having regard to the knowledge which Ivernia had of the bargain between the Chevron Group and Lac, it might well have been argued that to insist upon implementing the purchase of the transaction if the option was exercised outside the acceptance period could amount to the tort of attempting to induce a breach of contract. However, it is sufficient for my purposes to say that I believe that Ivernia could not have sustained the preliminary objection in this regard.
Whilst I have felt it appropriate to deal with the issues which were taken and which logically were required to be dealt with prior to the core issues, I do not think it is necessary or appropriate for me to comment upon what relief might be granted or against whom in the event of my having concluded that the period for acceptance of the offer was limited to 45 days.
The plaintiff s claim will be dismissed as against all of the defendants and I will hear counsel as to the precise form of the order which should be made having regard to my judgment aforesaid.
Rooney and McParland Ltd v Carlin
[1981] NI 138
Lord Lowry LCJ: Thomas Carlin ( the defendant ), who is an electrical engineer, sued Rooney & McParland Limited ( the plaintiffs ), who are quarry owners, claiming an injunction and damages for the nuisance which their quarrying operations allegedly caused to his house and land (which occupied about one acre and were contained in Folio No. 24184 County Armagh, and which I shall call the house and garden ) at Hillcrest, Cloghogue, near Newry in the County of Armagh. He purchased the house and garden in 1964 and subsequently bought an adjoining field of one and a quarter acres (which was comprised in Folios No. 24369 and 25329 and which I shall call the field ). This was kept in rough grass and was separated from the house and garden by a post and wire fence.
The defendant s action, which came to trial on 24 June 1976, was settled at lunch time, and the terms of settlement were reduced to writing by counsel and signed by them and by the parties as follows:
The parties hereto agree that the action herein shall be stayed on the following terms:
1.the defendants shall purchase from the plaintiff all the lands and premises owned by the plaintiff and contained in Folio No 24184 County Armagh for the sum of 17,000;
2.the completion date for the said purchase shall be 30/7/1976;
3.the defendants shall pay the plaintiff s costs of this action other than his costs in the plaintiff s interlocutory motion for an interim injunction;
4.both parties shall have liberty to apply 24th June 1976.
T Carlin
TV Cahill
J Rooney
E Alan Comerton
James McParland
The house and garden, but not the field, had been delineated on the map which was put in evidence by the present defendant (then the plaintiff) in the opening stages of his action for nuisance. The terms of settlement were then set out in the schedule to a consent order staying the action.
The settlement, as recorded, was carried out, but a dispute arose as to whether the field was part of the property which the plaintiffs had agreed to buy and the defendant to sell. The plaintiffs then sued for rectification of the agreement so as to make it include the field and thereby, as alleged, make the written agreement conform with the prior oral agreement and common intention of the parties. In the alternative, by an amendment of their statement of claim, the plaintiffs sought rescission of the agreement and the return of the purchase price. They did not pursue the latter remedy at the trial or on appeal.
The learned trial judge in this further action granted rectification by substituting in paragraph 1 of the terms of settlement for the words Folio No. 24184 County Armagh the words Folio Nos 24184, 24369 and 25329 all in County Armagh and he granted specific performance of the agreement as so rectified. From this order the defendant has appealed.
Although the plaintiffs are the respondents in this court, it will be convenient first to examine their argument for rectification which prevailed in the court below.
Mr Carswell (who appears with Mr Orr for the plaintiffs) argued and still contends that the court s duty is to make an objective approach and interpret the sense of the promise given by the defendant to the plaintiffs to the effect that they were to get what they believed they were buying, namely all the defendant s lands in the vicinity of the quarry . The agreement and common intention of the parties is sought to be derived from the admitted belief of both counsel that all the defendant s lands in the vicinity were the subject of the purchase, and from the intention of the plaintiffs counsel, Mr Cahill, to buy those lands and thereby avoid, for the benefit of the plaintiffs, the risk of further litigation.
Speaking of the occasion when Mr Comerton, counsel for the defendant, went and found out the number of the folio comprising the house and garden (24184 County Armagh) and inserted that number in the agreement, Mr Carswell described his action as an attempt at precision which back-fired , as if to suggest that, if Mr Comerton had at that stage found out the real facts, he would have included a reference to Folios 24369 and 25329 without even querying the price or obtaining his client s further instructions. In fact the folio number accurately described the very property which the two negotiators meant to buy and sell respectively.
Nevertheless, the plaintiffs have argued that there was between counsel a consensus subject to a mistake, that is, subject to the mistaken belief on the part of both counsel that the defendant did not own any other relevant lands.
The further argument is (and from the plaintiffs point of view has to be) that the price is not to be altered, and it was said, in support of that contention, that the field (valued by the plaintiffs witness at 800) is of very little use and that its value is only 5 per cent of the whole – a trivial difference ; this may seem an ambitious enough point to make even in these inflationary times.
The plaintiffs say that this was an agreement to sell all the lands but that there was a common mistake as to their extent. Alternatively, they contend, the defendant knew that the plaintiffs counsel mistakenly thought he was getting all the defendant s land for his clients, and therefore the defendant ought not to be allowed to take advantage of this mistake by holding the plaintiffs to an incorrectly expressed bargain.
Mr Lavery (who appears with Mr Thompson for the defendant, the appellant in this court) contends on the other hand, that rectification can only be granted (1) where the written instrument does not accord with the prior agreement and common intention, as expressed between the parties or (2) where one party knows that the written instrument does not correctly record the prior agreement and therefore contains a mistake in his favour.
He says that Mr Comerton s agreement to sell the house and garden, while mistakenly believing that Folio No 24184 contained all the defendant s relevant property is not the same thing as Mr Comerton s agreement and intention to sell all the defendant s property for 17,000 whatever it might happen to comprise. He also points out that no one could possibly attribute to the defendant himself an intention to sell anything beyond the house and garden. Put at its best from the plaintiffs standpoint, says Mr Lavery, it would not be enough for both counsel to intend to pass all the defendant s property if they do not agree this with each other. He adds that Mr Cahill s erroneous assumption did not form part of the contract and cannot be elevated into an implied term.
He submits that certainty is requisite in any conveyancing transaction and that the question is how one could get the field into this transaction without a completely fresh agreement: there must, for rectification to operate, have been an antecedent (oral) agreement and an outward expression of accord. Counsel further argues that it is contrary to reason to spell out of what happened an agreement to sell property (namely, the field), the existence of which was unknown to the agents of both parties.
I now turn to consider what the learned trial judge found and how he reached the conclusion appealed from.
After stating the facts the learned trial judge said:
A dispute has now arisen as to what the compromise embraced. In particular what property had the plaintiffs agreed to buy and the defendant agreed to sell in paragraph 1 of the settlement?
After pointing out that the written terms appeared to support the defendant, the learned trial judge continued:
The defendant therefore submits that what is written in clear and unambiguous terms and signed by all parties must stand. The plaintiffs, however, say that this does not represent the common intention and the true agreement of the parties for these embraced all Mr Carlin s property in the vicinity of the quarry and would therefore have included the field.
The learned judge adverted to the observation of Cozens-Hardy, MR in Lovell & Christmas Ltd v Wall (1911) 104 LT 85:
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.
He then continued:
How then is the true agreement of the parties to be found if it is not expressed in the written agreement? Parol evidence is admissible for this purpose, thereby making an exception to the usual rule that parol evidence is inadmissible to contradict, add to or vary the terms of a written agreement (see Murray v Parker [1854] 19 Beav 305, 308, Cheshire & Fifoot (9th Ed.) 221; Chitty (24th Ed.) par 312).
On this basis I admitted and heard evidence from the respective counsel who had made and recorded the settlement, Mr Cahill QC and Mr Comerton QC, both experienced and responsible counsel and I think I should state also that there is no suggestion from any quarter that either of these gentlemen acted other than honourably throughout the negotiations and during its recording. It is accepted that they made full disclosure to each other within the context of their knowledge at the time.
On hearing and considering their evidence, it is clear that this is not the straightforward case of a simple written error being made in the reduction of an antecedent concluded verbal agreement to writing in the sense that counsel having knowledge of the existence of the field and having directed their minds to it during negotiations, verbally agreed to include it or exclude it from the settlement. The antecedent concluded verbal agreement did not include the field as such for the simple reason that neither counsel knew of the field.
Mr Cahill did not see any of the Land Registry maps nor any of the three folios. Mr Cahill thought the engineer s map put in during Mr Comerton s opening showed the entirety of Mr Carlin s land and premises beside the quarry and so it seems to me did Mr Comerton. But that map in fact showed merely the area of the house and garden edged in red with the words Mr Carlin s property arrowed to it. Mr Cahill believed when the settlement had been reached his clients had bought out all of Mr Carlin s property beside the quarry and that the description in the written terms of settlement and contained in Folio No 24184 Co. Armagh was merely confirmatory of that. Mr Comerton did not introduce this description into the written terms for the purpose of excluding the field from the settlement to distinguish it from land contained in the other folios. In my view he introduced it for precision of description and not to create any reservation from the phrase it followed all the lands and premises owned by the plaintiff for he did not know that his client owned the field nor any property there contained in other folios.
Have the plaintiffs positively shown that there was an antecedent common intention to include in the settlement what was not recorded in the written settlement and what was not referred to in terms during negotiations? I have used the phrase antecedent common intention because the authorities make it clear it is the intention of the parties in the antecedent agreement which must be looked for. In Joscelyne v Nissen [1970] 2 WLR 509 there was not a complete antecedent concluded oral contract between the parties but the Court of Appeal held that it was sufficient to find a common continuing intention in regard to a particular provision or aspect of the agreement (confirming the view of Simonds J in Crane v Hegeman-Harris Co Inc [1939] 1 All ER 662, 664 and Clausen J in Shipley Urban District Council v Bradford Corporation [1936] 1 Ch 375) together with some outward expression of accord. The Court of Appeal also noted what Harman LJ said at p 470 in Earl v Hector Whaling Ltd [1961] 1 Lloyds Reports 459 –
As to the facts it does not appear to me that there ever was an oral agreement. There was a common intention and that is enough … Buckley LJ said in Lovell & Christmas Ltd v Wall (supra) at page 93:
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. To find this out, it seems to me that you must look at all the circumstances of the negotiations, at everything touching their course including what was said and done and understood by counsel during them and also at what the respective parties to the action were seeking to resolve and achieve by these negotiations. Then you must ask what would a reasonable third party objectively concluded from all this? Was there a common continuing intention to include the field as part of the settlement, or on the other hand, were the parties so genuinely at cross-purposes that it is not possible to impute a common intention or infer the existence of an agreement?
The learned trial judge contemplated only two alternative answers here, the one leading to rectification and the other to rescission, but he did not mention the possibility of a common intention to transfer only the house and garden.
Having again referred to the heavy onus of proof which rests on a plaintiff claiming rectification, the learned trial judge stated his conclusions:
(1)Mr Cahill s prime resolve throughout the negotiations was not only to put an end to Mr Carlin s complaints made in the action but to ensure there would be no like complaint from him in the future or from anyone who might come to occupy Mr Carlin s holding. Mr Cahill s intention was to reach an agreement by which his clients could work and develop their quarry in the future, unimpeded by the worry of a possible complaint from such an adjoining occupier. His means of achieving all this was for his clients to buy out all Mr Carlin s property and thereby remove him, his family and their occupation of that property from the scene of the quarry s working operations.
(2)Mr Cahill s intentions were clear, indeed obvious to Mr Comerton throughout and Mr Comerton on his part conducted negotiations on the same basis believing he was selling all the property his clients had in the vicinity of the quarry.
(3)Mr Cahill believed and had reasonable grounds for believing from his negotiations with Mr Comerton that Mr Comerton throughout was offering to sell all Mr Carlin s property in the vicinity and on this belief, he advised his clients to pay 17,000.
(4)When the settlement was arrived at and throughout its recording both counsel believed that the plaintiffs had thereby bought all Mr Carlin s property in the vicinity of the quarry. I am quite satisfied that had the plaintiffs known of the existence of the field during the negotiations they would have assumed it was part of the negotiations even if it had not been specifically mentioned and if the defendant had sought to exclude it the plaintiffs would probably have broken off negotiations. No reason has been advanced why the defendant, an electrical engineer, would have wanted to exclude this field from the settlement, nor do I see reason why he should.
(5)There was a common intention between the parties to sell all the defendants property in the vicinity of the quarry and the field was in close vicinity to the quarry. It was in pursuance of this common intention that the phrase in the settlement all the lands and premises owned by the plaintiff was inserted and the words which follow and contained in Folio No. 24184 Co. Armagh were inserted as a more explicit description of Mr Carlin s lands in the area, his land being registered land and not as a means of excepting the field contained in Folios 24369 and 25329 from the settlement.
(6)That the written terms of settlement did not therefore accord with the true intentions of the parties.
He thereupon granted rectification and ordered specific performance.
With respect I consider that the learned trial judge s statement of conclusions wrongly equated motive, object and belief with intention (which in a contract case must crystallise as a common intention). And, so far as concerns the fifth conclusion, I do not see how it could have been the common intention of counsel to transfer a field which neither gave any thought to or knew to be part of the defendant s property.
Mr Carswell relied in this court and at the trial on the text of Cheshire & Fifoot (9th ed.) pp 225-6 and the cases there cited, and the judgment shows that the learned trial judge accepted this argument. It is from this text and these cases that one may extract the objective test and the doctrine of the sense of the promise . But by no process of reasoning could one infer that either Mr Comerton or Mr Cahill had in mind any parcel of land other than the house and garden or that Mr Comerton had conducted himself or spoken in such a way that a reasonable man would believe that he was agreeing to sell any other land as well. Counsel submitted that Mr Comerton intended to sell and that Mr Cahill intended to buy all the defendant s lands in the vicinity of the quarry and that this fact (always assuming it to be true) constituted consensus subject to a mistake. This conclusion does not at all follow from the fact that both counsel meant to transfer the house and garden delineated by the triangle and mistakenly believed that the house and garden constituted the entirety of the defendant s property near the quarry. In any case the alleged common intention to transfer all the property was not communicated and did not form the subject of agreement between counsel. What is clear, however, is that both counsel intended the triangle to pass and that they communicated that fact to each other and agreed upon it.
One could scarcely imagine Mr Comerton as saying (either to himself or to Mr Cahill) I mean to sell all my client s land, even if he has property outside the triangle of which he has not told me and the value, extent and very existence of which are beyond my ken, and in return (based on the valuation of the triangle) I am willing that my client should accept 17,000.
To describe counsel s misapprehension concerning the extent of the defendant s lands as a mutual mistake as to quality , which causes all the defendant s lands to be included in the transaction, is not correct. Cases such as Bell v Lever Bros Ltd [1932] AC 161 and Harris & Jones Ltd v Bunten & Lancaster Ltd [1953] 1 QB 646 have little to contribute to the solution of the present problem, because their facts are unrelated to the point at issue. They can be pressed into the service of the plaintiffs only by assuming facts in this case which were not found, or open to be found, by the learned trial judge. Likewise, if Frederick E Rose (London) Ltd v Wm H Pim Jnr & Co Ltd [1953] 2 QB 450 were closer to this case, it could only help the defendant. Indeed what is said at pages 461-2 is directly opposed to the plaintiffs argument:
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. 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 Corporation [1936] Ch 375 but, formalities apart, there must have a concluded contract. There is a passage in Crane v Hegeman-Harris Co Inc [1939] 1 All ER 662, 664 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 v Wall per Lord Cozens-Hardy MR, and per Buckley LJ, 104 LT 85, 88, 93 but not that they intended something different. per Denning LJ.
The fallacy of the plaintiffs argument, both in this court and in the court below, lay in the misuse of the phrases common intention , objective approach and the sense of the promise . This can readily be appreciated by a study of Joscelyne v Nissen [1970] 2 QB 86, in which Russell LJ (who delivered the judgment of the court) sets out and lucidly explains the guiding principles on which claims for rectification should be decided. The entire judgment is worthy of close attention. I shall simply highlight the points which appear to be decisive of this case.
The plaintiff in Joscelyne v Nissen and his wife shared a house with their daughter (the defendant). The plaintiff arranged to transfer his business to the defendant in return for which she was to pay certain household expenses. The written agreement which was to implement this arrangement failed to provide clearly for the payment of household expenses by the defendant. She paid some of these for a while and then gave up. The county court, which was affirmed by the Court of Appeal, ordered rectification of the written agreement so as specifically to include an obligation by the defendant to pay household expenses.
This was done on the ground that it was not necessary to have a concluded contract antecedent to the written agreement: it was enough if there was a common continuing intention in regard to a particular provision of the agreement (namely, the undertaking of the defendant to pay the household expenses); but an outward expression of accord, as well as convincing proof that the concluded instrument did not represent the parties common intention, was required.
Russell LJ clarified certain principles with the aid of Lovell & Christmas Ltd v Wall supra, USA v Motor Trucks Ltd [1924] AC 196, Shipley UDC v Bradford Corporation [1936] Ch 375, Crane v Hegeman-Harris Co Inc [1939] 1 All ER 662 (affirmed [1939] 4 All ER 68), Frederick E Rose (London) Ltd v William H Pim Jnr & Co Ltd [1953] 2 QB 450 and a number of other authorities:
1.There must be a concluded agreement antecedent to the instrument which is sought to be rectified; but
2.The antecedent agreement need not be binding in law (for example, it need not be under seal if made by a public authority or in writing and signed by the party if relating to a sale of land) nor need it be in writing: such incidents merely help to discharge the heavy burden of proof; and
3.A complete antecedent concluded contract is not required, so long as there was prior accord on a term of a proposed agreement, outwardly expressed and communicated between the parties, as in Joscelyne v Nissen.
This statement of principles, while dispensing with the strait-jacket of complete antecedent formal contract, continues to insist on the need for communication and outwardly expressed accord between the parties, and in that respect differs from the plaintiffs argument and from the judgment appealed from. It is in the light of this requirement that one must understand the phrase common continuing intention , which means that the parties not only have the same intention but are agreed upon it. As Denning LJ said in Rose v Pim supra at page 461:
There is a passage in Crane v Hegeman-Harris Co Inc [1939] 1 All ER 662, 664 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 .
On referring to the judgment of Simonds J in the case cited one sees that he, too, after mentioning continuing common intention, speaks of the parties being in agreement (page 664E). In Earl v Hector Whaling Ltd [1961] 1 Ll LR 459 (noticed by Russell, LJ at page 97G) Harman LJ said (at page 470):
As to the facts it does not appear to me that there ever was an oral agreement. There was a common intention and that is enough. In spite of Denning L.J s observations in Frederick E Rose (London) Ltd v William H Pim Jnr & Co Ltd [1953] 2 QB 450, 461; I think that Clauson J s original decision in Shipley Urban District Council v Bradford Corporation [1936] Ch 375 (as followed by Simonds J in Crane v Hegeman-Harris Company Inc [1939] 1 All ER 662, 664) that you do not need a prior contract, but a prior common intention, is right: and here, as it seems to me, both parties always intended that there should be a written agreement, and they came to a common intention as to what that written agreement was to be, or thought they did: and if the evidence satisfied one that that common intention did not appear in the written document, then you would have a case for rectification.
But the plaintiffs cannot profit from this statement (which itself relies on Crane v Hegeman-Harris) in face of Russell, LJ s further observation at page 98C:
In our judgment the law is as expounded by Simonds J in Crane s case with the qualification that some outward expression of accord is required.
The plaintiffs argument disregards the following facts:
1.Both counsel intended to transfer a house and garden delineated by the red triangle and comprised in Folio 24184;
2.Neither counsel was even aware of the existence of the field as a part of the defendant s lands;
3.The plaintiffs counsel did not stipulate to the defendant s counsel that he was contracting to buy the defendant s entire lands in the vicinity;
4.The defendant s counsel did not warrant expressly or by implication that the lands contracted to be sold comprised the defendant s entire lands in the vicinity;
5.The price of 17,000 left out of account the value of the field;
6.The property described in the agreement is precisely that which the parties, through their counsel, agreed to transfer for the price specified in the agreement.
In other words, the plaintiffs counsel knew exactly what he was buying and the defendant s counsel exactly what he was selling, and the written instrument correctly recorded their agreement, including the price. But the plaintiffs argument is that because both counsel believed that their agreement accounted for all the defendant s lands in the vicinity and because neither counsel knew that the defendant owned in addition a field worth 800, the written instrument ought to be rectified (although altered would be a better word) so as to include the field with no alteration in the price. Even before one considers the law on the subject, this contention seems scarcely reasonable unless the defendant was guilty of fraud, which is not proved or even alleged.
I now refer to paragraphs 7, 8 and 9 of the statement of claim.
As to paragraph 7, there is no justification for saying that the omission of Folios 24369 and 25329 from the Agreement was a common mistake in expressing the terms which had been agreed. Nor is there evidence to show that Mr Comerton told Mr Cahill that all the defendant s lands adjoining the quarrying business were contained in Folio 24184, or that the defendant mistakenly thought that all his lands (and not merely the house and garden) were comprised in Folio 24184. The question as to what the defendant owned simply never came up between counsel. To say that Folios 24369 and 25329 were omitted by mistake would be correct only if the parties had agreed that the land comprised in those folios was to be sold.
Paragraph 8, on which Mr Carswell avowedly placed his chief reliance, proceeds on the assumption that the defendant did not intend to sell all his lands and premises adjoining the quarrying business, and alleges that the defendant so conducted himself in giving the said information to the plaintiffs as aforesaid (that is, the information referred to in paragraph 7 that the plaintiffs reasonably inferred that the defendant s intention was the same as their own, namely that the defendant would sell and the plaintiffs would purchase all of the defendant s said lands and premises .
In the first place, as I have pointed out in regard to paragraph 7, Mr Comerton did not misinform or mislead Mr Cahill in the manner alleged. Secondly, the mistaken belief by Mr Cahill that the house and garden comprised all the defendant s relevant lands and the common intention that the house and garden should pass do not add up to a belief and intention on the part of the plaintiffs that the defendant intended to sell and the plaintiffs intended to buy something more than the house and garden.
Paragraph 9 contains an alternative to paragraph 8, and again assumes that the defendant did not intend to sell all his lands and premises. This time the averment is that the defendant knew, or must be taken to have known, (1) that it was the plaintiffs intention to buy all the lands, and (2) that the plaintiffs mistakenly thought that all the lands were comprised in Folio 24184, but that the defendant took no step to correct the plaintiffs mistake. There is simply no evidence to support this case. It is true that the defendant s counsel could properly be found to have known that plaintiffs counsel believed the entire property to consist of the house and garden, but the defendant s counsel could not, in his own limited state of knowledge, be found to have deliberately refrained from correcting that impression. There is no evidence that the defendant himself knew of the plaintiffs counsel s mistake; therefore he cannot be said to have failed to take steps to correct it. And one cannot make up a composite person possessing the knowledge of both the defendant and his counsel in order to meet the requirements of paragraph 9 by showing that (1) the defendant knew that Mr Cahill was not buying all the defendant s property, while (2) Mr Comerton knew that Mr Cahill thought he was buying all the defendant s property. Either Mr Comerton or the defendant individually would need to be shown to have been aware that Mr Cahill s belief was a mistaken belief. The evidence does not justify this inference in respect of either of them. It would be more accurate to say that there was a continuing common intention to transfer from the defendant to the plaintiffs the house and garden delineated by the red triangle and contained in Folio 24184. Mr Cahill s motive and object was to get rid of the action for nuisance and to prevent a recurrence. Mr Comerton was concerned to get the best price he could so that the defendant could buy another house and live in it.
The map drawn by the defendant s engineers shows that his action was based on the alleged nuisance to the house and garden. The map is entitled Mr Carlin s Bungalow, Cloghogue, Newry. Land Ownership Plan and an arrow which starts from the land comprised in folios 24369 and 25329 points in to the triangle which bears the legend Mr Carlin s property .
In reality, once the defendant had moved house, it was going to be a difficult undertaking (even if he were so minded) to sustain an action for nuisance based on the field alone.
Even if both counsel intended all the defendant s property to pass and believed that this was the effect of their agreement, this does not mean that clear terms of agreement ought to be altered so as to make property pass (for the same price) which neither side contemplated as forming part of the subject-matter of the sale and of the value and extent of which neither side had any idea.
Accordingly I would allow the appeal, refuse rectification and dismiss the plaintiffs action.
Macdermott J: I concur and have nothing to add.
Boliden Tara Mines Limited v Cosgrove & Ors
[2007] IEHC 60
JUDGMENT of Ms. Justice Finlay Geoghegan delivered on the 9th day of March, 2007.
1. The plaintiff (“the Company”) is the principal employer of the Tara Mines Pension Plan (“the Pension Plan”). The first to sixth named defendants are the current trustees of the Pension Plan. The seventh named defendant (“IPT”) was the trustee of the Pension Plan until 20th December, 1999. The eighth defendant is joined as a representative beneficiary whose entitlements are such that they may be affected by the granting of the relief sought by the Company. He replaced by consent an earlier representative beneficiary. Both have been granted an indemnity by the Company in respect of their costs herein.
2. The Pension Plan was established and is operated pursuant to trusts and rules declared by the Company. Since 1996, it is governed by a Deed of Amendment and Substitution of the 24th June, 1996, between the Company and IPT which consolidated and substituted earlier Deeds and Rule. The definition of “Pensionable Salary” in the schedule to the rules attached to the 1996 Deed was defined as meaning:
“the Member’s annual rate of basic salary less an amount to be determined by the Employer but not exceeding one and a half times the annual rate of the Retirement Pension attributable to a single person payable under the Social Welfare Acts.”
3. The deduction of an amount by reference to the retirement pension payable under the Social Welfare Acts from basic salary for the purposes of pensionable salary was and is known as “integration” and stated to be common in occupational pension schemes. The Pension Plan is an exempt approved scheme under the provisions of part 30 chapter 1 of the Taxes Consolidation Act, 1997 and an occupational pension scheme as defined by s. 2(1) of the Pensions Act 1990.
4. The Deed of Amendment of 19th October, 1999, (“The 1999 Deed of Amendment”) at paragraph D. amends the definition of “pensionable salary” in the schedule to the 1996 Deed by the addition of the following at the end of such definition:
“provided in the case of a Member whose benefits are being calculated by reference to a date on or after the 20th February, 1998, it shall be his annual rate of basic pay excluding overtime, bonuses or other fluctuating emoluments provided further in the case of a Member in the category of employment of direct miner it shall be 1.25 times such annual rate of basic pay.”
5. The effect of the first proviso in the amendment above is to remove integration for those members to whom it applies. It is a significant benefit, particularly for the lower paid workers.
6. The issues in these proceedings relate to the 1999 Deed of Amendment and are:
(1) Whether the first proviso in the above amendment applies to the class of members represented by the eighth defendant. Such members are those persons who were in receipt of benefits under the Income Continuance Plan of the Company on the 20th February, 1998.
(2) If the first proviso when properly construed does apply to such members then:
(i) Is the Company entitled to rectification of the Deed of Amendment to exclude such members.
(ii) In the further alternatives is the Company entitled to have such proviso set aside or declared void.
No relief is claimed in relation to the second proviso which amended the definition of pensionable salary for a member ‘in the category of employment of direct miner’.
Rectification
44. This, in reality is the principal relief sought by the Company. It seeks rectification of paragraph D of the 1999 Deed of Amendment by the insertion of the words appearing in brackets below in the first proviso sought to be added to the definition of “Pensionable Salary” in the schedule to the rules. If rectification is granted the definition of “Pensionable Salary” would then read:
“the Member’s annual rate of basic salary less an amount to be determined by the Employer but not exceeding one and a half times the annual rate of the Retirement Pension attributable to a single person payable under the Social Welfare Acts provided in the case of a Member (other than a Member receiving benefit under the Employer’s Income Continuance Plan as of the 20th February, 1998) whose benefits are being calculated by reference to a date on or after the 20th February, 1998, it shall be his annual rate of basic pay excluding overtime, bonuses or other fluctuating emoluments provided further in the case of a Member in the category of employment of direct miner it shall be 1.25 times such annual rate of basic pay.”
45. It is common case that the court has jurisdiction to grant rectification of a deed such as the 1999 Deed of Amendment. It is further agreed that the legal principles according to which the jurisdiction should be exercised are those set out by Kelly J. in the Irish pensions Trust Ltd. v Central Remdial Clinic, (CRC) judgment. In that judgment at pp. 44 to 57 Kelly J. considers those principles primarily in the context of the Supreme Court decision in Irish Life Assurance Company v. Dublin Land Securities Ltd. [1989] I.R.253 in relation to rectification of a bilateral contract and the English High Court decisions of Rimer J. in Lansing Linde Limited v. Alber [2000] PLR 15 and Lawrence Collins J. in AMP (UK) Plc. v. Barker [2001] PLR 77 and the authorities referred to in those decisions.
46. Rectification is a jurisdiction which permits the court to correct an instrument which has failed to record the actual intentions of the parties to that instrument. It is a discretionary equitable remedy. The decisions make clear that the starting point for a consideration of the exercise of the jurisdiction in relation to pension documents are the decisions relating to rectification of bilateral contracts. The approach of the courts to rectification of instruments which are “unilateral transactions” i.e. those which create rights for others but which do not result from a contract or bargain e.g. voluntary settlements are also relevant.
47. The essential nature of the jurisdiction being exercised by the court in a claim for rectification of a deed or other instrument appears to be the same whether the transaction is a bilateral contract, unilateral transaction or as in this instance a transaction which is a hybrid in the following sense. Clause 30(iii) of the 1996 Deed of Amendment and Substitution permits the Principal Employer i.e. the Company with the consent of the Trustees i.e. IPT to alter or amend the Rules of the Pension Plan either by Deed executed by the Principal Employer and the Trustees or by resolution in writing of the Board of Directors. On the facts herein, the amendment to the Rules was effected by the 1999 Deed of Amendment executed by the Company and IPT. The Company needs the consent of IPT but is the person effecting the amendments by execution of the Deed. The 1999 Deed of Amendment creates rights for others, namely the Members of the Pension Plan.
48. In Lansing Linde Rimer J. explained the purpose and limits of the jurisdiction to rectify at paragraphs 123 – 124 of his judgment in the following terms:
“123. Rectification is a discretionary equitable remedy which is available to correct the manner in which a transaction is recorded in a written instrument. It is not a remedy which is available to change the transaction itself. The need for the remedy is because it is a fact of life that sometimes mistakes arise in the drafting of documents which the signatories do not spot before they sign. The result is that they lend their names to a document which they believe and intend achieves effect X, whereas by mistake it in fact purports to achieve a different, and unintended, effect, Y. Provided the requisite conditions are satisfied, the court has a discretion to correct the executed document so that it reflects the intention to achieve effect X.
124. There is, however, a strong presumption that a signatory of a document intends to sign it in its executed form, since the purpose of signing it is to make the document do the legal job it purports to do; and of course the signatory has every opportunity to satisfy himself before he signs it that it is in a form which meets his needs, an opportunity which responsible signatories will usually take. The jurisdiction to rectify documents is, therefore, one which is ‘cautiously watched and jealously exercised’ (Whiteside v. Whiteside & Ors. [1950] 1 Ch. 65 at 71, per Sir Raymond Evershed M.R.); and, although the question of whether or not there is a mistake in the document as executed is one which falls to be tested by reference to the civil standard of balance of probability:
‘…convincing proof is required in order to counteract the cogent evidence of the parties’ intention displayed by the instrument itself. It is not, I think, the standard of proof which is high, so differing from the normal civil standard, but the evidential requirement needed to counteract the inherent probability that the written instrument truly represents the parties’ intention because it is a document signed by the party.’
(See Thomas Bates and Son Limited v. Wyndham’s (Lingerie) Limited [1981] 1 WLR 505, at 521, per Brightman L.J.).”
49. Lansing Linde concerned an application to rectify a Deed of Amendment executed in 1992. It was contended that it failed to give effect correctly to a resolution which had been passed by the Trustees of the Scheme in August, 1990. The power of amendment was similar to that in this application. Lansing might with the consent of the Trustees by Deed amend the earlier Deed or by Deed or Board resolution amend the Rules (paragraph 156 of the judgment). Further similarity to this application is the gap in time between the point at which it is alleged that it was decided to amend the Rules and the execution of the Deed. On the facts of that case Rimer J. at paragraph 125 cited with approval what appears to have been the consensus between counsel for the applicant and counsel for the opposing representative beneficiary as to what Lansing had to prove. He stated:
“125. It is agreed between Mr Etherton and Mr Green that if Lansing is to arrive at the point at which the court can consider whether to exercise its discretion to rectify the 1992 deed in the claimed respects Lansing has to prove according to the requisite standard that: (i) on 22 August 1990 Lansing and the trustees intended and resolved to make certain specific amendments to the 1977 deed; (ii) that they continued to have the same intention down to the execution of the 1992 deed; and (iii) that, by mistake, the deed included provisions which departed from, or failed to give effect to, that intention.”
50. In Lansing the application was opposed upon three separate grounds. Firstly, it was contended that Lansing had failed to prove the formation and continuation of the intentions which they asserted before the court. Secondly, and separately it was contended that even if the court were to conclude that Lansing and the Trustees did form and retain the intentions which they asserted that there was no “outward expression of accord” which was required. The third ground is not relevant. On the facts, Lansing failed on the first ground.
51. Notwithstanding that Lansing failed on the first ground, Rimer J. continued to consider the second objection that there was no “outward expression of accord” as to Lansing and the Trustees’ alleged intentions with respect to the relevant amendments. It is only in considering this second ground that Rimer J. formed the view, in reliance upon the decisions relating to bilateral contracts that the amendment provisions in the Deed required objective evidence of an accord between Lansing and the Trustees, and an outward expression of that accord.
52. In the subsequent English case of AMP Lawrence Collins J. considered an application to rectify changes to the Rules of a Pension Scheme where the power to alter the Rules was given to the Trustees to do so by written resolution or Deed after obtaining the consent of the Principal Employer. On the facts of that case the changes had been effected by a written resolution of the Trustees. At the relevant time NPI was the Principal Employer. It had proposed the changes; the Trustees passed the necessary resolution which were then formally approved by a Board subcommittee of NPI. It was agreed that nothing turned on the fact that the formal approval of the Principal Employer (which was done by resolution of an authorised Board subcommittee) was given after the Trustees’ resolution rather than (as it was agreed the rules envisaged) in advance of the resolution of the Trustees.
53. Lawrence Collins J. then considered the obiter view expressed by Rimer J. in Lansing Linde that it was necessary that there be an outward expression of accord between the Trustees and the Principal Employer. Nothing turns on the fact that in one case the amendment could be effected by the Principal Employer with the consent of the Trustees and in the other by the Trustees with the consent of the Principal Employer. Lawrence Collins J. having considered the precise rule and facts in the AMP case continued at paragraph 64:
“…no agreement between the Principal Employer and the trustees is envisaged by the rules. The Principal Employer simply has to consent to the exercise of the power of amendment by the trustees. But the consent is not to the exercise of the power of amendment in general. The Principal Employer must consent to the actual amendments. It probably does not matter whether this is regarded as a joint power of the trustees and the Principal Employer to amend the Rules, or (probably more accurately) as a power vested in the trustees but subject to the consent of the Principal Employer: cf Re Earl of Coventry’s Indenture [1974] Ch 77. The reason that it does not matter for present purposes is that, although a power exercisable with consent is not the same as a joint power, the trustees cannot act unless their ‘wishes happen to coincide with those’ of NPI (cf [1974] Ch at 91).
65. Consequently, the intentions of the trustees and the Principal Employer must converge. But they do not have to agree inter se…”
54. The judge then turned to the evidential question and at paragraph 66 stated:
“There must, therefore, be cogent evidence of the intentions both of the trustees and of NPI, but not necessarily of their agreement or accord. In some of the earlier cases on voluntary settlements, rectification was ordered on the uncontradicted affidavit evidence of the settlor without any need for objective manifestation of intention: see, e.g. Hanley v. Pearson (1879) 13 Ch D 545. Mr Nigel Inglis-Jones QC for the trustees suggested that a similar approach would be appropriate in a case such as this. It may be that the need for objective manifestation in the case of a unilateral transaction is simply one element of the need for convincing proof of the mistake. It was present in the two leading modern cases on mistake in unilateral transactions, Re Butlin’s Settlement and Gibbon v Mitchell [1990] 1 WLR 1304, infra, para 81. The certainty of transactions would be undermined if the court could act, otherwise than in exceptional circumstances, simply on the assertion of a party to the transaction. But when one is considering the intentions of a collective body such as a group of trustees or a committee of a board it is their collective intention which is relevant, and it would be a very odd case (and certainly not this one) if that collective intention were not objectively manifested.”
55. Kelly J. in CRC preferred the approach of Lawrence Collins J. in AMP to that of Rimer J. in Lansing Linde. At p. 53 of his judgment he stated:
“It appears to me that bilateral transactions are substantially different to transactions which create rights for persons other than the maker of the instrument but which are not the result of a bargain. I can see good sense in drawing a distinction between the former and the latter. In the case of bilateral transactions some outward expression of accord or evidence of a continuing common intention outwardly manifested is required. In the case of a pension scheme however, evidence of the intentions both of the trustees and of the employer is required but not necessarily of their agreement or accord. That approach makes sense having regard to the different nature of the transactions.”
56. I would respectfully agree with the preference by Kelly J. for the approach of Lawrence Collins J in AMP to that of Rimer J. in Lansing Linde on the question as to whether or not in circumstances where an amendment to Pension Scheme Rules may be made by either the Principal Employer or Trustees with the consent of the other by Deed or resolution it is or is not necessary to prove accord or agreement between those parties and an outward expression of that accord. The analysis of Lawrence Collins J. set out above appears to me apposite to the power of amendment in clause 30 the 1996 Deed of Amendment and Substitution herein. The Company, as Principal Employee may, with the consent of IPT as Trustee amend the Pension Plan rules by deed executed by both of them. This requires a decision of the Company to make certain amendments and the consent of IPT as Trustee to those specific amendments. However it does not require an agreement between those parties.
57. The principal ground upon which the application for rectification is opposed on behalf of the representative beneficiary is that the evidence relied upon by the plaintiff and supported by IPT and the current Trustees to establish an intention of the Company and IPT to exclude ICP Beneficiaries from the amendment in paragraph D of the 1999 Deed falls far short of the “convincing proof” or “cogent evidence” required in accordance with the principles set out above. It is also contended that the alleged common intention must be “outwardly manifested” and that there is not evidence of such outward manifestation.
58. Insofar as it is necessary for me to decide whether “outward manifestation” of the common intention or the intentions of the Company and IPT I would respectfully agree with the approach of Lawrence Collins J. in AMP at paragraph 66 of his judgment referred to above. It appears to me that the requirement of outward or objective manifestation is properly part of the requirement that there be cogent or convincing evidence of the intentions both of the Company and IPT. The 1999 Deed which is sought to be rectified is objective or outward manifestation of the parties’ intentions at the date of execution of the Deed. It is also cogent evidence of their intention as of that date. The burden of proof on the plaintiff is the civil burden of the balance of probabilities. The convincing proof or cogent evidence is required to counteract the cogent evidence of the parties’ intentions displayed by the Deed sought to be rectified. I agree that it would be an exceptional case that there could be cogent evidence of an intention without an objective or outward manifestation of that intention.
59. This appears particularly so, where as in this case the parties to the Deed are both companies. A company, being an artificial legal entity without a mind cannot of itself have an intention. An intention may be ascribed to a company by reason of authorised acts done on its behalf or by reason of the intention of a person or group of persons authorised to act or take decisions on its behalf. In many instances decisions on behalf of a company will be taken by a collective body such as the Board of Directors or a subcommittee of the Board. Where this is so, as observed by Lawrence Collins J. “it would be a very odd case if that collective intention were not objectively manifested”. In other instances, one person (e.g. a managing director) may be authorised to act or take decisions.
60. Accordingly, it appears to me that the need for objective manifestation of the intentions of the Company and IPT or their common intention should not be seen as a separate legal requirement but rather part of the evidential proof of the intentions of the Company and IPT sufficient to establish, as a matter of probability, that paragraph D of the 1999 Deed of Amendment does not represent the then common intention of the parties to the Deed.
61. Counsel for the representative beneficiary submits that the Court in assessing the plaintiff’s claim for rectification should have regard to the Company’s obligation to exercise its power of amendment under the 1996 Deed of Amendment in accordance with its implied obligation of good faith to all members of the Pension Plan. He relies upon the principles set out by Browne-Wilkinson V.-C. in Imperial Group Pension Trust Limited v. Imperial Tobacco Limited [1991] 1 WLR 589, 597:
“There remains the submission of Mr. Topham for the employed members which I accept. Pension scheme trusts are of quite a different nature to traditional trusts. The traditional trust is one under which the settlor, by way of bounty, transfers property to trustees to be administered for the beneficiaries as objects of his bounty. Normally, there is no legal relationship between the parties apart from the trust. Then beneficiaries have given no consideration for what they receive. The settlor, as donor, can impose such limits on his bounty as he chooses, including imposing a requirement that the consent of himself or some other person shall be required to the exercise of the powers.
As the Court of Appeal have pointed out in Mihlenstedt v. Barclays Bank International Ltd. [1989] I.R.L.R. 522 a pension scheme is quite different. Pension benefits are part of the consideration which an employee receives in return for the rendering of his services. In many cases, including the present, membership of the pension scheme is a requirement of employment. In contributory schemes, such as this, the employee is himself bound to pay his or her contributions. Beneficiaries of the scheme, the members, far from being volunteers have given valuable consideration. The company employer is not conferring a bounty. In my judgment, the scheme is established against the background of such employment and falls to be interpreted against that background.
In every contract of employment there is an implied term:
‘that the employers will not, without reasonable and proper cause, conduct themselves in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between employer and employee;’ Woods v. W.M. Car Services (Peterborough) Ltd. [1981] I.C.R. 666, 670, approved by the Court of Appeal in Lewis v. Motorworld Garages Ltd. [1986] I.C.R. 157.
I will call this implied term ‘the implied obligation of good faith’. In my judgment, that obligation of an employer applies as much to the exercise of his rights and powers under a pension scheme as they do to the other rights and powers of an employer. Say, in purported exercise of its right to give or withhold consent, the company were to say, capriciously, that it would consent to an increase in the pension benefits of members of union A but not of the members of union B. In my judgment, the members of union B would have a good claim in contract for breach of the implied obligation of good faith: see Mihlenstedt v. Barclays Bank International Ltd. [1989] I.R.L.R. 522, 525, 531, paras. 12, 64, and 70.
In my judgment, it is not necessary to found such a claim in contract alone. Construed against the background of the contract of employment, in my judgment the pension trust deed and rules themselves are to be taken as being impliedly subject to the limitation that the rights and powers of the company can only be exercised in accordance with the implied obligation of good faith.”
62. The above principles apply to a decision by the Company to amend the Rules of the Pension Plan by Deed. It is however important to note the limitation of the obligation to act in good faith. The representative beneficiary correctly does not contend that the employer (contrary to the position of a trustee) cannot take into account its own interests when deciding whether or not to exercise its rights and obligations under a pension trust Deed. See National Grid Co. Plc v. Mayes (HL(E)) [2001] 1 WLR 864 at 868.
63. The court in this application is not considering the validity or otherwise of a decision taken by the Company to amend the Rules of the Pension Plan by Deed. The only relevance of the above principles appears to be as follows. Where, as on the facts of this application the Company is contending for an intention to amend the Pension Rules by Deed so as to improve pension benefits for part only of the active members or to put it another way to exclude a group of members from the proposed improved benefits, then the above principles emphasise the need for the Company to adduce cogent evidence of a clear intention as contended for. They also create an expectation of there being available at minimum evidence of consideration by the Company of the relative impacts of the proposed changes on the differing classes of members and funding implications if such an intention had been formed.
….
116. IPT as Trustee owes a fiduciary duty to all the members of the Pension Plan. It is common case that the ICP Beneficiaries as at 20th February, 1998, were the only active members of the Pension Plan whom the Company contends were intended to be excluded from the elimination of integration. An active member is stated in the glossary of pension terms commonly encountered at Appendix 12 of Irish Pensions Law and Practice (2nd Edition) Finucane, Buggy and Tighe (Thompson Round Hall, 2006) as “a member of a scheme who is included in the scheme for retirement benefits and is continuing to accrue retirement benefit – usually a member who is in service.” It is common case and expressly acknowledged by Mr. Blake in his affidavit that ICP beneficiaries were considered to be active members of the Tara Mines Pension Plan. Unusually they were a member not in service. However by reason of the ICP benefit payments made on their behalf they were continuing to make contributions and each year of benefit under the ICP was deemed to be a year of service with the Company for pension purposes.
117. On the facts herein, if IPT as Trustee was asked to consent to the amendment as now contended for by the Company the fiduciary duty owed by it to all the members of the Pension Plan, including ICP beneficiaries as at 20th February, 1998 required, at minimum, that it ask itself questions such as “Is this an amendment which should be consented to in the interests of all of the members of the Pension Plan” and “Is it justifiable to exclude ICP Beneficiaries in the interests of all the members of the Pension Plan”. These were serious questions which would have had to be addressed particularly having regard to the context of the proposed changes i.e. the JSC Agreed Proposals; the difficult financial position of the Company; the healthy position of the Pension fund in surplus and the difference in contributions both existing and proposed between active employees (5% of integrated pensionable salary increasing to 6% of non-integrated ) and ICP Beneficiaries ( 15.4%. of of integrated pensionable salary).
118. No evidence has been adduced of any express decision taken by IPT to consent to an amendment to the definition of a pensionable salary which was to exclude ICP Beneficiaries from the benefit of the elimination of integration. There is no evidence that any person on behalf of IPT addressed the question as to whether their exclusion was justified in the interest of all the members of the Pension Plan. The evidence in relation to the costings of the funding of the improved benefits which has been adduced suggest that insofar as they were then available to IPT as a matter of probability no distinction was made in the costing of liabilities for ICP Beneficiaries and other active members prior to October 1999.
119. The 1999 Deed of Amendment is executed by IPT under seal. The seal is witnessed by two persons who are stated to be a director and a director/secretary. Mr. Doherty is not stated to have been a director of IPT at the time.
120. As appears from paragraph 21 of Mr. Doherty’s first affidavit he was sent the engrossed Deed of Amendment for sealing by the Company and IPT as Trustee by the Head of the Legal Department of IPT. The accompanying memorandum refers to a meeting between them on 12th October and states:
“… the only changes that are to be in the Deed of Amendment are the benefit changes as agreed by the Company.”
Mr. Doherty then states at paragraph 22 “the Deed of Amendment was then signed by IPT on 19th October, 1999”.
121. As with the Company, there is no evidence from the directors or secretary of IPT who were present when the document was sealed nor any evidence of any resolution of the Board of directors or a committee of the directors approving the execution or sealing of this Deed. Further, there is no evidence of any communication between Mr. Doherty and the persons who approved or witnessed the sealing of the document by IPT. Counsel for the representative beneficiary submitted that this lack of evidence must be viewed in the context of discovery made by IPT which did not disclose any such documents.
122. Accordingly, I have concluded that the only evidence of an intention attributable to IPT as Trustee of the Pension Plan to consent to the specific amendments proposed by the Company is the evidence of the execution of the 1999 Deed. This is evidence of a consent to the amendments in the 1999 Deed. There is no evidence of an intention of IPT, as Trustee, to consent to any differing amendment at any time prior to or upon the execution of the 1999 Deed of Amendment.
123. The Company’s claim for rectification of paragraph D of the 1999 Deed of Amendment must be dismissed by reason of a failure to establish by cogent or convincing evidence the intentions of either the Company or IPT contended for in these proceedings.
Setting aside for Mistake
124. In the alternative the Company claims that paragraph D of the 1999 Deed of Amendment should be set aside for mistake. It is agreed that the principles according to which the court should determine the Company’s claim to set aside the 1999 Deed of Amendment for mistake are those summarised by Millett J. in Gibbon v. Mitchell 1 WLR 1304 at 1309 cited with approval by Kelly J. at p. 61 in the CRC case:
“…Wherever there is a voluntary transaction by which one party intends to confer bounty on another, the deed will be set aside if the court is satisfied that the disponor did not intend the transaction to have the effect that it did. It would be set aside for mistake whether the mistake is a mistake of law or of fact, so long as the mistake is as to the effect of the transaction itself and not merely as to its consequences or the advantages to be gained by entering into it.”
125. Whilst Gibbon v. Mitchell concerned a voluntary transaction both Lawrence Collins J. in AMP and Kelly J. in CRC considered that similar principles should apply to a mistake on the part of an employer as settlor in an occupational pension scheme.
126. The purpose of this equitable jurisdiction is to relieve a settlor who has executed a deed or other document under a mistake as to the effect of the transaction. The person seeking to set aside the instrument must adduce convincing evidence of such mistake. In Gallagher Limited v. Gallagher Pensions Limited [2005] EWHC 42 which concerned claims for rectification of 1987 Deeds of Amendment to pension schemes and in the alternative a claim to set aside for mistake Etherton J. in considering the claim to set aside for mistake in accordance with the principles set out in Gibbon v. Mitchell said at par. 154:
“As in a claim to rectification, it is for the person seeking to set aside the instrument to produce convincing evidence of the mistake: Anker-Petersen –v- Christiensen [2002] WTLR 313, 330.”
127. In that case the employer was Gallagher Limited (referred to as GL in the judgment). The execution was under seal as in this case. The conclusion on the evidence before Etherton J. was at par. 157:
“In the light of my findings of fact, it is clear that the 1987 Deeds were executed by GL, acting by its directors and by the company secretary who executed the 1987 Deeds on its behalf, under a fundamental mistake as to their effect. Those persons intended and believed that the 1987 Deeds did no more and no less than to guarantee for 10 years a continuation of a policy of annual increases, previously made on a discretionary basis, but limited to 2% LPI.”
128. On the facts of this case, the Company has adduced no evidence as to the understanding of the Director and Secretary who witnessed the execution of the Deed under seal by the Company of the effect of the amendment in paragraph D of the 1999 Deed of Amendment. Similarly there is no evidence from any person or group of persons such as the Board of Directors or a subcommittee thereof who either decided upon the amendments to be made or authorised the execution of the Deed as to their understanding of the effect of the proposed amendments.
129. The evidence of Mr. Doherty and Ms. Kelly the then head of the legal department in IPT establishes that they both understood that the changes introduced in February 1998 were to apply only to active employees. Further that Ms. Kelly believed that paragraph D of the 1999 Deed of Amendment so provided by reason of what now must be considered an erroneous view taken by Ms. Kelly that a “Member” only included active employees (see par 7 of Ms Kelly’s affidavit). However it does not appear that the mistaken belief of Ms Kelly and probably that of Mr. Doherty as to the effect of the amendment in paragraph D of the 1999 Deed can assist the company in its claim to set aside for mistake for the following reason. There is no evidence that either of their understanding of the intended effect of the proposed amendment in paragraph D was ever communicated to any person who took a decision by or on behalf of The Company or indeed IPT to execute the 1999 Deed of Amendment.
130. Similarly there is no evidence of any communication which took place between Mr. Doherty and any relevant person in the Company in relation to the effect of the amendments in the 1999 Deed of Amendment subsequent to its drafting. Also there is no evidence of any communication between any relevant executive in the Company (including Mr Conachy or Mr Blake) with any senior person in the Company, whether a director secretary or other as to the amendments intended to be effected by the 1999 Deed of Amendment prior to its execution. I recognise that the directors of a Company or very senior management may not be involved in the detail of amendments to a pension scheme. However what one would expect at minimum is that where such persons are asked to take decisions to effect amendments to a pension scheme or to authorise the execution or witness the execution of documents by the Company under seal that there would at minimum be a memorandum from the relevant executive in the Company who has been involved in the detailed preparation explaining what is sought to be achieved and identifying if there are any issues which should be considered and determined by the directors or a subcommittee of same. There is no evidence of any such communication on the facts of this application.
Accordingly insofar as a mistake may have occurred within IPT in the drafting of the Deed of Amendment it does not appear that any relevant person in either the Company or IPT who took the decisions to execute the Deed of Amendment were aware of any mistaken belief by those involved in the drafting that the wording of paragraph D only applied the elimination of integration to active employees and hence did not include ICP Beneficiaries.
129. On these facts, I must conclude that the Company has not adduced evidence that the Company executed the 1999 Deed of Amendment under a mistake as to the effect of the amendment to the definition of pensionable salary in paragraph D. The Company’s claim to set aside the Deed by reason of mistake must be dismissed.
Rule in Hastings-Bass
130. The final claim by the Company is for a declaration that paragraph D of the 1999 Deed of Amendment is void. This claim is pursued on the basis of the so called rule in Hastings-Bass v. Inland Revenue Commissioners [1975] Ch 25.
131. The rule derives from the following statement of principle (expressed in the negative) by the Court of Appeal in that case at p. 41:
“…where by the terms of a trust…a trustee is given discretion under some matter under which he acts in good faith, the court should not interfere with his action notwithstanding that it does not have the full effect which he intended, unless (1) what he has achieved is unauthorised by the power conferred on him, or (2) it is clear that he would not have acted as he did (a) had he not taken into account considerations which he should not have taken into account, or (b) had he not failed to take into account considerations which he ought to have taken into account.”
132. The application of the above principles to acts of trustees in relation to pension scheme has been the subject of much consideration by the English Courts, though several cases obiter and also by Kelly J. in CRC (again obiter). Kelly J. puts the principle in the following way at p. 63:
“The principle in Hastings-Bass is to the effect that when a trustee is given discretion and acts in good faith in its exercise the court should not interfere with his action notwithstanding that it does not have the full effect which he intended unless-
(a) What he has achieved is unauthorised by the power conferred to him, or
(b) It is clear that he would not have acted as he did-
(1) had he not taken into account considerations which he should not have taken into account, or
(2) had he failed to take into account considerations which he ought to have taken into account.”
Kelly J. then observed:
“Collins J. expanded the test somewhat by concluding that it was not, whether the trustees would have acted differently but rather whether they might have done so. On the facts in AMP. he held that it did not matter which test applied.”
133. Counsel for the Company has submitted that in considering this application I should follow the legal principles as determined by Kelly J. in CRC. The principle as stated by Kelly J. is without the expansion by Lawrence Collins J. in AMP. I propose applying the principle without the expansion of Lawrence Collins J. in AMP. Whilst not necessary, it appears appropriate to add that having considered a number of the English decisions in which the so-called rule was considered I would also prefer the statement of the principle as expressed by Kelly J. without the expansion of Lawrence Collins J. in AMP.
134. The discretion at issue exercised by IPT as trustee herein was to consent to the amendment in paragraph D of the 1999 Deed of Amendment. It is now contended that such amendment does not have the full effect then intended by IPT in the sense that it does not exclude those persons who were ICP Beneficiaries on the 20th February, 1998.
135. It appears unnecessary on the facts herein for me to consider the evidential requirements of such an intention or their distinction with those requirements for a claim in rectification to succeed. This was considered in some detail by Warner J. in Mettoy Pension Trustees Limited v. Evans [1991] W.L.R. 1587. Even if IPT as Trustee when consenting to the amendment had an intention to exclude persons who were ICP Beneficiaries on the 20th February, 1998 (which intent I have not found ) it does not appear that the Company has established an entitlement to relief under the rule in Hastings-Bass as explained by Kelly J in CRC.
136. On the facts herein it is contended on behalf of the Company, and supported by IPT that if IPT had been aware that the amendment proposed in terms of paragraph D of the 1999 Deed of Amendment eliminated integration for the ICP Beneficiaries that IPT as trustee would not have consented to such amendment by reason of the funding implications of such an amendment for the Pension Plan.
137. For the reasons set out above I have already found that the only evidence of a decision by IPT as trustee to consent to the proposed amendments is the decision evidenced by the execution of the Deed. No evidence has been adduced from the persons who witnessed the sealing of the Deed as to what they did or did not consider prior to witnessing the execution of the Deed. On the evidence in relation to work done by the Actuary on the funding implications of the proposed changes and his valuation at 1 July 1998 I have concluded indicates that as a matter of probability Mr. Bell made no distinction in the calculation of the liabilities of the ICP Beneficiaries from the calculations for those “actively at work”. That was the information in relation to the funding implications then available to the Trustee and relates as a matter of probability to the change effected by the amendment in paragraph D.
138. Accordingly I have concluded that in accordance with the principle in Hastings-Bass as set out by Kelly J. in CRC that the Company and IPT have failed to establish by evidence that IPT either failed to take into account the funding implications or that if they had taken into account the funding implications for the Pension fund of the amendment in paragraph D of the 1999 Deed on the financial information then available that it would not have acted as it did in executing the 1999 Deed of Amendment.
Conclusion
139. All the claims of the plaintiff in these proceedings must be dismissed.
Irish Pensions Trust Ltd v CRC
, unreported, High Court, Kelly J., March 18, 2005JUDGMENT of Mr. Justice Kelly delivered the 18th day of March, 2005
THE ISSUE
The plaintiff is the trustee of the Central Remedial Clinic Pension and Death Benefit Scheme (the scheme).
As is usual in such schemes provision is made for the escalation or increase of pension payments to the members. That much is not in dispute. Neither is there any dispute as to the fact that the headline rate of such increase is 5% per annum.
The matter that is in dispute is whether this escalation or increase is subject to what is called a “CPI Cap”. Such a cap, if it operates, limits pension increases by reference to the Consumer Price Index.
If the cap does not apply it is as a result of the adoption of special rules for the scheme in July 1993. It is argued that insofar as they purport to permit of an increase without the CPI Cap they ought to be rectified or alternatively set aside so that the scheme may continue to operate with such a cap.
BACKGROUND
The plaintiff carries on business as trustee of occupational pensions schemes. One of the schemes for which it acts in that capacity is the scheme. The sponsoring employer of the scheme is the first defendant (CRC) which is a charitable body established in 1951. Prior to November, 1998, the plaintiff acted as the administrator, actuary, documentation draftsman and consultant to the scheme in addition to fulfilling its role as trustee. In November, 1998, all aspects of the plaintiff’s business with the exception of trustee services were transferred to the third name defendant, (Mercer).
The above accounts for the joinder of all of the parties to this suit save the second named defendant (Mr. Tierney). He was joined as a representative defendant on behalf of pensioners of the CRC who are in receipt of pensions at present.
The reason for joining Mr. Tierney arises as follows. The plaintiff contends that the escalation rights of pensioners are and were always intended to be capped at the applicable rate of the CPI since a pensioner’s retirement date. If the plaintiff is wrong in this contention then an escalation entitlement of 5% per annum compound would apply without any CPI Cap. This has serious ramifications for the solvency of the scheme and could ultimately lead to its winding up. The scheme would not have sufficient assets to meet the totality of its liabilities to its members in such circumstances. This is because escalation rights uncapped by reference to the CPI have not been funded for to date either by the employer’s contributions or the contributions of active members.
Liabilities to current pensioners enjoy first priority on a winding up. If such were to occur, members of the scheme currently in receipt of pension payments, i.e. pensioners in payment, would be entitled to receive 100% of their benefits including escalation rights. Thus pensioners in payment have a clear interest in arguing that the CPI Cap should not apply because it would be more beneficial to their pension payments in the short term and they would receive 100% of their benefits in the event of a winding up. Pensioners in payment are the only persons in whose interests an argument for the absence of a CPI Cap could be made.
Escalation rights uncapped by reference to CPI would have to be funded by substantially increased contributions from both the first defendant and active members of the scheme. Their contributions would have to increase dramatically over a short period so as to ensure that such enhanced benefits could be paid. Given the amount of such increases it is more likely that the scheme would be wound up to their ultimate disadvantage. Thus Mr. Tierney was joined to argue in favour of an escalation clause which is not capped by reference to the CPI. He is being indemnified as to his legal costs by the plaintiff.
THE MAIN AFFIDAVIT
The principal grounding affidavit is sixty pages long and runs to 245 paragraphs. It was sworn by Mr. Tom Molloy, the managing director of the plaintiff. He commenced working with the plaintiff in 1971 and so has well in excess of thirty years business experience with it. It is quite clear that an enormous amount of research was done in order to ensure that all relevant information was placed before the Court on this application. It is not necessary for me to rehearse in detail all of the matter dealt with in the extensive evidence placed before the Court. I will content myself with a recital of what I perceive to be the relevant factual matters pertinent to the reliefs which are claimed.
THE PLAINTIFF
The plaintiff was formed in 1953 and is thus one of the longest established service providers in the Irish pensions market. Prior to November 1998, when the plaintiff’s business with the exception of trustee services was transferred to Mercer, the plaintiff was providing a comprehensive pensions service. Typically an employer who wished to establish a pension scheme would approach the plaintiff who would then provide a range of services. They included advice in respect of the design of the scheme to be established, the drafting and settling of the scheme documents, preparation of material to communicate with the employees, arranging of insurances and investments necessary for the scheme and its administration by, inter alia, effecting pension payments on a continuing basis. If requested the plaintiff also acted as trustee of the scheme.
Since the transfer of the bulk of the plaintiff’s business to Mercer it has carried on the business of acting as a trustee of pension schemes. At present it acts as trustee for approximately 550 self administered pension schemes.
OCCUPATIONAL PENSION SCHEMES
An occupational pension scheme is constituted as a trust. The beneficiaries of the trust are the present and future employees of the employer in respect of which the scheme is established who are eligible and who participate in it together with their dependants. The assets of the trust are contributed by both the employer and to a lesser extent the employee.
Retirement benefits under a scheme may be granted on a defined benefit basis or on a defined contribution basis.
In a defined benefit scheme the retirement benefit is based on a promise to pay a certain level of pension. The amount of such benefit is often based on the number of years a member has participated in the scheme multiplied by a fraction (usually one sixtieth) of the members final pensionable salary. Thus if a member has participated in a defined benefit scheme for thirty years his or her retirement benefit would be thirty sixtieths. The maximum retirement benefit which the Revenue Commissioners approve is forty sixtieths of final remuneration. The scheme which is the subject of these proceedings is a defined benefit scheme. It is therefore not necessary to deal in any detail with a defined contribution scheme save to say that such a scheme is not based on a promise to pay a certain level of pension but rather on the value of the member’s retirement account. That is made up of the benefits accrued to the investment of the contributions made to that account by both the employer and the employee.
REVENUE IMPLICATIONS
In order for a pension scheme to attract tax advantages it has to obtain the approval of the Revenue Commissioners as an exempt approved scheme pursuant to the relevant tax legislation. Crucial to the success of a pension scheme is the availability of tax reliefs.
Employees are entitled to tax relief on contributions made subject to certain limits and the employers contributions are not assessed as income of the employee. Normally an employer’s contributions are deductible for tax purposes as an expense in the year in which they are paid but this is not relevant to the scheme in suit because CRC is a charity.
The statutory regime for the approval of occupational pension schemes was formerly contained in Chapter II Part I of the Finance Act, 1972 and is now principally contained in Part 30 Chapter 1 of the Taxes Consolidation Act, 1997. Over the years the Revenue Commissioners established guidelines which indicated the conditions which must be met by an occupational pension scheme before it could be approved. These guidelines were originally contained in a revenue publication called “Occupational Pension Schemes: Notes on approval under the Finance Act, 1972”. These notes were updated regularly. These guidance notes and the updates have now been superseded by a document known as the “Revenue Pensions Manual”. I will refer to all of these documents in the course of this judgment as “the Revenue Guidelines”.
DOCUMENTS
The 1972 Finance Act introduced a new regime for the tax treatment of occupational pension schemes. When that Act commenced the plaintiff had up to 2500 pension schemes which had to be converted in order to meet with Revenue approval under the new statutory regime. That involved either amending the documents to ensure the schemes would be approved schemes under the 1972 Act or re-documenting benefits. At the time of the 1972 legislation coming into force the plaintiff was then setting up approximately 15 – 20 new pension schemes per month.
For understandable reasons the plaintiff wished to have all its schemes documented on a standard basis. Accordingly it designed a series of documents which are referred to as “governing documents” which would be applicable for every scheme with which the plaintiff is involved. These documents consist of:-
a. An interim trust deed
b. A declaration of trust
c. A subscribers agreement form between the employer and the trustee
d. A deed of amendment
e. General rules
f. Members notifications (particularly explanatory booklets) given to members of the scheme from time to time.
g. Special rules
h. Additional special rules
The plaintiff executed an interim deed on 13th October, 1972, followed by a declaration of trust on 15th January, 1975, establishing what was known as the “IPT retirement benefits trust”. The declaration of trust was amended by a deed of amendment on 2nd August, 1977.
The purpose of the interim deed was to provide existing schemes of the plaintiff with a trust framework whose terms would ensure they could enjoy approval under the Finance Act, 1972, until such time as the declaration of trust was executed and approved. The declaration of trust consists of a set of standard terms for governing and administering any number of different pension schemes with individual scheme designs. It is a central trust to which many employers establishing pension schemes with the plaintiff subscribed.
Under clause 1 of the declaration of trust the plaintiff “offers to act as trustee of schemes for the provision of relevant benefits as defined in s. 13(1) of the 1972 Finance Act arranged by any employers for the benefit of their employees and to establish trust funds for the purpose of securing benefits under such schemes”.
Under clause 2 of the declaration of trust an employer wishing to establish a pension scheme entered into a written agreement with the plaintiff establishing a pension scheme to be governed by and administered in accordance with the declaration of trust. The employer completes a form known as a “subscribers agreement form” and thus is established a separate plan for each employer. Hundreds of such plans have been established with the plaintiff over time. Each plan is established under the trust, such being a requirement for Revenue approval.
The documents constituting the scheme include a set of rules known as “the general rules” which are scheduled to the declaration of trust. These general rules contain enabling provisions in respect of inter alia admission to membership, contributions payable and benefits payable.
As I have pointed out the declaration of trust is a standard document which is intended to govern different schemes with a variety of designs. Similarly the general rules make standard provisions regarding design and administration of benefits under the declaration of trust. Both these documents are designed to fulfil two functions. They provide a mechanism whereby specific provisions can be adopted to govern a specific scheme and they also provide a standard set of provisions which can govern any scheme to the extent that no alternative provision is specifically adopted.
Under clause 4 of the declaration of trust special rules may be adopted which, in relation to a scheme, can have the effect of altering, extending, amending or modifying provisions of the declaration of trust or the general rules or indeed any previously adopted special rules relating to the scheme.
Clause 6(b) of the declaration of trust provides that:-
“A members notification containing such information as is required to be supplied to a member under the rules shall be given in writing to the member by the trustee or, with the consent of the trustee by the employer, and shall be titled in accordance with the agreement and shall be regarded as forming part of the trusts of the plan”.
This clause has to be read in conjunction with general rule 4(a) which insofar as it is relevant provides as follows:
“Subject to the provisions of the rules…there shall be provided in respect of a member such of the benefits as are subsequently described in the rules…each such benefit, if any, being of such amount or at such rate as the employer with the consent of the trustee shall in its absolute discretion decide and shall have been specified by members notification, provided that unless the employer in consultation with the trustee shall otherwise determine and the member shall be so notified in the case of a specified member, the amount or rate of any such benefit shall, subject to the aforesaid provisions, be as set out in the special rules”.
The provisions are of some importance as will be shown later.
I should explain that a specified member is one who has been admitted to the scheme under a special rule which defines a category of employees who are entitled to be members, as opposed to one who has been admitted to the scheme because the employer has, in its discretion, decided to admit them. All of the members of the instant scheme are “specified members”. The provisions of rule 4 which allow members notifications to specify the amount or rate of any benefit are supplemented in some specific cases by other general rules. In particular, normal pension date is defined in general rule 1 as the date specified in the members notification and in the special rules for specified members.
In general the terms on which the Revenue Commissioners will approve a scheme are intended to ensure that the benefits which the scheme provides are not excessive having regard to both the level of earnings and the length of service of the scheme members. Thus the maximum pension which can be paid on retirement at the normal retiring age is two thirds of final remuneration.
During the period under consideration there were two forms of Revenue approval. The first was interim approval which would be given upon the establishment of a scheme subject to compliance with certain basic requirements. Final approval was given only when the Revenue Commissioners approved the scheme in its entirety. Such approval almost invariably occurred years after the obtaining of interim approval.
PENSION ESCALATION
Whenever a pension scheme is designed, one of the questions which falls for decision is whether cost of living increases should be awarded while pensions are in payment. In times of high inflation such as the 1970’s and 1980’s many employers wished to do what they could to protect pensioners from the effects of inflation. Understandably, however, they were not prepared to undertake an open ended liability to pay inflation linked increases. A variety of approaches were adopted. Some gave no pension increases at all. Others made a commitment in the scheme rules to providing annual increases which might be at a fixed annual rate or at a rate depending on the consumer price index or at a rate depending on pay increases granted to the employers currently serving employees. Other schemes opted to make no formal commitment to giving pension increases but rather provided for increases which were discretionary.
In some cases a combination approach was adopted. In such cases a scheme would typically provide for increases in line with the consumer price index but capped at a specified level, for example, 5%. Others might provide a guaranteed increase of, for example, 3% per annum but with discretionary increases if inflation was higher and the funding level of the scheme permitted.
Even with discretionary increases however, if there was an intention on the part of the employer to grant any such increases, it would have to be taken into account in calculating the contributions to be paid in respect of the scheme. If that were not done then the scheme would run the risk of having insufficient funds to provide pension increases.
Promised benefits require to be pre-funded. This is so even though the increases may not be granted until the member has retired and is in receipt of pension. A possibility that increases might be granted is normally recognised and contribution rates are fixed accordingly at the time when the member is in employment and contributions are being paid in respect of him.
The Revenue Guidelines made their position in relation to increases in pensions clear. These have been reflected in the general rules. I will have more to say on this later in the judgment.
ESTABLISHMENT AND ADMINISTRATION OF PENSION SCHEMES
The evidence satisfies me that in the establishment and administration of pension schemes a number of specific steps are typically taken. The first can be called the drafting process. That involves seven different stages. They are:-
(a) The plaintiff’s consultant meeting with the client for instructions,
(b) The completion of a subscribers agreement form to establish the scheme,
(c) The completion of a lead sheet by a new business consultant,
(d) The transmission of that lead sheet to the legal and administration department of the plaintiff,
(e) The drafting of explanatory booklets in consultation with the client,
(f) The review of and finalising of the explanatory booklets with the client employer,
(g) Thereafter drafting and finalising special rules.
Normally the legal and administration department of the plaintiff was responsible for drafting the special rules and the explanatory booklet for each scheme after the scheme consultant had taken instructions for the employer in respect of the schemes design. There were standard template documents for the explanatory booklets and special rules which were used by the plaintiff. The steps taken are set out in great detail in the affidavit of Mr. Molloy. I accept his evidence in that regard and it is not necessary for me to reproduce what he has to say in detail.
On the topic of increases in pensions and the Revenue Guidelines I am satisfied that during the 1970’s there was considerable discussion and indeed confusion within the industry about pension increases, the level they should be provided at and how they would be funded. It was recognised that employers could not give open ended promises in respect of escalation and that therefore increases would have to be capped. During the mid-1970’s there were discussions between the plaintiff and the Revenue Commissioners as a result of which it was decided that increases for a pension could be pre-funded up to 3%. Later it was obvious that 3% would be insufficient having regard to prevailing inflation rates. The approval of the Revenue Commissioners was sought to pre-fund for up to 5% increases. The Revenue Commissioners agreed with 5% pre-funding of increases provided that they were capped by reference to CPI increases if 5% was promised. This meant that employers could pre-fund for increases and could automatically pay fixed increases up to 3% even if the cost of living index fell below 3%. If however they wanted to pre-fund and pay increases of up to 5% a CPI cap had to apply.
As I have already pointed out under clause 4 of the declaration of trust, special rules may be adopted. Strictly speaking such special rules amend the general rules but they are more generally regarded as supplementary to them. Normally they were drafted some considerable time after the explanatory booklet and shortly before final approval was obtained from the Revenue. These special rules were usually drafted using a template document. Rarely did their drafting require direct contact with the employer because they were highly technical documents and so the employer did not need to have any involvement with them. Generally the special rules were not sent to members of the scheme because there was no requirement to do so. In any event their highly technical nature was unlikely to advance to any great extent the knowledge of the member of the scheme. Much greater attention was given to the explanatory booklet. That was so for two reasons. First, the explanatory booklet antedated the special rules and secondly, and more importantly, it was that booklet that was intended to inform members of the terms of the scheme and the benefits which they would enjoy thereunder.
MEMBER’S NOTIFICATION
I have already pointed out that clause 6(b) of the declaration of trust provides that a member’s notification containing such information as is required to be supplied to a member under the rules shall be given in writing to the member by the trustee or, with the consent of the trustee, by the employer. Once it is given it is to be regarded as forming part of the trusts of the plan.
A scheme had to issue a document in the nature of an explanatory booklet as a pre-condition to obtaining interim approval from the Revenue.
Clause 3 of the declaration of trust defines a member’s notification as “such notification or notifications as shall have been given to the member as required under the rules”. The same clause defines “rules” as meaning the general rules or the special rules.
I have already reproduced the relevant part of general rule 4(a). General rules 4(b) and (c) provides:-
“The trustee may, with the consent of the subscriber, augment any of the benefits including pensions in payment to which any person may be entitled under the rules.
(c) Any benefits so provided and any other benefits or forms of benefit derived therefrom shall be subject to such of the limitations set out in general rule 14 as may be appropriate and such limitations as may be necessary to comply with the terms of the general undertaking or any other undertaking or undertakings given to the Revenue Commissioners by the trustee or an administrator appointed by the trustee under the provisions of clause 6(h) of the deed.”
It is argued that the explanatory booklets are “member’s notifications”. They are required under the rules of the scheme in order to obtain interim approval and now in any event are required under the provisions of the Pensions Act, 1990. I will deal with this argument later.
LOGISTICAL PROBLEMS AND ESCALATION
In the early 1990’s the plaintiff’s documentation department was in serious arrears. Its backlog had important consequences. A number of schemes were operating without complete documentation in place and so were unable to obtain final Revenue approval. The introduction of the Pensions Act, 1990, coupled with the increasing number of self-invested schemes brought with them a new set of requirements which imposed significant new regulatory and compliance demands on occupational pension schemes. This required the plaintiff to draft a new set of template documents to reflect the provisions in the new legislation. At that time also the Central Bank was putting pressure on investment managers of schemes operated by entities other than insurance companies to ensure that compliance obligations with regard to the required formal and final Revenue approval were met. Thus dealing with a documentary backlog became a priority for the plaintiff.
This problem was not unique to the plaintiff but was an industry wide one. The logistics involved in dealing with this difficulty were substantial because the plaintiff acted for 550 large pension schemes and 1,500 smaller schemes. Whilst dealing with this documentary backlog became a priority for the plaintiff but it must be said still took a considerable time to resolve.
In 1997 the legal department of the plaintiff carried out a review of the standard documents. By September of that year 425 separate schemes had been examined. Of those 236 had no escalation provision whilst 156 did. 33 more were schemes formerly administered by another company which were not established pursuant to the plaintiff’s retirements’ benefits trust and so were not governed by the same documents. Of the 156 schemes with escalation provisions some involved semi-State companies in respect of which civil service parity rules applied. 60 schemes provided for fixed escalation at the level of 3% or less. A further 60 schemes were identified as providing escalation at levels higher than 3% but in these cases the review suggested that the scheme documentation included references to escalation provisions being capped.
Of the 425 schemes reviewed and the 156 which were identified as having escalation provision, 26 were identified as providing for escalation at levels above 3% in circumstances where the explanatory booklets confirmed a CPI cap but the special rules read in isolation did not. It was thought that these schemes had been drafted on the basis that general rule 14.9 applied. It had been thought that that rule operated to impose a CPI cap. That was a view which had been held widely amongst employees of the plaintiff but was not considered to be accurate. It was therefore recommended that the position concerning these 26 schemes should be reviewed further.
It is convenient here that I should deal with the provisions of general rule 14 and in particular rule 14.9.
GENERAL RULE 14
This provides that:-
“Any benefit payable to a member or to his beneficiary or personal representatives or dependants shall not…exceed the relevant maximum set out below or such other amount as will not prejudice approval of the plan under the Act (chapter (ii) part 1 of the Finance Act, 1972).”
There then follows, in summary form, a statement of the maximum benefits which the Revenue Commissioners will approve on retirement at the normal age, on early retirement, on late retirement and in various other circumstances.
General rule 14.9 summarises the Revenue Guidelines with regard to escalation rights. It provides:-
“Post Retirement Increases.
This maximum applies only when a particular benefit as increased by post retirement increases under all employers’ schemes already equals the appropriate maximum for that benefit as set out in the foregoing paragraphs. Subject thereto it is an amount proportionate (by reference to the maximum for that particular benefit, reduced in the case of the member’s pension by any part of such pension which he has surrendered for a dependant’s pension, so increased under all employers’ schemes) to the increase in the index covering the period from the date of the members retirement or earlier commencement of pension under sub-rule (c) of general rule 11 or death, or, if arising under general rule 12 from the date of leaving service, to the commencement date of the increase, except that if it is limited to not more than 3% per annum compound on such maximum, the benefit shall not be reduced to take account of a fall in the index.”
The evidence satisfies me that there was a general misapprehension that this rule operated to set a cap with regard to escalation. The correct view is that it did so only in respect of a pension that had reached the maximum permitted by the Revenue. It did not operate in respect of a pension which had not reached such a maximum. It seems to me that there was the mistaken belief on the part of the plaintiff that the CPI cap applied to any pension in respect of which general rule 14.9 was applicable. It was taken as mirroring the Revenue Guidelines.
The presence of general rule 14.9 also played a significant part in the mistake which occurred when the special rule in suit was adopted by CRC. I will deal with this aspect of the matter at the appropriate place in the judgment.
SOLVING THE PROBLEM
By January, 1998, a total of 36 plans were identified where the issue of CPI capping merited further investigation. Unfortunately little progress was made during 1998 and the same obtained for a substantial part of 1999. It was in October of that year that a lawyer in Mercer which had now assumed all of the activities of the plaintiff except its trusteeship was appointed to review the escalation issue from a documentation perspective and seek a resolution of the matter. It was her report in February, 2000, that resulted in Senior Counsel being instructed on the matter. Counsel’s advice was obtained and a further review was carried out in 2001. Over the following few years further research was done with a view to trying to obtain clarity on the issue and ultimately the present proceedings were commenced on 21st May, 2004.
To date I have dealt for the most part with the activities of the plaintiff in relation to occupational pension schemes in general. I must now turn to the particular history of the scheme in suit. Again very detailed information is put before the court not merely in the affidavit of Mr. Molloy but also in the affidavit of Mr. Paul Kenny (Mr. Kenny) who is the present pensions’ ombudsman. He was employed within the consultancy department of the plaintiff from 1972 to 1988 and was responsible inter alia in the 1970’s and early 1980’s for the scheme. He was the main contact in the plaintiff’s organisation for the scheme at the time of its establishment. Evidence is also put before the court by Mr. Mortimer, who was a consultant to CRC between 1987 and1994.
THE SCHEME
CRC began to establish retirement benefits for employees as far back as 1962. A trust deed was executed in respect of its first scheme in March of that year. Escalation rights were not mentioned in that trust deed and were not provided for as a benefit by CRC until after 1977.
Following the enactment of the Finance Act of 1972, CRC established the scheme with effect from the 1st December, 1974. It did so by virtue of a subscribers agreement form. Interim approval for the scheme was sought from the Revenue on 4th April, 1975. A second scheme was established from 1st June, 1975, which comprised the 1961 scheme and two further schemes.
In March 1977, at a meeting attended by Mr. Kenny it was agreed that CRC’s pension schemes which were then in operation should be merged and that 1st January, 1977, should be the effective date of this amalgamation. Rather than establish an entirely new scheme the merger was effected by winding up the 1975 scheme and transferring its members into the scheme.
Special rules had not been executed at that time and so final Revenue approval was not obtained. In April, 1979, the plaintiff wrote to the Revenue Commissioners stating that they were enclosing a subscriber’s agreement form and explanatory booklet which had been issued to members. The Revenue Commissioners were asked to confirm final approval of the scheme.
The Revenue Commissioners replied that a subscriber’s agreement form of the 1st April, 1975, had already been submitted to them (on 5th April, 1975) and that the form enclosed with the April, 1979, letter was an associated companies agreement form. The Revenue also pointed out that there was a discrepancy between the effective date as stated in the subscriber’s agreement form and the explanatory booklet. There was obviously a good deal of confusion which was contributed to by the fact that the scheme came about as a result of an amalgamation of a number of existing schemes.
The ultimate obtaining of Revenue approval was a lengthy process to put it mildly. Final approval was forthcoming on 10th November, 1993.
The scheme was governed by the plaintiff’s declaration of trust which was used for the operation of many schemes which I have already described earlier in this judgment. General rules 9 and 14.9 dealt with escalation rights. General rule 9 reads as follow:-
“Post Retirement Increases.
(a) Any pension in course of payment, whether to a member or to a dependant of a member, may be increased annually or at such other intervals as the trustee shall determine after the commencement of such pension by such amount as the employer with the consent of the trustee shall decide.
(b) Such pension increments shall be payable with the normal instalments of pension and shall terminate when the normal instalments cease.
(c) No part of any pension under this rule which exceeds the maximum members pension set out in general rule 14, such maximum being exclusive of that relating to post retirement increases, shall be capable of commutation under sub-rule (a) of general rule 6. In all other respects any pension under this rule shall be subject mutatis mutandis to the provisions of the rules as though it were part of the pension being increased.”
I have already set forth rule 14.9 of the general rules. It sets out the terms of the Revenue Guidelines applicable to escalation rights at the time when the general rules were adopted. Those Revenue Guidelines are today substantially the same as they were when the general rules were adopted in January, 1975.
THE EXPLANATORY BOOKLETS
Over the years explanatory booklets have been issued to employees from time to time. The first such booklet which was issued in respect of the scheme and which referred to escalation was in 1978. That is not surprising since escalation was not provided for as a benefit until after 1977. The 1978 explanatory booklet states as follows in respect of escalation rights:-
“Pensions and Rising Prices.
Prices seem to be always rising and people on fixed incomes feel the strain most; this plan, therefore, provides for increases to your pension (i.e. the pension which is remaining after any exercise by you of the option to take cash rather than pension). These increases will be given annually at the rate of 5% p.a. compound, provided that such an increase does not exceed the percentage increase in the official cost of living index since your normal pension date.”
Explanatory booklets were also issued in 1992, 1996 and 2001. All of these explanatory booklets contained statements which were consistent with that of the 1978 booklet in respect of pension increases of 5% per annum compound but subject to such an increase not exceeding the percentage increase in the consumer price index since the pensioners normal pension date.
THE 1993 SPECIAL RULES
It was not until the 9th of July, 1993, that the special rules for the scheme were adopted. As I have already pointed out such a delay is not unusual. Special rules were normally executed in the context of obtaining final approval from the Revenue. This case was no exception.
Special rule 10 provides as follows:-
“The pension as computed under special rule 4 of a member who attains normal pension date on or subsequent to 1st January, 1977, but after the payment of any lump sum in lieu of so much pension as shall have been agreed shall be increased by 5% per annum compound.”
It is of course this special rule that has given rise to the present difficulty. The rule purports to set an escalation rate of 5% per annum compound. It also purports to be applicable to any person who attains their normal pension date on or after 1st January, 1977. Accordingly it purports to be retrospective in effect.
There is no evidence demonstrating that the special rules were drafted in consultation with CRC or Mr. Kenny. Neither is there evidence that the provisions in the special rules in relation to escalation were discussed with them. Arguably more importantly however, there is no evidence that they were the product of a decision on the part of CRC to enhance the escalation rights of members beyond that set out in the original explanatory booklet, still less to do so with effect from 1977. The omission from the special rules of a reference to the CPI cap does not on the evidence reflect the original intention of the scheme insofar as it can be gleaned from the explanatory booklets or the other contemporaneous documentation which is available.
The 1993 special rules were recommended by the plaintiff to be executed by CRC so as to enable final approval to be obtained from the Revenue. In fact the special rules were formally approved by the Revenue before they were executed by CRC. However, the Revenue made it clear that whilst they had approved the draft special rules, formal approval would not issue until adoption by CRC. The special rules were sent to CRC in February, 1992, but were lost and fresh copies were requested in mid 1993.
In any event the special rules were adopted.
There is no explanation to be found in the contemporaneous documents giving any indication as to why the special rules differed from the explanatory booklets. Neither is there anything to suggest that there was the slightest change in practice in relation to the administration of the scheme subsequent to the execution of the special rules. For example, the plaintiff’s reports for 1993 through 1998 all contain a statement to the effect that post-retirement pension increases were payable at the rate of 5% per annum compound subject to that increase not exceeding the percentage increase in the CPI. The plaintiff’s report for 1999 spoke of the average increase over the year of pensions in payment as being 1.5%. The CPI in that period was 1.6%. In the plaintiff’s report for 2000 it spoke of the average increase over the year of pensions in payment as being 5%. The CPI figure for that period was 5.6%.
The thrust of the evidence is that prior and subsequent to the 1993 special rules the scheme has been operated on the basis that its members were entitled to the escalation rights specified in the explanatory booklets.
CONTRIBUTION RATES
As I have already pointed out pensions are funded through contributions from the employer and employee. The contribution rate is expressed as a percentage of the employer’s pensionable salary roll. Employee contributions are normally expressed as a percentage of the employee’s pensionable salary. These are taken into account by the scheme actuary when determining the employer’s contribution rate. The rate of contribution in defined benefit schemes such as the scheme is set by the actuary based on assumptions agreed between the plaintiff and the employer regarding the necessary level of funding to provide the benefits promised under the scheme. The contribution rate is normally reviewed every three years.
The evidence in this case is that between the period from 1984 to 2003 the total contribution rate remained fairly constant, at about 18% to 19%. There was no change subsequent to the execution of the 1993 special rules. Indeed it is interesting that the actuarial report for 1993 and the draft actuarial report for 1996 recommended decreases in the level of employer contributions. These recommendations were however ignored and a total contribution rate of 19% was maintained.
I am satisfied that if the intention at the time of execution of the special rules in 1993 was to amend the scheme by providing fixed increases at 5% this would have required an increase in contribution levels. Rather than recommending an increase in contribution rates the plaintiff actually recommended a decrease. This suggests that there was no intention in 1993 to alter the existing escalation rights of members.
PENSION PAYMENTS
Evidence has been put before the court of what has been the practice in respect of the payment of pensions. The only relevant payments are those in respect of persons who retired in 1992 and later. That is so because persons who retired prior to 1992 had annuities purchased for them. Subsequent thereto pensioners in payment had their benefits funded directly out of the assets of the scheme. With a single exception all have been paid on the basis of the CPI cap being applicable. The one exception was the first recipient of a pension payment directly from the assets of the scheme. That pensioner was paid a pension which escalated at 5% compound until 1996 and from there on the increases were capped at CPI. The correspondence suggests that there was some confusion within the plaintiff as to the pension entitlements of this pensioner. However, she was written to and was told that her pension was subject to the CPI cap and appears to have accepted that. Every other pensioner was paid in accordance with the terms of the explanatory books.
LEAD SHEETS
I have already referred to the completion of a lead sheet by a new business consultant at para. (c) dealing with the establishment and administration of pensions schemes. These lead sheets are filled out in an effort to record the requirements or instructions of a client in relation to the establishment or amendment of a pension scheme.
A review of the lead sheets in respect of the scheme has taken place and they throw a little light on the escalation question.
The earliest lead sheets contain either the letters “N/A” or “Nil” in the sections relating to escalation. They appear to date from some time before February 1976. It is not surprising that they would contain such a legend because of course at that time escalation was not provided for as a benefit in the scheme.
A lead sheet of the 19th August, 1977 records that the non commuted pension is to be escalated at a rate of 5% per annum compound and it also includes a manuscript addition which provides that that is subject to a CPI cap since normal pension date. It is not possible to say when that manuscript addition was effected. However, another version or copy of the same document does not refer to the CPI cap. Mr. Kenny in his affidavit said that he completed the original version of this lead sheet but that the manuscript addition referring to a CPI Cap was an additional note not in his handwriting. He thinks it may have been inserted at a later stage by personnel in the administration department in order to clarify the position in respect of escalation.
In the drafting file relating to the scheme the only lead sheet which was on it was a version of the lead sheet of the 19th August 1977 which had no reference to a CPI Cap. Accordingly although there was a lead sheet for the scheme which expressly referred to escalation capped by the CPI that was not contained on the drafting file. Nobody can say when the reference to CPI was added to the lead sheet of the 19th August 1977 nor can it be said whether at the time of the drafting of the special rule there was in existence a lead sheet which contained a reference to the CPI Cap.
The nett effect therefore is that the special rules were consistent with the lead sheets on the drafting file for the scheme. They made no reference to a cap on escalation. That however was not the case in respect of the lead sheets on the administration files one of which at least has a reference to the 5% increase being subject to the CPI Cap.
THE EVIDENCE OF CRC
The Chief Executive of the CRC (Mr. Kiely) swore an affidavit in the proceedings. He began his career with CRC in January of 1977 as an assistant accountant. A few years later he became the accountant then assistant administrator, administrator and ultimately Chief Executive in 1988.
When he began to work for the CRC the scheme was already in place.
I do not propose to lengthen an already long judgment by a detailed recital of the evidence given by Mr. Kiely. It is quite clear that he has carried out extensive investigation and has located any documents of relevance which may throw light on the topic in suit.
He deals as far as is possible with the circumstances in which the special rules came to be executed.
It seems highly unlikely that there was any discussion in respect of the escalation provisions in the special rules at the time of execution.
Prior to execution Mr. Kiely sought advice from Mr. Ernest Goulding who was a member of the clinic and had some expertise in the area of pensions. Mr. Goulding apparently gave advice but I think on the evidence it is unlikely that he communicated any advice in respect of the escalation provisions of the special rules.
CRC has I am satisfied always relied upon the advice correspondence and documents furnished by the plaintiff in respect of the terms conditions and benefits pursuant to the scheme. I am satisfied that it has particularly relied upon the explanatory booklets furnished by the plaintiff over the years. I am also satisfied that CRC has always been of the understanding that the increase in benefit provided under the scheme was 5% per annum compound provided that such increase did not exceed the CPI. The same booklets were supplied to all the members of scheme who received like information.
I am also satisfied on the evidence that although the plaintiff knew of a potential difficulty concerning escalation rights since at least 1997 it did not inform CRC of that until late 2003 or early 2004. During all of that time CRC continued to fund the plan on the same basis that it had always done.
The evidence also satisfies me that all of funding arrangements undertaken by CRC were on the basis of the CPI Cap being applicable to any increase in benefits under the scheme. If there were an unqualified 5% per annum compound increase applicable then I am satisfied that the fund is significantly under funded and that CRC would as a matter of probability not be in a position to meet the deficit.
An affidavit was also sworn by Mr. Ray McLoughlin (Mr. McLoughlin) the former administrator of CRC but he retired in 1980 and cannot assist on the issue before the court.
THE EVIDENCE OF MERCER.
Mercer is a late arrival on the scene since it only became involved with the scheme in 2000. Since its arrival it has at all times proceeded on the understanding that the appropriate escalation rate has been capped by reference to the CPI.
Such evidence as it gives is confirmatory of both factual matter and the expressions of opinion contained in the affidavit of Mr. Molloy.
There is also an affidavit from Mr. Mortimer who is at present an employee of Mercer’s. He is a former employee of the plaintiff and worked for it for 20 years from 1978 until November 1998. He transferred to Mercer at that time.
He gives evidence confirmatory of what is sworn to by Mr. Kenny and says that he is in no doubt that in general it was the explanatory booklets that accurately reflected the intention of employers and that insofar as there is any difference between such booklets and the special rules it is the former that reliance would have been placed on by all concerned.
As far as he can recollect there were no changes aside from those prescribed by law in the benefit structure of the scheme during his period as its consultant. He has a recollection of the special rules being executed in 1993. He has however no recollection of discussing those with CRC in any great detail. He does not believe that there was any intention to change, by the adoption of the special rules in 1993, the benefit structure regarding escalation or otherwise which had been in place and reflected in the explanatory booklets of 1978 and 1992. Neither can he recall any intention to alter the position as having been expressed to him by CRC. In fact he says his abiding memory of CRC was that it was very concerned about cost curtailment given its charitable status. He is of the belief that it would have been important to CRC to have its liabilities in respect of escalation subject to a CPI Cap.
THE EVIDENCE OF MR. TIERNEY
Mr. Tierney is the sole party to this litigation who opposes the reliefs sought by the plaintiff. It is therefore important to set forth his evidence in some detail.
He is a retired member of the staff of CRC and is in receipt of a pension under the scheme. He was joined in the action to represent the interest of retired members of the staff who are in receipt of pensions under the scheme.
He was born in 1930 and began work with CRC some days short of his 38th birthday. He reach retirement age in 1995. He retired from the post of transport manager. He had 27 years service at that stage.
His final pensionable salary was £17,012.00 which yielded a pension of £7,626.00 per annum. He exercised an option to commute up to 25% of his pension in exchange for a tax free cash lump sum of £25,518.00. That left him with a reduced personal pension of £4,821.00 per annum. Those terms were notified to him and he accepted them.
In the letter notifying him of these entitlements there was no mention of any escalation in his pension benefits. However he says he was aware and relied on the fact that there were escalation provisions included in his pension which were referred to as “a hedge against inflation”.
He swore that he had an understanding that his pension would increase by a minimum of 5% per annum year on year once the pension was in the course of payment and commencing on the first anniversary of his retirement in October 1996. However, he says he never checked his pension payment details nor would he question CRC or the plaintiff in that regard. He relied instead on the trust and confidence which he placed in them in respect of financial matters. He says and I accept that he has a fairly straight forward approach to personal finances and that includes living within his means whatever those means are. That view is shared by his wife.
When he joined CRC there were no pension arrangements for staff. In the early 1970’s discussion took place about the provision of retirement benefits. Mr. McLoughlin was instrumental in proposing that the plaintiff should provide retirement benefits for the staff of CRC. That was a progressive development and was received with great enthusiasm. Mr. Tierney has no recollection of any negotiations which took place in respect of the benefits which were subsequently agreed. I have no doubt but that his recollection to the effect that the introduction of the scheme was gratefully received by the employees is correct. It represented security into retirement for employees at a time when pension benefits in retirement were not the norm and were generally reserved for more senior executives.
Paragraphs 13 and 14 of his affidavit read as follows:
(13) “When agreed employees were advised of the benefits of the plan and eventually given details of what was covered in an explanatory booklet which set out the various benefits which would be enjoyed. I distinctly remember that it was a term of the said plan that after retirement, once the pension was in the course of payment it would increase in line with that stated in the explanatory booklet, that is by 5% per annum compound.
(14) I had an opportunity to peruse this explanatory booklet just prior to swearing this affidavit and the provision contained in that booklet is as follows:-
‘Pensions and Rising Prices.
Prices seems to be always rising and people on fixed incomes feel the strain most; this plan, therefore, provides for increases to your pension i.e. the pension which is remaining after any exercise by you of the option to take cash rather than pension. These increases will be given annually at the rate of 5% p.a. compound, provided that such an increase does not exceed the percentage increase in the official cost of living index since your normal pension date.
You may elect to take the value of these increases in the form of a level increase in your pension from your normal pension date provided that such increased pension is within the limits for such pensions under current legislation’.”
It would appear clear that his recollection as sworn to at paragraph 13 of his affidavit was not in accord with what was actually contained in the explanatory book to which he refers at paragraph 14.
He received increases in his pension and the details of those are set out in the affidavit. He should have received the first such increase on the first anniversary of his retirement but it would appear that he did not. Thereafter he received increases which he said he expected to increase by 5% per annum compound. It is quite clear that he did not receive increases at that rate. It was only when he came to swear his affidavit that he realised that this was so.
Later in his affidavit he exhibits a letter written by the plaintiff to the CRC accountant concerning an employee of CRC who elected to take a paid up pension on his withdrawal from the scheme in December 1980. That letter is written by Mr. Paul Kenny and speaks of the pension escalating at a rate of 5% per annum compound from the date of retirement.
He also refers to the 1993 actuarial valuation and says that it disclosed that the assets at that date were sufficient to cover the accrued liabilities of the members and declared that the plan made provision for the pension to increase at a rate of 5% per annum compound. He avers to an actuarial investigation as at the 1st January 1996 which was carried out after his retirement date which demonstrated that the assets were sufficient to cover the accrued liabilities of the scheme. On this occasion however reference was made to the increase at a rate of 5% per annum compound being subject to CPI.
THE RELIEFS CLAIMED
The following are the reliefs sought by the plaintiff. They are:-
“1. Rectification of the 1993 special rule by the addition of the following words at the end thereof, namely:
‘Provided that such an increase shall not exceed the cumulative percentage increase in the consumer price index since the member’s normal pension date’.
2. In the alternative (but strictly without prejudice to the foregoing), an order setting aside the 1993 special rule.
3. In the further alternative, an order declaring the 1993 special rule void.
4. A declaration that the governing documents (and in particular the explanatory booklets) provided have the effect that escalation rights are to be applied year on year at the CPI capped rate of escalation or 5% per annum compound if less.
5. An order directing and authorising the trustee to provide for and make payments of any pension increases by way of escalation at the CPI capped rate of escalation.
6. A declaration that the proper construction of the governing documents with regard to escalation rights is such that the applicable provisions in the explanatory booklets prevail and accordingly that the CPI capped rate of escalation applies.
7. Without prejudice to the generality of the foregoing, a declaration that the explanatory booklets are member’s notifications and further a declaration that pursuant to the terms of general rule 4(a) the terms of the explanatory booklets (whether as member’s notifications or otherwise) prevail.
8. A declaration that the trustee is not bound to provide the escalation rights purportedly provided by special rule 10.
9. A declaration that the 1993 special rule is to be read and construed subject to the applicable provisions in the explanatory booklets so that it is deemed to be an implied term of the 1993 special rule that the escalation right expressed in the 1993 special rule is subject at all times to the CPI capped rate of escalation.”
THE CLAIM FOR RECTIFICATION
This is the principal relief which is sought.
Rectification permits the court to correct an instrument which has failed to record the actual intentions of the parties to an agreement. It is a discretionary equitable remedy.
The circumstances in which rectification is available was authoritatively considered by the Supreme Court in Irish Life Assurance Co. v. Dublin Land Security [1989] I.R. In that case Griffin J. speaking for the Supreme Court adopted the principles outlined by Lord Lowry L.C.J. in Rooney McFarland v. Carlin [1981] N.I. 138 at 146 where he said:-
“1. There must be a concluded agreement antecedent to the instrument which is sought to be rectified; but
2. The antecedent agreement need not be binding in law (for example, it need not be under seal if made by a public authority or in writing and signed by the party if relating to a sale of land) nor need it be in writing: such incidents merely help to discharge the heavy burden of proof;
3. A complete antecedent concluded agreement is not required, so long as there was prior accord on a term of a proposed agreement, outwardly expressed and communicated between the parties as in Joscelyne v. Nissen [1970] 2 Q.B. 86.”
Commenting on these priciples Griffin J. said:-
“Applying those principles to the facts of this case, and bearing in mind the heavy burden of proof that lies on those seeking rectification, the question to be addressed is whether there was convincing proof, reflected in some outward expression of accord, that the contract in writing did not represent the common continuing intention of the parties on which the court can act, and whether the plaintiff can positively show what that common intention was in relation to the provisions which the appellants say were intended to exclude the vacant lands at Palmerstown.”
All of these comments were of course made in the context of bilateral contracts.
Is the remedy of rectification available in respect of pension schemes? If it is do any different criteria apply?
The question of the availability of rectification in respect of pension schemes was dealt with by Rimer J. in Lansing Linde Limted v. Alber [2000] PLR 15. In that case he said:-
“Rectification is a discretionary equitable remedy which is available to correct the manner in which a transaction is recorded in a written instrument. It is not a remedy which is available to change the transaction itself. The need for the remedy is because it is a fact of life that sometimes mistakes arise in the drafting of documents which the signatories do not spot before they sign. The result is that they lend their names to a document which they believe and intend achieves effect X, whereas by mistake it in fact purports to achieve a different, and unintended effect, Y. Provided the requisite conditions are satisfied, the court has a discretion to correct the executed document so that it reflects the intention to achieve effect X.
There is, however, a strong presumption that a signatory of a document intends to sign it in its executed form, since the purpose of singing it is to make the document do the legal job it purports to do; and of course the signatory has every opportunity to satisfy himself before he signs it that it is in a form which meets his needs, an opportunity which responsible signatories will usually take. The jurisdiction to rectify documents is, therefore, one which is ‘cautiously watched and jealously exercised’ (Whiteside v. Whiteside & Ors. [1950] 1 Ch. 65 at 71 per Sir Raymond Evershed M.R.): and, although the question of whether or not there is a mistake in the document as executed is one which falls to be tested by reference to the civil standard of balance of probability:
‘…Convincing proof is required in order to counteract the cogent evidence of the parties’ intention displayed by the instrument itself. It is not, I think, the standard of proof which is high, so differing from the normal civil standard, but the evidential requirement needed to counteract the inherent probability that the written instrument truly represents the parties intention because it is a document signed by the party.’
(See Thomas Bates and Son Limited v. Wyndham’s Lingerie Limited [1981] 1 WLR 505, at 521, per Brightman L.J.).”
Rimer J. then went on to examine the parties intentions at the material time and whether there was any evidence of an outward expression of accord.
Whilst clearly accepting that there was jurisdiction to order rectification in respect of pension schemes the judge dismissed the claim on the evidence.
The question was raised the following year in the case of AMP (U.K.) Plc. v. Barker [2001] P.L.R. 77. That was a decision of Lawrence Collins J.
In that case the trustees of the pension scheme with the consent of the employer adopted an amendment to the rules of the scheme. It had the intended effect of increasing pension payments to those who were forced to leave work because of incapacity. However, in adopting the amendment, the trustees and the employer overlooked another provision in the scheme rules to the effect that early leavers would have the same entitlements as those leaving because of incapacity. Accordingly, the rule change with regard to incapacitated employees had the unintended effect of increasing the benefits payable to early leavers. A claim for rectification was brought.
In considering the appropriate criteria to apply the judge commented that in the case of a bilateral transaction there must be convincing proof that the concluded instrument did not represent the common intention of the parties. He commented that the policy reason for the need for convincing proof was that certainty and ready enforceability of transactions would otherwise be hindered by constant attempts to cloud the issue. He then went on to consider whether the requirements needed in order to obtain rectification differ from those applicable to bilateral transactions.
In this context he reviewed the previous case law including Joscelyne v. Nissen which was referred to by Lord Lowry in Rooney McFarland’s case and the decision of Rimer J. in the Lansing Linde case. He concluded that in the case of pension schemes it was not necessary to demonstrate the agreement or accord such as would be required in bilateral transactions. He concluded that what was required was convincing evidence of-
“A continuing common intention by the trustees and (the employer) to affect only incapacity benefits. It is clear from the factual findings that there is overwhelming evidence that their intentions were limited to improving the benefits for those leaving on account of incapacity, and they had not the slightest intention to benefit early leavers in general. If objective manifestation of their intentions is a separate requirement, then there can be no doubt that it is fulfilled in abundance”.
His judgment then went on (at para. 68) to consider what the position would be if it were in fact necessary to show a common accord between the trustee and the employer. He formed the view that if there was such a requirement it was met on the evidence.
At para. 69 of his judgment he then addressed the question as to whether the right to rectification was affected by the fact that the trustees and the board sub-committee intended to pass, or consent to, the very wording in the resolution. He said:-
“It is plain that it is not so affected. Butlin’s Settlement illustrates another general proposition in the law of rectification, which is that rectification may be available even if the parties have quite deliberately used the wording in the instrument. Brightman J. said:-
‘…Rectification is available not only in a case where particular words have been added, omitted or wrongly written as a result of careless copying or the like. It is also available where the words of the document are purposely used but it was mistakenly considered that they bore a different meaning as a matter of true construction. In such a case… the court will rectify the wording so that it expresses the true intention…’
‘Consequently rectification may be available if the document contains the very wording that it was intended to contain, but it has in law or as a matter of true construction an effect or meaning different from that which was intended: Whiteside v. Whiteside [1950] Ch. 65, 74; Grand Metropolitan Plc. v. William Hill Group Limited [1997] 1 B.C.L.C. 390.’
It is sometimes said that equitable relief against mistake is not available if the mistake relates only to the consequences of the transaction or the advantages to be gained by entering into it: cf. Whiteside v. Whiteside Supra; Gibbon v. Mitchell [1990] 1 W.L.R. 1304, 1309. This distinction seems to have been derived in the former case from the 1929 edition of Kerr on Fraud and Mistake. If anything, it is simply a formula designed to ensure that the policy involved in equitable relief is effectuated to keep it within reasonable bounds and to ensure that it is not used simply when parties are mistaken about the commercial effects of their transactions or have second thoughts about them. The cases certainly establish that relief may be available if there is a mistake as to law or the legal consequences of an agreement or settlement….”
At para. 71 of his judgment he said:-
“It is therefore quite unreal to contend that the intention of the trustees and (the employer) was simply to pass a resolution containing the words which it did in fact contain, or that they did not intend or agree to abolish the link between the calculation of benefits under rules 4.1 and 8.4(1). Nor can it be said that they intended, as was held in Lansing Linde, simply to sign anything which was put before them. The resolution was the subject of preparation, advice and discussion. It was not the result of a rubber stamping exercise, and the fact that, as a result of an oversight or of negligence it had an effect going far beyond the intentions of the trustees and the employer not only does not prevent rectification, but it is a ground for it.”
The decision in AMP is also relevant insofar as it considered the position of members of the pension scheme. A suggestion was made that they were bona fide purchasers and therefore took free from the equitable right to rectification. The judge held that pension is not a gift by the company. The employee has worked for the right to a pension and has given consideration for it. Whether or not the scheme is a contributory scheme, the payments from the scheme are part of the consideration for the services of the employee. Notwithstanding that however, it did not follow that the members were to be regarded as bona fide purchasers in respect of any additional benefits conferred upon them by the impugned amendment to the scheme rules in the AMP case. He said:-
“It is true that they gave consideration for their pension rights, but they gave no additional consideration for the ‘rights’ which the rule changes mistakenly conferred on them, and it is wholly unrealistic to treat them as purchasers of anything in the present context other than such rights as were properly granted in the rules.”
Rectification was granted.
Insofar as the approach of Lawrence Collins J. may have differed from that of Rimer J. in the two cases from which I have just cited, I prefer the approach of Lawrence Collins J. It appears to me that bilateral transactions are substantially different to transactions which create rights for persons other than the maker of the instrument but which are not the result of a bargain. I can see good sense in drawing a distinction between the former and the latter. In the case of bilateral transactions some outward expression of accord or evidence of a continuing common intention outwardly manifested is required. In the case of a pension scheme however, evidence of the intentions both of the trustees and of the employer is required but not necessarily of their agreement or accord. That approach makes sense having regard to the different nature of the transactions. It also appears to me to be in accord with the general approach which is taken to the construction of pension schemes. That approach is purposive rather than literal.
In Re Courage Pension Schemes [1987] 1 W.L.R. 495, Millett J. set forth the general approach to the construction of pension schemes and in particular powers to amend them. He said:-
“Before I consider this question I should make some general observations on the approach which I conceive ought to be adopted by the court to the construction of the trust deed and rules of a pension scheme. First, there are no special rules of construction applicable to a pension scheme; nevertheless, its provisions should wherever possible be construed to give reasonable and practical effect to the scheme, bearing in mind that it has to be operated against a constantly changing commercial background. It is important to avoid unduly fettering the power to amend the provisions of the scheme, thereby preventing the parties from making those changes which may be required by the exigencies of commercial life. This is particularly the case where the scheme is intended to be for the benefit not of the employees of a single company, but of a group of companies…
Secondly, in the case of an institution of long duration and gradually changing membership like a club or pension scheme, each alteration in the rules must be tested by reference to the situation at the time of the proposed alteration, and not by reference to the original rules at its inception. By changes made gradually over a long period, alterations may be made which would not be acceptable if introduced all at once. Even the main purpose may be changed by degree.”
The approach of Millett J. was followed by Warner J. in his decision in Mettoy Pension Trustees v. Evans [1990] 1 W.L.R. 157. He accepted that the construction of a pension scheme should be practicable and purposive rather than detached and literal. He said that the scheme should be construed so as to give reasonable and practical effect to it and said:-
“That is in my judgment particularly so where, as here, the documents governing the scheme include not only documents such as the 1973 and 1978 booklets but also documents such as the memoranda of 1973 and 1976 and the deed of 1978, which were intended to have legal effect but were couched in very general terms.”
There is no doubt but that the court in approaching a claim to rectification is entitled to take into account the factual background and the surrounding circumstances. (See O’Neill v. Ryan [1992] 1 I.R. 166; Kramer v. Arnold [1997] 3 I.R. 43 and my own decision in Analog Devices B.V. v. Zurich Insurance, Unreported 20th December, 2002).
In his judgment in Mettoy’s case, Warner J. identified a number of special factors which formed part of the facts of that case. One of them was that what were described as temporary and imprecise documents were brought into existence for the purpose of satisfying certain statutory authorities. He said:-
“It would be inappropriate and indeed perverse to construe such documents so strictly as to undermine their effectiveness or their effectiveness for their purpose. I do not think that, in saying that, I am saying anything different from what was said by Lord Upjohn when in Re Gulbenkians Settlements [1970] AC 508, 522, he referred in the context of a private settlement to –
‘The duty of the court by the exercise of its judicial knowledge and experience in the relevant matter, innate common sense and desire to make sense of the settlors or parties expressed intentions, however obscure and ambiguous the language that may have been used, to give a reasonable meaning to that language if it can do so without doing complete violence to it.’
What the court has to do here is to perform that duty in the comparatively novel and different context of pension scheme trusts.”
Whilst these cases were of course dealing with the question of construction of pension schemes it does appear to me that the purposive approach does have a bearing upon how a claim for rectification in the context of a pension scheme should be looked at. The approach of Lawrence Collins J. in the AMP case appears to me to be the one that I should adopt here in approaching the plaintiff’s claim. Such an approach is not merely more appropriate when dealing with a pension scheme as distinct from an ordinary bilateral arrangement but also appears to me to reside comfortably with the purposive approach.
CONCULUSIONS ON THE RECTIFICATION CLAIM
The extensive affidavit evidence satisfies me that there was a continuing common intention between the plaintiff and CRC that pensions in payment would be subject to escalation at 5% per annum subject to a CPI cap. That found expression in a number of different ways. They were:-
(a) The terms of the explanatory booklets issued by the plaintiff which antedated and post-dated the adoption of the special rules in 1993.
(b) The way in which the scheme operated both prior to and subsequent to the 1993 rule change.
As to (a) the explanatory booklets have at all times been consistent in stating that the annual increases in pensions were subject to them not exceeding the percentage increase in the CPI. The first such booklets were issued in 1978 and updated ones were issued in 1992, 1996 and 2001. All of them are ad idem on this topic.
The 1978 booklet was circulated close to the time when the scheme was adopted. It was considered by CRC and the plaintiff prior to its approval and circulation. Of all the booklets it is probably the most reliable statement of the intention of the parties. The reissues of that booklet in 1992, 1996 and 2001 seem to me to provide evidence of a continuing intention of CRC and the plaintiff on the topic of pension escalation. In addition to the explanatory booklets there is of course the testimony which has been placed on affidavit by both the plaintiff and CRC particularly via Mr. Kiely which is supportive of the continuing common intention which I have identified.
As to (b) there cannot be the slightest doubt but that the actual operation of the scheme at all times since pension escalation was introduced involved the application of the CPI cap to such pension increases. Any discrepancies were minuscule and I do not regard them as being in any way significant.
Both of these elements i.e. the booklets and the way in which the scheme operated seem to me to demonstrate outward expression of a continuing common intention.
I do not accept that that common intention was displaced by the adoption of special rule 10.
The special rules were adopted in order to obtain Revenue approval. There is no evidence that the intention was to alter the existing position concerning escalation of pensions. If there was any intention to permit of escalation without a CPI cap it would have had substantial implications for the funding of the scheme. No alteration to that funding was brought about and I regard this as strong evidence of the continuing common intention.
There is a further element which seems to me to negate any intention to alter the arrangements. Special rule 10 in the form in which it was executed was expressed to take effect from 1977. Such retroactive application of the rule change would likewise have had profound implication which would have to reflect themselves in alterations to the funding arrangements. There were no such alterations.
It seems highly likely on the evidence that has been put before me that special rule 10 was adopted because of a mistaken belief to the effect that general rule 14(9) already incorporated a CPI cap into the scheme rules and so it was unnecessary to refer to such a cap in the special rules.
I have come to the conclusion that the plaintiff and CRC made a mistake as to the legal consequences of adopting special rule 10 in the form in which it was adopted. Those consequences extended far beyond what was intended. All that was intended was that the rules would comply with the Revenue requirements and it was considered unnecessary to refer to the CPI cap in the special rules because of the belief that such a cap was already incorporated in the scheme in general rule 14(9). A mistake of this sort is a ground for granting rather than refusing rectification as observed by Lawrence Collins J. in the AMP case.
It does not matter whether this mistaken belief can be described as oversight or negligence. That is not relevant to the issue of whether or not rectification is an appropriate remedy. In this regard I repeat what was said by Lawrence Collins J. in AMP-
“…And the fact that, as a result of an oversight or of negligence (see Walker v. Armstrong) it had an effect going far beyond the intentions of the trustees and (the employer) not only does not prevent rectification, but is a ground for it.”
That observation is entirely consistent with the views of Dixon J. in Monaghan County Council v. Vaughan [1948] I.R. 306 where he held that in a case of a claim for rectification of a contract on the ground of mutual mistake, negligence on the part of the plaintiffs could not be raised as a defence.
There was never any intention on the part of the plaintiff or CRC to alter the status quo concerning pension escalation by the adoption of the special rules in 1993.
In these circumstances I have come to the conclusion that the plaintiff is entitled to succeed on the claim for rectification.
It is therefore not strictly necessary for me to proceed to consider the other reliefs. I will briefly do so however for the sake of completeness.
SETTING ASIDE RULE 10
In Gibbon v. Mitchell [1990] 1 W.L.R. 1304 Millett J. said:-
“…Wherever there is a voluntary transaction by which one party intends to confer bounty on another, the deed will be set aside if the court is satisfied that the disponor did not intend the transaction to have the effect that it did. It would be set aside for mistake whether the mistake is a mistake of law or of fact, so long as the mistake is as to the effect of the transaction itself and not merely as to its consequences or the advantages to be gained by entering into it.”
That observation was of course made in the context of a voluntary transaction. However, in the AMP case Lawrence Collins J. expressed the view that there was no reason in principle why it should be so limited. He took the view that this relief would be available also in the context of an occupational pension scheme.
The reasoning for him so concluding was that while occupational pension schemes were not voluntary settlements they were similar to them so as to merit the same approach been taken in dealing with the effect of a mistake on the part of the settlor.
Whilst the members of the scheme were not volunteers in respect of their pension rights none of them were privy to or aware of the adoption of special rule 10. That rule confers on them benefits far beyond what was intended by both the plaintiff and CRC. Whilst therefore they gave consideration for their pension rights they gave no additional consideration for the rights which the rule change mistakenly conferred on them. It is therefore unrealistic to treat them as purchasers of anything.
In O’Neill v. Ryan (No. 3) [1992] 1 I.R. 166, Costello J. said:-
“In most cases, then, a shared common mistake will not result in a void contract. This does not mean however that an injured party is without a remedy. As Solle v. Butcher [1950] 1 K.B. 671 showed, the court may, in the exercise of its’ equitable jurisdiction set aside an agreement even though it is not avoided by common shared mistake.”
His views were approved by the Supreme Court and in fact were described by O’Flaherty J. as making a significant contribution to our jurisprudence on this aspect of contract law.
In the present case it does not much matter whether CRC and the plaintiff executed the special rule under a common mistake or whether one party executed under a mistake as to its effect. On either view the mistake involved was a major and fundamental one and therefore the equitable jurisdiction to set aside can be successfully invoked.
There is also a claim made for a declaration that special rule 10 is void. That is sought on what is described as the rule in Hastings-Bass. That was a decision of the Court of Appeal in the case of Hastings-Bass v. Inland Revenue Commissioners. (See [1975] Ch. 25).
The decision was considered by Lawrence Collins J. in AMP
The principle in Hastings-Bass is to the effect that when a trustee is given discretion and acts in good faith in its exercise the court should not interfere with his action notwithstanding that it does not have the full effect which he intended unless-
(a) What he has achieved is unauthorised by the power conferred on him, or
(b) It is clear that he would not have acted as he did-
(1) had he not taken into account considerations which he should not have taken into account, or
(2) had he not failed to take into account considerations which he ought to have taken into account.
Collins J. expanded the test somewhat by concluding that it was not, whether the trustees would have acted differently but rather whether they might have done so. On the facts in AMP he held that it did not matter which test applied.
It is said here that the plaintiff would not have agreed to special rule 10 if it had been aware of, and taken into consideration, the implications of that rule for the funding of the scheme and the attitude of CRC. It follows it is said that on the Hastings-Bass principle special rule 10 should be declared void.
I do not have to decide this issue having regard to the conclusions which I have already reached. Had I not found for the plaintiff on the claim to rectification I would have been much inclined to set aside or declare void special rule 10 under either of the two rubrics with which I have just been dealing.
MEMBER’S NOTIFICATION
The plaintiff claims that even if they fail in all of their other claims that it does not matter because the explanatory booklets prevail over the 1993 special rule. The basis for that claim is as follows.
Clause 3 of the trust deed defines member’s notification as meaning:-
“Such notification and notifications as shall have been given to the member as required under the rules.”
The rules require that the members be given details of the benefits to which they are entitled. That much is clear from rule 4(a) of the scheme. I have already set it out earlier in this judgment but it is convenient to the argument to restate it here. It provides:-
“Subject to the provisions of the rules and sub-rule (b) of this rule, there shall be provided in respect of a member such of the benefits as are subsequently described in the rules, for himself, his beneficiaries or personal representatives or his dependants, each such benefit, if any, being of such amount or at such rate as the employer with the consent of the trustee shall in its absolute discretion decide and shall have been specified by member’s notification, provided that unless the employer in consultation with the trustee shall otherwise determine and the member shall be so notified in the case of a specified member, the amount or rate of any such benefit, subject to the aforesaid provisions, be as set out in the special rules.”
Clause 6(b) of the trust deed provides:-
“A member’s notification containing such information as is required to be supplied to a member under the rules shall be given in writing to the member by the trustee or, with the consent of the trustee by the employer, and shall be titled in accordance with the agreement and shall be regarded as forming part of the trusts of the plan.”
Thus the amount or the rate of the benefits payable under this scheme are those that shall be specified in a member’s notification. That would include the rate of escalation applicable to pensions which are in payment.
In this case it is clear that all of the information required to be supplied to a member under the rules was given in the explanatory booklets.
Those booklets specified that the escalation rate was subject to a CPI cap.
Whilst it is true that there is a proviso in rule 4(a) to the effect that the “amount or rate of any such benefit shall be as set out in the special rules” that is in turn qualified by the phrase “subject to the aforesaid provisions” i.e. the provisions of rule 4(a) relating to member’s notifications. It seems to me to follow therefore that where conflicting provision is made in a member’s notification and what is contained in the special rules regarding the amount or rate of benefit payable under the scheme it is the notification rather than the rules that would prevail.
Again in this case it is not necessary for me to come to a conclusion on this aspect of the matter but if I had to it would be in favour of the plaintiff.
CONCLUDING COMMENTS
In reaching my conclusions I have taken fully into account the strong arguments and indeed criticisms that were made by counsel for Mr. Tierney in respect of each of the reliefs sought. I have not entertained the argument made solely by Mercer on the grounds of estoppel by convention. That argument was described by counsel for Mr. Tierney as being a somewhat audacious one. I make no comment as to whether that is an accurate description of it or not. If successful the effect of the argument would on one view of it at least have effectively denied the opportunity to Mr. Tierney to make his case in full. I think that would have been undesirable particularly in circumstances where he is a representative defendant.
In reaching my conclusion I derive some comfort from the fact that none of the pensioners in this scheme did or indeed could have organised their affairs on the basis that they were going to get an unfettered 5% increase each year. All of the information which they received in the explanatory booklets was to the effect that increases were subject to the CPI cap. As a matter of fact that is the level of increase which they actually received. Whatever about the views sworn to by Mr. Tierney at para. 13 of his affidavit they were clearly formed as a result of a mistake on his part rather than on any inaccurate information furnished to him in the explanatory booklet from which he quoted in the very next paragraph.
CONCLUSION
I direct that special rule 10 adopted in 1993 be rectified by the addition of the following words at the end thereof, namely:-
“provided that such an increase shall not exceed the cumulative percentage increase in the Consumer Price Index since the Members Normal Pension Date.”
Approved: Kelly J.
Leopardstown Club v Templeville Developments
[2010] IEHC 152
The Law on Common Mistake
7.4 Both parties have supplied the Court with extensive and, indeed, excellent written submissions on the law. Both refer to all of the leading authorities in this jurisdiction, as well referring extensively to relevant decisions of the superior courts in the neighbouring jurisdictions. While the parties’ respective submissions contain differences of emphasis, there are really no substantive differences between them, save to the extent that the defendant’s submissions rely in part upon, and to that extent rest with, a judgment of the Court of Appeal in England in Chartbrook Ltd v. Persimmon Homes [2008] EWCA Civ 183; [2008] 2 All ER (Comm) 387. However, on the 1st of July 2009 the House of Lords reversed the decision of the Court of Appeal, see Chartbrook Ltd v. Persimmon Homes [2009] UKHL 38; [2009] 1 AC 1101; [2009] 3 WLR 267.
7.5 On account of the application for a non-suit, the defendant’s counsel had to go first in presenting closing arguments to this Court, and it seems the decision of the House of Lords in Chartbrook was not available to them in time for inclusion in the final written submissions on behalf of the defendant. However, the report (“hot off the presses” so to speak) was available in time for inclusion in the plaintiff’s final written submissions, and it is referred to extensively therein.
7.6 While the Court would have been happy to adopt the summary of the law proffered by either side (updated in the case of the defendant’s summary to take account of the House of Lords decision in Chartbrook) I propose for the purposes of this judgment to adopt (with necessary editing) that proffered by the plaintiff because (i) it contains a somewhat more extensive review of the relevant authorities than does the summary proffered by the defendant and (ii) it is, as has been indicated, slightly more up to date in that it does take account of the decision of the House of Lords in Chartbrook.
7.7 The starting point is that both parties accept the principles governing rectification for common mistake as laid down by Lowry L.C.J. in Rooney & McParland v. Carlin [1981] N.I. 138, 146 and by Griffin J. in Irish Life Assurance Co. Ltd. v. Dublin Land Securities Ltd. [1989] I.R. 253, 263. These make clear that the basic requirements for rectification for common mistake are as follows:
i) a common intention evidenced by an outward expression of accord
ii) relating to the particular matter in respect of which rectification is sought
iii) continuing up to the date of execution of the document which it is sought to rectify; and
iv) which is not reflected in this document.
7.8 It was originally thought that rectification could only be granted for common mistake where there was an antecedent legally binding contract, dealing with all matters in issue between the parties, which was inaccurately represented in the instrument sought to be rectified.
7.9 This is no longer the case. It is now well established that a common continuing intention, evidenced by an outward expression of accord, is all that is required for rectification for common mistake. There is no requirement that this outward expression of accord has been embodied in a legally binding contract. Nor is it necessary, that all matters between the parties have been agreed at the time of the outward expression of accord provided that there is a common intention on the particular provision or aspect of the agreement in respect of which rectification is being sought.
7.10 The principle that an antecedent binding and concluded contract is not a pre-requisite to rectification for common mistake was first articulated by Clauson J. in Shipley Urban District Council v. Bradford Corporation [1936] Ch. 375 in which he held that, if necessary, he would have been prepared to remedy an instrument of agreement entered into between the parties on the 6th May 1912 to give effect to the concurrent intention of the parties as evidenced by a prior provisional agreement drawn up and signed by them on the 4th April 1912 despite the fact that this prior agreement, not having been under their seals, was not legally binding and despite the fact that the parties had decided to add into the final agreement an arbitration clause not present in the provisional agreement
7.11 Clauson J found that, had it been necessary for him to decide on the rectification point (which it ultimately was not because he interpreted the final agreement of 6th May 1912 in favour of the plaintiffs) he would
“have felt bound to hold that the proof in the present case that the concurrent intention of the parties was, at the moment of execution, to contract on the footing of the 540l being a sum per annum and the 450,000 Gallons a yield per diem would have made it necessary (but for my construing the instrument as I have construed it) to rectify the instrument so as to accord with that concurrent intention, notwithstanding that the parties can be bound only by their respective seals” (at p. 398 of the report).
7.12 This decision was subsequently followed by Simonds J. in Crane v. Hegeman-Harris Co. Inc. [1939] 1 All E.R. 662; [1971] 1 W.L.R. 1390. In this case rectification of a building agreement of the 23rd October 1935 was sought by the defendants on the basis that this agreement did not reflect the true consensus of the parties thereto as reflected by previous discussions and correspondence between them. Simonds J stated that
“Before I consider the facts and come to a conclusion whether the defendants are right in their contention, I am clear that I must follow the decision of Clauson J., as he then was, in Shipley Urban District Council v. Bradford Corporation, the point of which is that, in order that this court may exercise its jurisdiction to rectify a written instrument, it is not necessary to find a concluded and binding contract between the parties antecedent to the agreement which it is sought to rectify. The judge held, and I respectfully concur with his reasoning and his conclusion, that it is sufficient to find a common continuing intention in regard to a particular provision or aspect of the agreement. If one finds 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 contract was executed, no concluded and binding contract between the parties.” (At p. 664 of the report).
7.13 On the facts of the case, Simonds J. stated that
“I find, then, upon all the evidence that it is impossible to come to the conclusion that the plaintiff did not concur, on 19 September, and thenceforward until the execution of the contract on 23 October, in his remuneration being subject to overrun. How exactly it was minded to phrase that provision is a thing which I think is not really material. It is of course true that for the purposes of rectification, one must find that which was specifically intended, but the exact form of words in which the common intention was framed appears to me to be immaterial as long as in substance and in detail their intention is to be ascertained.” (At p. 669 of the report).
7.14 In this particular case the application for rectification had only been made by the defendants after the question of the construction of the agreement had been submitted to rectification. Simonds J. did not see this as a bar to rectification, and took the view that in the circumstances the defendants were entitled to have the agreement rectified to bring it into conformity with the parties’ intentions.
7.15 Crane v. Hegeman-Harris was approved by the Court of Appeal in Joscelyne v. Nissen [1970] 2 Q.B. 86, subject to the qualification that an outward expression of common continuing intention must be shown. The plaintiff in Joscelyne v. Nissen, the owner of a car hire business, and his wife shared a house with the defendant, their daughter. In 1963 the plaintiff’s wife was taken ill and the plaintiff, being unable to carry on the business, discussed a scheme with the defendant whereby he would make over the business to her in return for which she would pay certain household expenses, including gas, electricity and coal bills. On June 18, 1964, the parties signed an agreement transferring the business, clause 6 of which provided that “[The defendant] shall discharge all expenses in connection with the whole premises … and shall indemnify [the plaintiff] from and against any claim arising in respect of the same.”
7.16 After signing the agreement, the defendant paid several of the household bills but following a dispute with the plaintiff she stopped paying them, contending that the agreement did not on its true construction provide for payment of the household expenses. The plaintiff brought an action claiming a declaration that she should pay, inter alia, the gas coal and electricity bills and, alternatively, that the agreement should be rectified to include a provision to that effect.
7.17 It was not disputed by the defendant that at an early stage in the negotiations it was agreed between her and the plaintiff in conversation that these particular items should be paid for by her and that they continued in this expressed accord thereafter while negotiating on other aspects of the agreement. The defendant, however, relied on the language of the agreement ultimately entered into and argued that the absence of any prior concluded agreement between the parties should preclude any claim to rectification by the plaintiff.
7.18 The Court of Appeal in Joscelyne v. Nissen, in a judgment delivered by Russell L.J., held that that it was not necessary to find a complete concluded contract antecedent to the agreement sought to be rectified; that a court had jurisdiction to rectify an agreement if there was a common continuing intention in regard to a particular provision of the agreement, but that an outward expression of accord and convincing proof that the concluded instrument did not represent the parties’ common intention were required.
7.19 The defendant, in arguing that a prior concluded agreement was necessary, had sought to rely on the following dictum of Denning L.J. in Frederick E. Rose (London) Ltd. v. William H. Pim Jnr. & Co. Ltd. [1953] 2 Q.B. 450 at p. 461:
“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. [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 Corporation [1936] Ch. 375) but, formalities apart, there must have been a concluded contract]. There is a passage in Crane v. Hegeman-Harris Co. Inc. [1939] 1 All E.R. 662, 664 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 around 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 v. Wall, per Lord Cozens-Hardy M.R., and per Buckley L.J. (1911) 104 L.T. 85, 88, 93, but not that they intended something different.”
7.20 Russell L.J., considering what was said in Rose v. Pim [1953] 2 Q.B. 450 said at p.97:—
“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.”
And at p. 98:
“In our judgment the law is as expounded by Simonds J. in Crane’s case with the qualification that some outward expression of accord is required. We do not wish to attempt to state in any different phrases that with which we entirely agree, except to say that it is in our view better to use only the phrase “convincing proof” without echoing an old-fashioned word such as “irrefragable” and without importing from the criminal law the phrase “beyond all reasonable doubt.” Remembering always the strong burden of proof that lies on the shoulders of those seeking rectification, and that the requisite accord and continuance of accord of intention may be the more difficult to establish if a complete antecedent concluded contract be not shown, it would be a sorry state of affairs if when that burden is discharged a party to a written contract could, on discovery that the written language chosen for the document did not on its true construction reflect the accord of the parties on a particular point, take advantage of the fact.”
What was required for the purposes of rectification was
“antecedent expressed accord on a point adhered to in intention by the parties to the subsequent written contract”
7.21 Joscelyne v. Nissen is an example of a case where at the date of outward expression of accord on the point on which rectification was sought other issues remained to be agreed to between the parties. It is clear from this case that this did not present a bar to rectification, provided that the parties’ common intention as to the particular matter or item in respect of which rectification was sought was not affected by these other negotiations.
7.22 Joscelyne v. Nissen is also relevant in that it was a case where rectification was granted in a situation where the words of a document, although consciously agreed to by the parties, did not reflect their prior intention because of a mistake as to interpretation. This aspect of Joscelyne was highlighted by Brightman J. in Re Butlin’s Settlement Trusts [1976] Ch. 251 in which he stated at p. 260 that:
“Furthermore, 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. In such a case, which is the present case, the court will rectify the wording of the document so that it expresses the true intention: see Jervis v. Howle and Talke Colliery Co. Ltd. [1937] Ch. 67; Whiteside v. Whiteside [1950] Ch. 65, 74 and Joscelyne v. Nissen [1970] 2 Q.B. 86, 98”
7.23 This dictum of Brightman J., as subsequently approved by Lawrence Collins J. in A.M.P. (U.K.) p.l.c. v. Barker [2001] P.L.R. 77, was adopted into Irish law by Kelly J in Irish Pensions Trust Limited v. Central Remedial Clinic [2006] 2 IR 126 in which he expressly relied on the above principle to allow rectification of a pension scheme to reflect the common intention of the parties thereto in a situation where the words of the scheme had been purposely used but it was mistakenly considered that they bore a different meaning as a matter of true construction.
7.24 Butlins, Barker and Irish Pensions Trust all involved rectification of voluntary settlements. However, that the principle in Butlins extends to rectification for bilateral agreements is shown by Joscelyne itself and also by the judgments of Peter Gibson LJ in Swainland Builders Limited v. Freehold Properties Limited [2002] 2 EGLR 71, and Lord Hoffman in Chartbrook v. Persimmon Homes [2009] UKHL 38; [2009] 1 AC 1101; [2009] 3 WLR 267 discussed below, both of which cases involved rectification of bilateral agreements where words in a document were purposely used but as a matter of true construction did not reflect the parties’ prior intention.
7.25 The view, that a prior outward expression of common intention was sufficient for rectification, was confirmed by the judgment of Lowry L.C.J. in Rooney & McParland v. Carlin [1981] N.I. 138, in which he stated that, before a court would order rectification of a written contract on the ground of common (therein described as “mutual”) mistake:
1. There must be a concluded agreement antecedent to the instrument which is sought to be rectified; but
2. The antecedent agreement need not be binding in law . . . nor need it be in writing: such incidents merely help to discharge the heavy burden of proof; and
3. A complete antecedent concluded contract is not required, so long as there is prior accord on a term of a proposed agreement, outwardly expressed and communicated between the parties, as in Joscelyne v. Nissen.
7.26 On the facts of the case (which involved an application for rectification of a settlement agreement for the transfer of property to include in the transfer an additional field) it was held there was no such prior accord, neither party having been aware of the existence of the field at the date of execution of the document in respect of which rectification was being sought. However, it is clear from the judgment of Lowry L.C.J. that if the parties, having had knowledge of the existence of the field and directed their minds to it during negotiations, had previously verbally agreed to include it or exclude it, he would have been prepared to give rectification to give effect to that intention.
7.27 The principles laid down in the above cases were approved by the Supreme Court in the leading Irish case on rectification, Irish Life Assurance Company Limited v. Dublin Land Securities Limited [1989] I.R. 252. In this case the plaintiff vendor contended, inter alia, that a contract for sale of land did not reflect the true intention of the parties insofar as it purported to include certain properties which the parties had not intended should be included. Griffin J., delivering the judgment of the Supreme Court, set out the law on rectification for common mistake as follows (at pp. 261-263):
“It was formerly considered that the court could not rectify a document in writing unless it was preceded by a concluded oral contract. In taking this view, Kenny J. in Lucey v. Laurel Construction Co. Ltd (Unreported, High Court, 18th December, 1970) cited with approval what was said by Denning L.J. (as he then was) in Rose v. Pim [1953] 2 Q.B. 450 at p. 461:
‘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. [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 Corporation [1936] Ch. 375) but, formalities apart, there must have been a concluded contract]. There is a passage in Crane v. Hegeman-Harris Co. Inc. [1939] 1 All E.R. 662,664 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 around 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 v. Wall, per Lord Cozens-Hardy M.R., and per Buckley L.J. (1911) 104 L.T. 85, 88, 93, but not that they intended something different.’
Two things need to be noted — the emphasis was Denning L.J.’s; and the sentence inside square brackets was inadvertently omitted from the quotation by Kenny J., presumably in transcription.
Kenny J. does not appear to have been referred to Joscelyne v. Nissen [1970] 2 Q.B. 86, a decision of the Court of Appeal reported some months before Lucey v. Laurel Construction Ltd. (Unreported, High Court, 18th December, 1970). In Joscelyne v. Nissen [1970] 2 Q.B. 86 the judgment was delivered by Russell L.J. and was the judgment of the court. In giving judgment he reviewed what he himself described as “the train of this undoubtedly formidable array of judicial opinion” from the decision of MacKenzie v. Coulson (1869) L.R. 8 Eq. 368 (one hundred years earlier) onwards. Amongst the cases considered was Crane v. Hegeman-Harris Co. Inc. [1939] 1 All E.R. 662 decided by Simonds J. Buckley L.J. at p. 95 (inter alia) cited the following passage from the judgment of Simonds J. at p. 664 of [1939] 1 All E.R.:—
‘I am clear that I must follow the decision of Clauson J., as he then was, in Shipley Urban District Council v. Bradford Corpn. [1936] 1 Ch. 375, the point of which is that, in order that this court may exercise its jurisdiction to rectify a written instrument, it is not necessary to find a concluded and binding contract between the parties antecedent to the agreement which it is sought to rectify. The judge held, and I respectfully concur with his reasoning and his conclusion, that it is sufficient to find a common continuing intention in regard to a particular provision or aspect of the agreement. If one finds 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 . . . .
Secondly, I want to say this upon the principle of the jurisdiction. It is a jurisdiction which is to be exercised only upon convincing proof that the concluded instrument does not represent the common intention of the parties. That is particularly the case where one finds prolonged negotiations between the parties eventually assuming the shape of a formal instrument in which they have been advised by their respective skilled legal advisers. The assumption is very strong in such a case that the instrument does represent their real intention, and it must be only upon proof which Lord Eldon, I think, in a somewhat picturesque phrase described as ‘irrefragable’ that the court can act, I would rather, I think, say that the court can only act if it is satisfied beyond all reasonable doubt that the instrument does not represent their common intention, and is further satisfied as to what their common intention was. For let it be clear that it is not sufficient to show that the written instrument does not represent their common intention unless positively also one can show what their common intention was.’
In Joscelyne v. Nissen [1970] 2 Q.B. 86 Russell L.J. in considering what was said in Rose v. Pim [1953] 2 Q.B. 450 said at p.97:—
‘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.’
He then referred to the passage from the judgment of Denning L.J. already cited, and said:—
‘In so far as this passage might be taken to suggest that an antecedent complete concluded contract is necessary it would be in conflict with the views of both courts in Crane v. Hegeman-Harris [1939] 1 All E.R. 662 and is not supported by the other judgments’ (those of Singleton L.J. and Morris L.J. who were the other members of the Court in Rose v. Pim [1953] 2 Q.B. 450).
And at p. 98 he said:—
‘In our judgment the law is as expounded by Simonds J. in Crane’s case with the qualification that some outward expression of accord is required. We do not wish to attempt to state in any different phrases that with which we entirely agree, except to say that it is in our view better to use only the phrase” convincing proof” without echoing an old fashioned word such as “irrefragable” and without importing from the criminal law the phrase “beyond all reasonable doubt”.’
In Rooney and McParland Ltd. v. Carlin [1981] N.I. 138 at p. 146 Lord Lowry L.C.J. summarised the principles clarified by Russell L.J. in the following terms:—
‘1. There must be a concluded agreement antecedent to the instrument which is sought to be rectified; but
2. The antecedent agreement need not be binding in law (for example, it need not be under seal if made by a public authority or in writing and signed by the party if relating to a sale of land) nor need it be in writing: such incidents merely help to discharge the heavy burden of proof; and
3. A complete antecedent concluded contract is not required, so long as there was prior accord on a term of a proposed agreement, outwardly expressed and communicated between the parties, as in Joscelyne v. Nissen .’
Like the learned trial judge, I would adopt what was said by Russell L.J. and Lord Lowry L.C.J. as representing the law on the subject in question in this jurisdiction.”
7.28 The Supreme Court in Irish Life Assurance v. Dublin Land Securities endorses the view that rectification for common mistake does not require a complete antecedent concluded agreement on every point. What is necessary for such rectification, as distilled by Griffin J. from the authorities cited above, is that there be
“convincing proof, reflected in some outward expression of accord, that the contract in writing did not represent the common continuing intention of the parties on which the court can act, and whether the plaintiff can positively show what that common intention was in relation to the provisions which the appellant says were intended to exclude the vacant lands at Palmerstown.”
7.29 On the facts of the particular case, because there had been no prior express discussion in relation to the exclusion of the property alleged to have been intended to be excluded, Griffin J could not grant rectification on the basis of common mistake. However it is clear from his judgment that if there had been a clear outward expression of accord evidencing the parties’ common intention to exclude the lands in question from the sale, he would have granted rectification.
7.30 Moreover, that the principles outlined continue to form the basis of rectification for common mistake in the neighbouring jurisdiction is confirmed by the recent judgment of the Court of Appeal in Swainland Builders Limited v. Freehold Properties Limited [2002] 2 EGLR 71. The Court, in a judgment delivered by Peter Gibson L.J., ordered rectification of a transfer of land so as to provide for the grant to the transferor of long leases in portion of the property transferred. The judge accepted that it had been common intention of the parties that the land in question would ultimately be held under long leases by the transferor or its nominees. In his view once this common intention was clear, the fact that no clear agreement had been reached by the parties as to how that common intention would be effected did not preclude rectification.
7.31 The conditions to be satisfied, if the court were to order rectification in a case where it was alleged that there was a mistake common to both parties, were laid down by Peter Gibson L.J. as follows (at p. 74):
“The party seeking rectification must show that:
i) the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified;
ii) there was an outward expression of accord;
iii) the intention continued at the time of the execution of the instrument sought to be rectified;
iv) by mistake the instrument did not reflect that common intention.”
Peter Gibson L.J. also added the further additional points:
“(1) The standard of proof required if the court is to order rectification is the ordinary standard of the balance of probabilities. ‘But as the alleged common intention ex hypothesi contradicts the written instrument, convincing proof is required in order to counteract the cogent evidence of the parties’ intention displayed by the instrument itself’: Thomas Bates and Sons Ltd v. Wyndham’s (Lingerie) Ltd [1981] 1 ILR 505 at page 521 per Brightman LJ.
(2) Whilst it must be shown what was the common intention, the exact form of words in which the common intention is to be expressed is immaterial if in substance and in detail the common intention can be ascertained: Cooperative Insurance Society Ltd v. Centremoor Ltd [1983] 2 EGLR 52 at page 54, per Dillon LJ, with whom Kerr and Eveleigh LJJ agreed.
(3) The fact that a party intends a particular form of words in the mistaken belief that it is achieving his intention does not prevent the court giving effect to the true common intention: see Centremoor at page 55 A–B and Re Butlin’s Settlement Trusts [1976] Ch 251 at page 260 per Brightman J.”
Summary of applicable principles and further commentary
7.32 The plaintiff urges, and the Court accepts, that the following principles on rectification for common mistake may be distilled from the authorities:
1. Complete antecedent concluded agreement is not necessary – outward expression of accord on the particular matter in respect of which rectification is sought is all that is required.
7.33 All that is required for the purposes of rectification for common mistake is an outward expression of accord, which does not have to be contained in a legally binding agreement. In addition it is not necessary that agreement has been reached on all points provided that the particular issue in respect of which rectification is sought was agreed and evidenced as specified above, and, to the extent that the term “concluded agreement” is still relevant at all in the context of rectification for common mistake, it should not be understood as meaning either a legally binding agreement or as requiring agreement between the parties on all matters subsequently contained in the document sought to be rectified other than the particular matter in respect of which rectification is sought [see point 2. below]
7.34 Such outward expression of common intention may be found in a prior provisional agreement between the parties as in Shipley. It may also be found in correspondence between the parties as in Crane v. Hegeman Harris. Alternatively it may be found in prior oral discussions as in Joscelyne v. Nissen. Cases in which rectification for common mistake have been rejected, such as Lowry and Irish Life, are cases where no express consideration of the particular issue in respect of which rectification was sought ever took place between the parties, either orally or in written documentation or correspondence.
2. Outward expression of accord need relate only to the particular point or matter in respect of which rectification is sought; subsequent negotiations on other points do not preclude rectification
7.35 It is not necessary that the outward expression of accord is an expression of accord in relation to all matters subsequently contained in the document in respect of which rectification is sought. It is sufficient that it is an outward expression of accord on the particular matter in relation to which rectification is sought. The argument that there must have been a complete antecedent concluded agreement was rejected in Joscelyne v. Nissen (where the common expression of accord on the matter in respect of which rectification was sought came very early on in the negotiations, when other aspects of the deal had yet to be agreed). A similar approach was taken in Shipley where some re-negotiation took place (albeit not on the matter in respect of which rectification was sought) between the prior provisional agreement and the agreement ultimately concluded. The principle, that a complete antecedent concluded agreement is not required, and that it is sufficient if there is agreement, evidenced by an outward expression of accord, on the particular point in respect of which rectification is sought, was affirmed by Lowry L.C.J. in Rooney, by the Supreme Court in Irish Life and by Peter Gibson L.J. in Swainland, the relevant extracts from which have already been cited above. As such, the fact that various aspects of a deal not relevant to the matter in respect of which rectification was sought fell to be subsequently re-negotiated between the parties does not present a bar to rectification provided that there was no outward change in their common intention on the point in respect of which rectification is sought.
3. Once a common intention has been articulated, subsequent discussions or lack of same as to the precise method of implementing that common intention, do not preclude rectification on the basis of that common intention.
7.36 As recognised in Swainland, there may be different ways of achieving a common intention and the fact that the parties, while having articulated a common intention, had not come to a final view as to how that intention should be implemented, or had adjusted slightly the way in which same was to be implemented, does not indicate a cessation or change in that common intention.
4. Objective test of common intention – once a common intention has been articulated, a subsequent change in intention by one of the parties does not preclude rectification for common intention where such change in intention has not been clearly communicated to the other party.
7.37 This is illustrated by the dictum of Denning L.J. in Rose v. Pim [1953] 2 Q.B. 450, referred to above (at p. 461):
“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, i.e., 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.”
7.38 As stated by Mustill J. in The Olympic Pride [1980] 2 Lloyd’s Rep. 67 (at p. 72):
“The prior transaction [justifying rectification for common mistake] 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…..”
7.39 A similar approach was taken by Hudson J. in Re Streamline Fashions Pty Ltd. [1976] V.R. 463:
“The common intention which it is necessary to establish as a basis for rectification is an intention that has been manifested in the words or conduct of the parties and not merely an intention which was not disclosed in the course of the negotiations.”
7.40 The requirement, that common intention be determined objectively, means that a subjective change of mind on the part of one party, following a common expression of outward accord, cannot be regarded, unless clearly communicated in a manner identifiable to the reasonable observer, as negating the prior common intention evidenced by this outward expression of accord. As stated by Marcus Smith in a recent article in the Law Quarterly Review entitled “Rectification of contracts for common mistake: Joscelyne v Nissen, and subjective states of mind” (2007) 123 L.Q.R. 116 at 132, dealing with the objective test of common intention:
“It would be most odd if a party could show a manifest prior agreement which (objectively speaking) continued and was incorrectly reflected in the final contract, only to be defeated by the un-communicated subjective change of mind of the other party…Once a common intention has been objectively established, the intention will continue even if one of the parties changes his mind and only if the ending of the consensus is objectively manifest, will the intention cease to continue.”
7.41 This analysis is supported by cases such as Monaghan County Council v. Vaughan [1948] I.R. 306; Nolan v. Graves [1946] 1 I.R. 376 and Daniel Nolan v. Maria Nolan (1958) 92 I.L.T.R 94 in which rectification was granted for mutual (now common) mistake against a party who was subjectively aware, at the date of execution of a document, that that document did not reflect a prior agreement reached by it with the party seeking rectification. These cases may be classified as examples of unilateral mistake on the basis that the party against whom rectification was granted was actually aware of the mistake. However, they could also be characterised as cases where there was nothing in the parties’ conduct, looked at objectively, justifying an inference of intention to depart from the prior common intention outwardly expressed by them.
7.42 In Monaghan County Council v. Vaughan [1948] I.R. 306 (which could also be explained as an example of the objective test of common intention, outlined above) the plaintiffs, who were the owners of a ruined building which they wished to have demolished and removed from its site, caused an advertisement to be inserted in a newspaper inviting tenders for the work, and subsequently accepted, in writing, a written tender submitted by the defendant.
7.43 The intention of the plaintiffs in inserting the advertisement and accepting the tender, was that the defendant should pay to the plaintiffs a sum of £1,200 in return for the concession granted to him whereby, in consideration of his removing the debris and clearing the site, he should have the right of disposal for his own benefit of the material so to be removed by him.
7.44 However both the advertisement and the tender were ambiguous in terms, and after the conclusion of the work the defendant contended that the effect of the agreement between the parties was, and had in fact been intended by him to be, that he should be paid the sum of £1,200 by the plaintiffs, and not that he should pay that sum to the plaintiffs, in respect of the work so carried out.
7.45 The Court granted an order for rectification of the agreement so as to make clear that the defendant was obliged to pay the sum of £1,200 on the basis that it was originally orally agreed between the parties that the defendant should pay this sum and that the defendant saw the error into which the County Council had fallen when the contract was read over to him and decided to take advantage of it.
7.46 Dixon J. referred to the following extract from Lord Birkenhead in United States v. Motor Trucks Ltd. [1924] AC 196. 200 and 201, (at p 316):
“And indeed the power of the Court to rectify mutual mistake implies that this power may be exercised notwithstanding that the true agreement of the parties has not been expressed in writing. Nor does the rule make any inroad upon another principle, that the plaintiff must show first that there was an actually concluded agreement antecedent to the instrument which is sought to be rectified; and secondly, that such agreement has been inaccurately represented in the instrument. When this is proved, either party may claim, in spite of the Statute of Frauds, that the instrument on which the other insists does not represent the real agreement. The statute, in fact, only provides that no agreement not in writing and not duly signed shall be sued on; but when the written instrument is rectified there is a writing which satisfies the statute, the jurisdiction of the Court to rectify being outside the prohibition of the statute.”
Dixon J stated that he found it impossible “to see any difference in principle” between that case and the one before him.
7.47 A similar approach was taken in two subsequent cases: Nolan v. Graves [1946] 1 I.R. 376 and Daniel Nolan v. Maria Nolan (1958) 92 I.L.T.R 94. In Nolan v. Graves the price of lands for which the plaintiff had bid £5,550 at public auction was mistakenly described in the subsequent memorandum of agreement as £4,450. The plaintiff’s application for rectification of the memorandum by substituting the figure £5,550 for the figure £4,550 was successful on the basis that the figure £4,550 was inserted in the memorandum by mistake, and that the defendant was aware of the mistake and endeavoured to take advantage of it.
7.48 Daniel Nolan v. Maria Nolan (1958) 92 I.L.T.R 94 involved a separation deed which provided that the plaintiff should pay to the defendant “such sum as will after the deduction of income tax at the standard rate amount to the sum of £15 per week.” The plaintiff alleged that due to the insertion of the words “at the standard rate”, the separation deed did not correctly embody the prior agreement between the parties which was that he should pay to the defendant £15 per week and that any refunds of income tax obtained by the defendant should be his property.
7.49 The Court ordered that the deed should be rectified to express correctly this prior oral agreement, stating as follows:
“The basis of the decision in Monaghan County Council v. Vaughan was that if there were a mistake in a document, in that it did not express the agreement between the parties and one party was not aware of that circumstance while the other party was aware of it, then that was a case of mutual mistake. The party who knew that the expression of the agreement was incorrect could not allege that there was not a mutual mistake because the other party was not aware of that mistake. What happened here came close to misrepresentation or estoppel Mrs. Nolan knew what the agreement was between herself and her husband and what was intended to be recorded in the separation deed. She knew when the alteration was made that the deed might not then correctly express the agreement, nevertheless she decided that she would have the alteration made and, if she could, take advantage of the legal consequences. In those circumstances she could not now be heard to say that there was not a mutual mistake. To hold otherwise would come close to permitting fraud.”
7.50 As it was a little obscure on the authorities what the effect of the absence or presence of the additional words was, the judge did not propose to deal with the clause by altering it. He felt the safest course to adopt was the addition of a proviso to the effect that it was the true meaning and intent of the deed that the wife should apply for whatever refunds she might be entitled to and account to her husband therefor when obtained. The exact form of the proviso could be worked out between Counsel and should be embodied in the Order. In that way the deed could be read with the Order and a supplementary deed was unnecessary.
7.51 The objective test of common intention recently received judicial endorsement by the House of Lords in Chartbrook Ltd. v. Persimmon Homes [2009] UKHL 38; [2009] 1 AC 1101; [2009] 3 WLR 267.
7.52 In 2001, Persimmon entered into an Agreement with Chartbrook for a mixed commercial and residential redevelopment of a property owned by Chartbrook in Wandsworth. The final price payable by Persimmon was based on a formula which provided for an additional payment based on the profit made on the sale of the residential flats.
7.53 Persimmon intended that the additional payment would be the greater of 23.4% of the net proceeds of the flats or a minimum guaranteed payment based upon £76.34 per square foot. Unfortunately, however, their solicitor drafted the Agreement on the basis that the additional payment would not be the greater of these 2 sums but the total of them. Rather extraordinarily, neither Persimmon nor their solicitor spotted this error at the time and it only came to light some time after the Agreement had been completed. Instead of being liable to pay £5,580,000 Persimmon was liable under the formula as drafted to pay £9,168,000.
7.54 It was Persimmon’s primary case that it was clear what had actually been negotiated and the Court could construe the Agreement to give sense to what the parties had actually intended. Their fallback position was that it was open to the Court anyway to rectify the Agreement as a clear mistake had been made and Chartbrook could not take advantage of it. Both arguments failed at first instance. Chartbrook successfully argued that the formula used in the Agreement was clear and could not be corrected and that rectification was not possible as they had not known of Persimmon’s mistake.
7.55 What was extraordinary about this case was that all the documentation in relation to the negotiations prior to the actual drafting of the Agreement supported Persimmon’s case and it was readily apparent that Persimmon only intended to pay the greater of the two sums, not both of them. Persimmon relied heavily on the fact that the lower amount was termed as a minimum guaranteed payment as this evidenced that this amount was only to be payable if the share of the profit fell below this figure.
7.56 The Court of Appeal had to consider whether it could rely on the documentation in relation to the negotiations as an aid to construction of the Agreement. These negotiations left very little doubt that Persimmon’s construction was intended. However, after a careful review of the authorities, the Court confirmed that evidence as to prior negotiations is not usually admissible and that reliance could not be placed upon the pre-contract material notwithstanding it so strongly supported Persimmon’s case. Whilst one of the Judges was of the clear view that the wording of the Agreement could be amended to support Persimmon’s construction as the wording used made no commercial sense, the other two Judges disagreed. They held there was nothing unclear or ambiguous in the wording used and the Court could not re-write the Agreement even though it was improbable that Persimmon intended to agree to a formula in these terms.
7.57 This left Persimmon having to rely on rectification but the problem they faced in this respect was that the Judge at first instance had been impressed by Chartbrook’s witnesses and, notwithstanding it was difficult to understand how they did not spot the error, he accepted their evidence that they subjectively believed that Persimmon were intending to offer a double payment. Briggs J., at first instance and the Court of Appeal accordingly rejected the option of rectification for unilateral mistake on the basis of lack of knowledge/unconscionability on the part of Chartbrook. The Court of Appeal judgment in particular has been discussed in detail in Templeville’s closing submissions.
7.58 The question of whether or not there could be rectification on the basis that the agreement executed did not reflect the parties’ common intention does not appear to have been seriously pursued by Persimmon at the Court of Appeal stage. This appears to have been due to the mistaken understanding that common intention, for the purposes of rectification for common mistake, meant subjective common intention.
7.59 However in a decision delivered on the 1st July 2009, the House of Lords overturned the ruling of the Court of Appeal, on the basis that both Briggs J. and the Court of Appeal had misconstrued the contract; on a correct interpretation it supported Persimmon’s interpretation.
7.60 However the majority of the House of Lords also stated, obiter, that if they had not found for Persimmon on the construction point, they would have been prepared to grant rectification for common mistake on the basis that the agreement failed to reflect the parties’ objectively determined common intention. The fact that this objective common intention was no longer subjectively shared by Chartbrook at the date of execution of the agreement sought to be rectified was irrelevant.
7.61 The leading speech on the rectification issue was that of Lord Hoffman (with whom the other members of the House of Lords agreed). He held that Joscelyne v. Nissen [1970] 2 Q.B. 86 extended the availability of rectification to cases where there had not been any enforceable prior agreement. He specifically approved the principles of rectification laid down by Peter Gibson LJ in Swainland.
7.62 The crucial significance of Lord Hoffman’s speech, however, is that it represents an express judicial endorsement, by the House of Lords, of the objective test of common intention laid down in Rose v. Pim and The Olympic Pride (discussed above). He makes clear that in considering the question of common intention for the purposes of rectification, the question is not what the parties actually intended, but rather what an objective observer would have thought the parties’ intentions were. Evidence as to what terms a party subjectively understood to have been agreed could be significant in a case where the prior consensus was based on oral exchanges or conduct, but where the prior consensus was expressed entirely in writing such evidence was likely to carry very little weight.
7.63 In this case, because of the refusal of the Court of Appeal and the House of Lords to overrule the finding of fact in relation to Chartbrook’s intention made by the trial judge, Persimmon was not in a position to show that there was a subjective common intention between the parties on the point in relation to which they sought rectification. However, Persimmon successfully argued that intention, for the purpose of common intention, was objective rather than subjective in nature and accordingly a subjective deviation on the part of Chartbrook from the outward expression of accord reached between them, not communicated to Persimmon and not perceptible to an outward observer, should not preclude them from getting rectification for common mistake.
7.64 The argument of Persimmon’s counsel, as summarised by Lord Hoffman, was that rectification required a mistake about whether the written instrument correctly reflected the prior consensus, not whether it accorded with what the party in question believed that consensus to have been. In accordance with the general approach of English law, the terms of the prior consensus were what a reasonable observer would have understood them to be and not what one or even both of the parties believed them to be. In this case an outward expression of consensus was set out in the May letter, which made it clear that the terms were to be as contended for by Persimmon. If the definition in the final agreement did not have that meaning, it was not in accordance with the prior consensus and if Chartbrook’s directors believed that it was, then they, like the representatives of Persimmon, were mistaken.
7.65 This argument was accepted by Lord Hoffman. His comments in relation to the objective test of common intention, and on rectification for common mistake generally, are sufficiently important to merit quoting in full here. He stated as follows (at paras 59 to 66):
“59. Until the decision of the Court of Appeal in Joscelyne v. Nissen [1970] 2 Q.B. 86 there was a view, based upon dicta in nineteenth and early twentieth century cases, that rectification was available only if there had been a concluded antecedent contract with which the instrument did not conform. In Lovell and Christmas Ltd v. Wall (1911) 104 LT 85, 88 Sir Herbert Cozens-Hardy MR. said that rectification “may be regarded as a branch of the doctrine of specific performance”. It presupposed a prior contract and required proof that, by a common mistake, the final completed agreement as executed failed to give proper effect to the prior contract. In Joscelyne’s case the Court of Appeal declared itself puzzled by the reference to specific performance, but I think it is clear enough that the Master of the Rolls had in mind a contractual obligation to execute a lease, conveyance, settlement or similar instrument, giving rise to a specifically enforceable obligation to do so. A failure to execute a document giving effect to the terms of the agreement would be a breach of that obligation and the court, in rectifying the instrument, would be specifically performing the agreement. Since the decision in Joscelyne’s case extended the availability of rectification to cases in which there had been no enforceable prior agreement, specific performance is plainly an inadequate explanation of the doctrine. But for present purposes the significance of cases like Lovell and Christmas Ltd v. Wall (1911) 104 LT 85 is that the terms of the contract to which the subsequent instrument must conform must be objectively determined in the same way as any other contract. Thus the common mistake must necessarily be as to whether the instrument conformed to those terms and not to what one or other of the parties believed those terms to have been.
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. On the contrary, the authorities suggest that in both cases the question is what an objective observer would have thought the intentions of the parties to be. Perhaps the clearest statement is by Denning LJ in Frederick E Rose (London) Ltd v. William H Pim Jnr & Co Ltd [1953] 2 Q.B. 450, 461:
‘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.’
61. Likewise in Etablissements Georges et Paul Levy v. Adderley Navigation Co Panama SA (The Olympic Pride) [1980] 2 Lloyd’s Rep 67, 72, Mustill J said:
‘The prior transaction may consist either of a concluded agreement or of a continuing common intention. In the latter event, the intention must have been objectively manifested. It is the words and acts of the parties demonstrating their intention, not the inward thoughts of the parties, which matter.’
62. An example of the application of this objective ascertainment of the terms of the prior transaction is George Cohen Sons & Co Ltd v. Docks and Inland Waterways Executive (1950) 84 Lloyd’s Rep 97 in which a landlord negotiating a new lease proposed to the tenant that ‘the terms and conditions contained in the present lease to be embodied in the new lease where applicable.’ The tenant accepted this offer, but the new lease as executed made the tenant liable for repairs which under the old lease had been the responsibility of the landlord. In answer to a claim for rectification, the landlord said that the new lease was in accordance with what he had understood to be the effect of his offer. The Court of Appeal said that this was irrelevant. What mattered was the objective meaning of what the landlord had written. Sir Raymond Evershed MR. said, at p 107:
‘If the defendants did misconstrue [the letter] that is unfortunate for them, but at least they cannot be heard to say that their letter was intended to mean anything other than that which the words convey to the reader as a piece of ordinary English.’
63. As against these authorities, there are two cases upon which Mr. Miles relied. The first is Britoil plc v. Hunt Overseas Oil Inc [1994] CLC 561, in which the Court of Appeal by a majority (Glidewell and Hobhouse LJJ, Hoffmann LJ dissenting) refused to rectify an agreement which was alleged not to be in accordance with what had previously been agreed in summary heads of agreement. Hobhouse LJ, who gave the majority judgment, affirmed the decision of Saville J, who said that the defendants had failed to establish that there was a prior common agreement or intention in terms that the court could ascertain or (which is probably another way of saying the same thing) that the definitive agreement failed to reflect that prior agreement. In other words, the language of the heads of agreement was too uncertain to satisfy the requirement stated by Denning LJ in Rose’s case that one should be able to “predicate with certainty what their contract was”. Hobhouse LJ noted that Saville J ‘did not base himself upon any consideration of the evidence as to the actual state of mind of the parties’ and in my opinion the case lends no support to the view that a party must be mistaken as to whether the document reflects what he subjectively believes the agreement to have been.
64. The other case is the decision of Laddie J in Cambridge Antibody Technology Ltd v. Abbott Biotechnology Ltd [2005] FSR 590, in which he rejected a submission that evidence of the subjective state of mind of one of the parties contained in statements which had not been communicated to the other party (“crossed the line”) was inadmissible. In my opinion, Laddie J was quite right not to exclude such evidence, but that is not inconsistent with an objective approach to what the terms of the prior consensus were. Unless itself a binding contract, the prior consensus is, by definition, not contained in a document which the parties have agreed is to be the sole memorial of their agreement. It may be oral or in writing and, even if the latter, subject to later variation. In such a case, if I may quote what I said in Carmichael v. National Power plc [1999] 1 WLR 2042, 2050 – 2051:
‘The evidence of a party as to what terms he understood to have been agreed is some evidence tending to show that those terms, in an objective sense, were agreed. Of course the tribunal may reject such evidence and conclude that the party misunderstood the effect of what was being said and done.’
65. In a case in which the prior consensus was based wholly or in part on oral exchanges or conduct, such evidence may be significant. A party may have had a clear understanding of what was agreed without necessarily being able to remember the precise conversation or action which gave rise to that belief. Evidence of subsequent conduct may also have some evidential value. On the other hand, where the prior consensus is expressed entirely in writing, (as in George Cohen Sons & Co Ltd v. Docks and Inland Waterways Executive (1950) 84 Lloyd’s Rep 97) such evidence is likely to carry very little weight. But I do not think that it is inadmissible.
66. In this case there was no suggestion that the prior consensus was based on anything other than the May letter. It is agreed that the terms of that letter were accepted by Chartbrook and no one gave evidence of any subsequent discussions which might have suggested an intention to depart from them. It follows that (on the assumption that the judge was right in his construction of the ARP definition) both parties were mistaken in thinking that it reflected their prior consensus and Persimmon was entitled to rectification.”
7.66 Baroness Hale in the same case who, like all the other members of the House approved Lord Hoffman’s analysis, in the context of rectification for common mistake, stated as follows (at para 100):
“Negotiations where there was no such consensus are indeed “unhelpful”. But negotiations where consensus was reached are very helpful indeed. If the language in the eventual contract does not reflect that consensus, then unless there has been a later variation of it, the formal contract should be rectified to reflect it. It makes little sense if the test for construing their prior consensus is different from the objective test for construing their eventual contract.”
7.67 It seems to this Court that the speeches of Lord Hoffman and his fellow Law Lords, in so far as they endorse the application of the objective test of common intention to cases where rectification is sought on the basis of common mistake, display compelling logic. I approve of them in that regard and consider that the objective test of common intention also represents the law in this jurisdiction.
5. The appropriate standard of proof, in relation to rectification for common (and indeed unilateral mistake) is proof on the balance of probabilities.
7.68 An examination of the authorities makes clear that the standard of proof in rectification cases is the same as in other cases, namely the balance of probabilities, subject to the qualification that where (as in the case of unilateral mistake) issues of fraud or concealment arise, or where (in the case of common mistake) a party seeks to depart from a written document executed by it, cogent evidence may have to be adduced to satisfy the requirement of proof on the balance of probabilities.
7.69 Brightman L.J. in Thomas Bates & Son Ltd. v. Wyndham’s (Lingerie) Ltd. [1981] 1 WLR 505 explained this principle as follows (at p. 521):
“The standard of proof required in an action of rectification to establish the common intention of the parties is, in my view, the civil standard of balance of probability. But as the alleged common intention ex hypothesi contradicts the written instrument, convincing proof is required in order to counteract the cogent evidence of the parties’ intention displayed by the instrument itself. It is not, I think, the standard of proof which is high, so differing from the normal civil standard, but the evidential requirement needed to counteract the inherent probability that the written instrument truly represents the parties’ intention because it is a document signed by the parties”.
7.70 He further went on to state that:
“[t]he standard of proof is no different in a case of so-called unilateral mistake such as the present. The mistake in the instant case was unilateral and not mutual only because the tenants became aware of the implications of the review clause on the eve of the execution of the new lease. That consideration, as it seems to me, leads to no different conclusion in relation to the standard of proof required in a rectification action.”
7.71 Buckley L.J. in the same case took a similar view (at p. 514):
“Mr. Nugee has said that there is no evidence as to what Mr. Bates’ intention was, and he stressed that in cases of rectification a high standard of proof is required by the court. Indeed, in some cases the standard has been equated with the criminal standard of proof “beyond all reasonable doubt.” I think that the use of a variety of formulations to express the degree of certainty with which a particular fact must be established in civil proceedings is not very helpful and may, indeed, be confusing. The requisite degree of cogency of proof will vary with the nature of the facts to be established and the circumstances of the case. I would say that in civil proceedings a fact must be proved with that degree of certainty which justice requires in the circumstances of the particular case. In every case the balance of probability must be discharged, but in some cases that balance may be more easily tipped than in others.”
7.72 Buckley L.J. referred to the statement of Denning L.J. in Hornal v. Neuberger Products Limited [1957] 1 Q.B. 247, 258 to the effect that
“[t]he more serious the allegation the higher the degree of probability that is required: but it need not, in a civil case, reach the very high standard required by the criminal law.”
7.73 He then stated:
“[t]hat, in my judgment, encapsulates the law about the standard of proof required in civil proceedings applicable to all civil proceedings, and as applicable to cases of rectification as to any other kind of civil action.”
7.74 Keane J. giving judgment in the High Court in Irish Life Assurance Company Ltd. v. Dublin Land Securities Ltd. [1986] 1 I.R. 332 took issue with a statement of Pennycuick J. in Roberts (A) & Co. Ltd. v. Leicestershire County Council [1961] Ch. 555 as to the standard of proof in rectification cases. Pennycuick J had said:
“It is well established that a party claiming rectification must prove his facts beyond reasonable doubt, and I think this high standard of proof must equally apply where the claim is based on the principle indicated above.” (The principle of equitable estoppel).
Commenting on this Keane J. said (at p 351):
“It may be that this passage puts the burden of proof on the plaintiff at too high a level (see the observations of Brightman L.J. in Bates (Thomas) & Son v. Wyndham’s Lingerie [1981] 1 WLR 505 at p. 521)”
7.75 This Court is satisfied on the basis of the authorities that have been opened to it that the standard of proof in rectification cases, whether rectification for common mistake or unilateral mistake, is proof on the balance of probabilities. However, if the circumstances which need to be proved in order for the claim to succeed, are inherently unlikely, it will be necessary for the claimant to adduce particularly cogent evidence as to the existence of those circumstances before a court will be satisfied to act. But the test is still proof on the balance of probabilities, which is the civil standard of proof.
7.76 The way in which the civil standard of proof operates in cases like this is well illustrated in the following quotation from the speech of Lord Hoffman in Secretary of State for the Home Department v. Rehman [2003] 1 AC 153, 155. The learned Law Lord said:
“a high ‘civil balance of probabilities’ is an unfortunate mixed metaphor. The civil standard of proof always means more likely than not. The only higher degree of probability required by law is the criminal standard. But as Lord Nicholls of Birkenhead explained in In re H (Minors) (Sexual Abuse Standard of Proof) [1996] AC 563, 586, some things are inherently more likely than others. It would need more cogent evidence to satisfy one that the creature seen walking in Regent’s Park was more likely than not to have been a lioness than to be satisfied to the same standard of probability that it was an Alsatian. On this basis, cogent evidence is generally required to satisfy a civil tribunal that a person has been fraudulent or behaved in some other reprehensible manner. But the question is always whether the tribunal thinks it more probable than not”.
7.77 In the case of rectification for common mistake, clear evidence of continuing outward expression of accord must be shown.
The Law on Unilateral Mistake
7.78 The original position of Equity was that rectification was only available for common or mutual mistake and not for unilateral mistake.
7.79 Monaghan County Council v. Vaughan [1948] I.R. 306 and Daniel Nolan v. Maria Nolan (1958) 92 I.L.T.R 94 in which rectification was granted for mutual (now common) mistake against a party who was aware, at the date of execution of a document, that that document did not reflect a prior agreement reached by it with the party seeking rectification, are sometimes classified as unilateral mistake cases. However the basis on which relief was granted in these cases was common or “mutual” mistake. In neither case had the party who was aware of the mistake communicated their change of intention to the other side and it may be that these cases are more accurately classified as examples of rectification for common mistake on the basis that there was nothing in the parties’ conduct, looked at objectively, justifying an inference of intention to depart from the prior common intention outwardly expressed by them.
7.80 The judgment of Pennycuick J in Roberts (A.) & Co. Ltd. v. Leicestershire County Council [1961] Ch. 555 was a significant step forward in relation to rescission for unilateral mistake insofar as for the first time a separate and distinct jurisdiction to rescind where one party only was mistaken was judicially recognised.
7.81 In Roberts the plaintiff submitted a tender to the defendant council for a construction project. The tender specified 18 months as the period for completion of the works. Shortly afterwards, the defendant wrote a letter that contained an unequivocal acceptance of the tender. However, the letter failed to draw attention to the fact that the officers of the defendant had earlier resolved that the period for completion to be inserted in the proposed written contract should be 30 months, not 18 months. This was a material departure from the terms of the tender because the price for a 30-month construction period would have been higher.
7.82 When the written contract was eventually received and executed by the plaintiff’s directors they did not notice that the specified date for completion was 30 September 1956, not 30 September 1955. Furthermore, various discussions between the parties prior to the defendant executing the contract drew the latter’s attention to the fact that the plaintiff was still proceeding on the basis of an 18-month completion.
7.83 Pennycuick J. granted rectification of the contract on the basis of the following principle stated in Snell’s Principles of Equity:
“By what appears to be a species of equitable estoppel, if one party to a transaction knows that the instrument contains a mistake in his favour but does nothing to correct it, he (and those claiming under him) will be precluded from resisting rectification on the ground that the mistake is unilateral and not common.”
7.84 Significantly, the learned judge observed that, on the basis of this principle, knowledge on the part of the defendant that the plaintiff was executing the contract under a mistake was sufficient without the need to establish “any particular degree of obliquity” or dishonesty on the part of the defendant.
7.85 Kenny J. in Lucey v. Laurel Construction (Unreported, High Court, Kenny J., 18 December 1970) clearly had the decision in Roberts in mind when he stated that
“the Court has jurisdiction to rectify a written agreement made between parties only when either there is a mutual mistake made by the two parties in the drafting of a written agreement which is to give effect to a prior oral agreement or when one party sees a mistake in the written agreement and when he knows that the other party has not seen it and then signs the document knowing that it contains a mistake.”
7.86 The jurisdiction to rectify for unilateral mistake was confirmed in Riverlate Properties Ltd. v. Paul [1975] Ch. 133. In this case the plaintiff lessor sought rectification of a lease that it mistakenly believed imposed an obligation on the lessee to share the cost of exterior repairs. Although the plaintiff’s claim was ultimately rejected because the evidence failed to establish that the mistake was shared by or known to the lessee, let alone that she was in any way responsible for it, the case clearly recognises that a mistake may provide grounds for rectification even where not shared by the other party where the situation is such as to involve that other party in “a degree of sharp practice”.
7.87 Rectification for unilateral mistake fell to be considered in Thomas Bates & Son Ltd. v. Wyndham’s (Lingerie) Ltd. [1981] 1 WLR 505 which concerned a lease of factory premises providing for rent reviews at the end of the fifth and tenth years of the term and stating that the rent payable during the review periods was to be agreed between the parties. This clause was defective since it failed to include the machinery that was to apply in default of agreement.
7.88 The lease had initially been negotiated pursuant to a renewal clause in the previous lease that provided for arbitration in the event that the parties could not agree the rent for the new term. It was found that it had been the common intention of the parties until just before the signing of the new lease that a similar arbitration clause should apply to rent reviews. The lessee then noticed the omission but failed to draw it to the lessor’s attention.
7.89 It was held by the Court of Appeal that the lessor was entitled to rectification. According to Buckley L.J., it sufficed that
“the conduct of the defendant [was] such as to make it inequitable that he should be allowed to object to the rectification of the document”
Although conceding that this might imply “some measure of ‘sharp practice’”, Buckley L.J. preferred to view the doctrine as “one which depends on the equity of the position”, describing the requirements for rectification in cases of unilateral mistake as follows (at p. 517):
“First, that one party A erroneously believed that the document sought to be rectified contained a particular term or provision, or possibly did not contain a particular term or provision which, mistakenly, it did contain; secondly, that the other party B was aware of the omission or the inclusion and that it was due to a mistake on the part of A; thirdly, that B has omitted to draw the mistake to the notice of A. And I think there must be a fourth element involved, namely, that the mistake must be one calculated to benefit B. If these requirements are satisfied, the court may regard it as inequitable to allow B to resist rectification to give effect to A’s intention on the ground that the mistake was not, at the time of execution of the document, a mutual mistake.”
7.90 Accordingly where the requirement of continuing common intention, outwardly expressed, is not satisfied, there may still be rectification for unilateral mistake in certain circumstances. Rectification for unilateral mistake differs from rectification for common mistake insofar as it is granted, not in order to give effect to a prior agreement of the parties, but rather, on the basis of an estoppel arising as a result of unconscionable behaviour by the non-mistaken party.
7.91 However the learned High Court judge felt it was unnecessary to consider such fine distinctions any further, because it was clear in the case before him that Mr. Frederick was not aware that a mistake was being made in the execution of the contract. Accordingly there was neither “sharp practice” on his part nor anything in his conduct either prior to, or at the time of, the execution of the contract which rendered it unconscionable for him to take his stand on the contract as executed by both parties. Keane J. contrasted the facts of the case before him with those in Roberts where
“there was the clearest evidence that the defendant, through its officer, executed the contract in the knowledge that it contained a term which the plaintiff never intended to include and refrained from drawing its attention to it.” (at p. 351 of the report)
7.92 Griffin J., delivering the judgment of the Supreme Court on appeal in this case, further considered the law on rectification. Although recognising that, as a general rule, the courts only rectify an agreement in writing where there has been a shared mistake, – i.e. where it fails to record the intention of both parties, Griffin J went on to cite Lucey, Roberts and Riverlate Properties, respectively, as authority for the proposition that a party who has entered into a written agreement by mistake will also be entitled to rectification if he establishes by convincing evidence that the other party, with knowledge of such intention and mistake, nevertheless concluded the agreement where the knowledge was such as to involve him in a degree of “sharp practice”.
7.93 Griffin J. held further that the question to be addressed in that case was whether there was convincing proof, reflected in some outward expression of accord, that the contract in writing did not represent the common continuing intention of the parties on which the court can act, and whether the plaintiff can positively show what that common intention was in relation to the provisions which the appellant says were intended to exclude the vacant lands at Palmerstown.
7.94 On the facts of the case, Griffin J. held that there was no common or mutual mistake insofar as the defendant did not share the intention of the plaintiff that the properties would be excluded. The situation was instead one of unilateral mistake. However there was no knowledge or sharp practice on the part of the defendant so as to entitle the Court to grant rectification for unilateral mistake.
7.95 The jurisdiction of the courts to grant rectification for unilateral mistake was considered by the Irish courts in Irish Life Assurance Company Limited v. Dublin Land Securities Limited [1986] I.R. 332 (H.C.); [1989] I.R. 252 (S.C.). In this case the plaintiff vendor contended that a contract for sale had been entered into by mistake and did not reflect its true intention insofar as it purported to include certain properties at Palmerstown which the plaintiff had not intended should be included. The plaintiff instituted proceedings in the High Court seeking rectification of the contract so as to exclude the Palmerstown properties and an order of specific performance of the contract as so rectified.
7.96 Although it had not been pleaded by the parties, Keane J. in the High Court went on to consider the doctrine of unilateral mistake, stating that although Gun v. McCarthy (1884) 13 L.R. Ir. 304 indicated that the only remedy for such mistake was rescission, later authority suggested that rectification might be granted for unilateral mistake if there had been some element of fraud or “sharp practice” on the part of the person against whom the relief is sought; or, to put it at its lowest, where it would be inequitable in the circumstances to allow that person to retain a benefit derived from the mistake.
7.97 Keane J. indicated that knowledge of mistake on the part of the other party would be sufficient to justify rectification, stating (at p. 353) that:
“It is perhaps somewhat over fastidious to shrink from applying the description of ‘sharp practice’ to the conduct of a party who recognises that the other party to the contract is executing it under a mistake which can only be detrimental to him and deliberately suppresses his recognition of that fact.”
7.98 The subsequent judgment of Costello J. in O’Neill v. Ryan (No. 3) [1992] 1 I.R. 166 is noteworthy for the approval, by Costello J., of the term “common mistake” as used to refer to a mistake shared by both parties, and the term “unilateral mistake” as used to refer to the mistake of one party only. This is the terminology that has been adopted by all recent Irish and United Kingdom decisions and as such has been followed for the purposes of this judgment. The term “mutual mistake” used in many earlier decisions to refer to shared or common mistake is here given a different meaning to refer to a situation where, objectively viewed, there is no contract because the parties are not ad idem.
7.99 On the question of rectification, Costello J. stated (at p. 185) that
“the court will… grant relief by way of rectification where the parties have reached an agreement but where an error is made in giving effect to the parties’ common intention in its written agreement. The general rule is that where there is a common shared mistake in that the written agreement fails to record the intention of both parties the court will order its rectification.”
In relation to rectification for unilateral mistake, Costello J stated further that
“Rectification may also be ordered when a party has entered into a written agreement by mistake if he establishes that the other party with knowledge of the mistake concluded that agreement (see Irish Life Assurance Co. Ltd. v. Dublin Land Securities Ltd [1989] I.R. 253, 260 and Monaghan County Council v. Vaughan [1948] I.R. 306, 312)”
7.100 One issue that arises is the degree of unconscionability required to justify rectification for unilateral mistake. It is clear from the cases previously cited that knowledge of the mistake by the non-mistaken party is sufficient in that regard.
7.101 The English courts in Commission for the New Towns v. Cooper (Great Britain) Ltd. [1995] Ch. 259 considered the meaning of “knowledge” for this purpose. In that case the document in respect of which rectification was sought was an agreement which had been entered into between the parties to settle a long-standing dispute. The terms of the agreement conferred certain valuable rights on the defendant that were not intended by the plaintiff. Indeed, the plaintiff had not given the slightest thought to those rights. The defendant deliberately engineered the situation and set a cunning trap that the plaintiff fell into. By means of various misleading statements, and creation of a smokescreen, it sought to divert the plaintiff’s attention from the fact that the language used in the agreement was wide enough to confer the rights in question and, indeed, that the real objective was to secure them. In these broad circumstances, the Court of Appeal held, inter alia, that it was just and equitable to rectify the contract so that it reflected the terms that the plaintiff intended to accept.
7.102 Apart from holding that actual knowledge extended to wilfully shutting one’s eyes to the obvious (“turning a blind eye” or “Nelsonian” knowledge), and wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make, it was suggested that actual knowledge on the part of the non-mistaken party was not an essential pre-condition to the availability of rectification for unilateral mistake.
7.103 Stuart-Smith L.J., with whom Evans and Farquharson L.JJ. agreed, stated (at p.280) that:
“ [W]ere it necessary to do so in this case, I would hold that where A intends B to be mistaken as to the construction of the agreement, so conducts himself that he diverts B’s attention from discovering the mistake by making false and misleading statements, and B in fact makes the very mistake that A intends, then notwithstanding that A does not actually know, but merely suspects, that B is mistaken, and it cannot be shown that the mistake was induced by any misrepresentation, rectification may be granted. A’s conduct is unconscionable and he cannot insist on performance in accordance to the strict letter of the contract; that is sufficient for rescission. But it may also not be unjust or inequitable to insist that the contract be performed according to B’s understanding, where that was the meaning that A intended that B should put upon it.”
7.104 Evans L.J. in a separate judgment regarded rectification for unilateral mistake as permissible where the non-mistaken party’s conduct was unconscionable and went
“beyond the boundaries of fair dealing even in an arm’s length commercial negotiation.”
7.105 These principles were affirmed by the Court of Appeal in George Wimpey U.K. Ltd. v. V.I. Construction Ltd. [2005] E.W.C.A. Civ.; [2005] BLR 135 in which an appeal against an order for rectification on the basis of unilateral mistake was allowed on the basis that the trial judge had erred in holding the defendant to have acted dishonestly. At para. 47 of his judgment, Peter Gibson L.J. stated that: “convincing evidence that VIC shut its eyes to the obvious or wilfully and recklessly failed to do what an honest and reasonable person would have done in the circumstances, and it would not be inequitable to allow VIC to resist the claim for rectification” would have entitled the plaintiff to rectification on the basis of unilateral mistake.
7.106 I am satisfied on the authorities that where the conduct of the non-mistaken party goes beyond the boundaries of fair dealing and is unconscionable it is open to the Court to grant rectification, even in the case of an arm’s length commercial transaction where the parties have been legally represented in the course of their negotiations. Examples are to be found in the cases of Monaghan County Council v. Vaughan [1948] I.R. 306; Commission for the New Towns v. Cooper (Great Britain) Ltd. [1995] Ch. 259; Roberts (A.) & Co. Ltd. v. Leicestershire County Council [1961] Ch. 555; Thomas Bates & Son Ltd. v. Wyndham’s (Lingerie) Ltd. [1981] 1 WLR 505; Littman v. Aspen Oil [2005] EWCA Civ 1579 and Coles v. William Hill Organisation [1999] L. & T.R 14.
7.107 In Littman v. Aspen Oil [2005] EWCA Civ 1579 the claimant landlords and the defendant tenant had agreed in principle to enter into a five-year lease that was to contain a mutual right to break after three years. No limitation on either party’s right to break was discussed let alone agreed. Nevertheless, the landlords’ solicitor set about drafting a clause that made the tenant’s right to break conditional upon due performance of all its covenants under the lease. Unfortunately, the clause in the draft lease contained an obvious mistake that rendered it a commercial nonsense. Read literally, it made the landlords’ right to break conditional on the tenant’s performance of its covenants. The tenant’s solicitor recognised the mistake but, most unwisely as it transpired, decided to say nothing at all on the matter since the clause, as drafted, “could do his clients no harm”. Viewing the clause as a “ try on”, he decided to adopt what one might call a “ tit-for-tat” response. He accepted the clause “not only knowing that [the landlords’ solicitor] had made a mistake but also what she had really meant.”
7.108 When the tenant later purported to terminate the lease pursuant to the break clause, the landlords disputed its right to do so because it was in breach of obligations under the lease.
7.109 Jacob L.J., with whom May L.J. agreed, held that, assuming the break clause had to be construed literally, the landlords were entitled to rectification on the ground of known unilateral mistake. The four requirements laid down by Buckley L.J. in Thomas Bates were satisfied and his Lordship could: –
“see no legitimate reason not to regard this attempt to take advantage of an obvious drafting error as inequitable” (para 19)
In addition, he thought that:-
“in reality [the tenant’s solicitor’s] conduct amounted to an agreement–by accepting the clause knowing what the other side thought it meant, he was accepting just that and equity should not allow him to resile” (at para 24)
7.110 Similar principles were applied in Coles v. William Hill Organisation [1999] L.&T.R. 14 to allow rectification for unilateral mistake in another arms length commercial transaction, where a landlord and tenant were supposed to be extending a lease on the same terms and the landlord’s solicitor mistakenly included a break clause operable by the tenant which the tenant’s solicitor noticed but chose not to mention.
8. The Defendant’s Case – Submissions:
8.1 The defendant (Templeville) having applied for a non-suit at the end of the plaintiff’s (i.e. Leopardstown’s) case, seeks a order that the plaintiff’s case should be dismissed, and does so in circumstances where it has elected not to go into evidence in the event that the application is refused. The defendant submits that it is entitled to “a dismiss” because the plaintiff has not established as a matter of probability the facts necessary to support a verdict in its favour. The defendant went first in presenting its submissions to the Court because it is the moving party in the application for a non-suit. The plaintiff then replied, and the defendant made some further submissions by way of rejoinder. It is proposed to follow the same order for the purposes of this judgment and to consider the moving party’s (i.e. the defendant’s) case first of all, followed by the respondent’s (i.e. the plaintiff’s) case.
8.2 The defendant has filed detailed written submissions and has sought to amplify these in oral argument. The Court will attempt to summarize the defendant’s main arguments.
8.3 In the first instance the defendant makes a number of important preliminary points (some of which are further developed later on).
Preliminary Points.
Rectification of a carefully negotiated document is unusual
8.4 The defendant observes that rectification of an agreement carefully negotiated with legal assistance over a long period of time is particularly unusual. The defendant says that where it is clear that any agreement is to be embodied in a formal executed document (or documents) both parties are normally fully aware and intend that the negotiated and executed documents are to be binding, and they are equally anxious to avoid any agreement coming into existence other than what is combined in those documents. It was submitted that the true intention on the Leopardstown/I.H.A. side was that of any party to a formally negotiated contract: to agree and be bound by the terms of a carefully negotiated document. It was further submitted that far from establishing a case for rectification, the case is a classic example of why the law is so slow to attempt to read the minds and intentions of negotiators, lawyers and clients and is only prepared to treat what the parties finally subscribed to in writing as what must be taken to represent their intention.
Plaintiff has failed to say which theory of rectification he relies upon
8.5 The point is made that the factual circumstances supporting rectification on the grounds of mutual mistake are very different from those supporting rectification on the grounds of unilateral mistake. The defendant argues that while the plaintiff is quite entitled to plead the case in the alternative, now that the evidence has been given, it is incumbent upon the plaintiff to say which theory of rectification it now seeks to rely upon. The plaintiff has failed to do so.
The plaintiff bears a heavy burden of proof – need for convincing evidence
8.6 The defendant stresses that the plaintiff bears a heavy onus of proof. This is particularly so where the documentation is executed following prolonged negotiations with the benefit of legal advice.
8.7 It is argued (without prejudice to the point made under the immediately preceding subheading) that if the plaintiff is to succeed on the grounds of common mistake it must satisfy the three requirements specified by Lowry L.C.J. in Rooney & McParland v. Carlin and approved by Keane J. in Irish Life Assurance Company Ltd. v. Dublin Land Securities Ltd., and, further, establish by convincing evidence:
(i) The common intention of the parties;
(ii) That the said intention was continuing;
(iii) Outward expression of accord of the alleged common intention;
(iv) That the contract in writing did not represent the continuing common intention.
8.8 If, on the other hand, the plaintiff is to succeed on the basis of unilateral mistake, it must provide convincing proof that it was mistaken and that the defendant concluded the agreement with knowledge of the mistake. An additional burden to be discharged is that of providing, by means of convincing evidence, sufficient proof to establish that as a matter of probability the defendant’s knowledge of the mistake was such as to justify a finding of fraud, “sharp practice” or unconscionability amounting to dishonesty.
8.9 The defendant contends that the plaintiff has not discharged the burden of proof upon it under either heading.
Equity does not rectify an agreement, only an instrument.
8.10 As a predicate to the point to be made under the next subheading, the defendant stresses the proposition that equity does not rectify an agreement, only an instrument. It draws the Court’s attention to Snell’s Equity, (13th ed), wherein it is stated at para. 43-01:
“If by mistake a written instrument does not accord with the true agreement between the parties, equity has the power to reform, or rectify, that instrument so as to make it accord with the true agreement. What is rectified is not a mistake in the transaction itself, but a mistake in the way in which the transaction has been expressed in writing. Courts of Equity do not rectify contracts; they may and do rectify instruments purporting to have been made in pursuance of the terms of the contract”
Accordingly, one can only rectify an agreement so that it accords with the true agreement between the parties.
Party seeking rectification must state what was the true agreement
8.11 The defendant asserts that a party seeking rectification is required to specifically state what the alleged agreement between the parties was in respect of the relevant issue. The Court is referred to Bullen & Leake, Precedents of Pleadings, (13th ed.). The learned authors of this widely respected work state the following with respect to the pleading of a claim for rectification:
“The pleading should state with clarity what the actual agreement concluded between the parties was or the true intention of the parties at the time of execution of the written agreement or other document, and in what respects this agreement or document does not embody or accord with such actual agreement or the true intentions of the parties. The mistake relied on should be clearly stated, showing its nature, character or extent.”
8.12 The defendant alleges that the plaintiff has been, and remains, unable to state what was the alleged true agreement between the parties. Further, it has failed to establish a common understanding as to what this supposed alternative agreement was even as between its own witnesses. The defendant says it is not enough for the plaintiff to say what the parties did not intend. It is incumbent on the plaintiff to say what they did intend. The defendant says the plaintiff has never done so, and because there never was any concluded antecedent agreement it is, and always will be, unable to do so.
Effect of proposed rectification unclear
8.13 The plaintiff seeks to effect rectification by inserting the following clause into the Licence:
“Nothing in this Licence shall be construed as obliging Leopardstown Club Limited to provide a demise of any area for car parking as a replacement for Templeville Development Limited’s licence to park cars in any part of the area hatched yellow on Map No. 1 attached hereto”.
8.14 The defendant contends that this negative declaration handed up to the Court at the opening of the case by Leopardstown is not, by its very nature, an articulation of any alternative “true” agreement. Further, the defendant asks: is Leopardstown asking the Court to revise the agreements so that Templeville has car parking rights (rather than a leasehold interest) as a replacement to its entitlement to park cars in the entire of the area hatched yellow? Or is it instead seeking that the agreements be amended to limit Templeville’s car parking entitlements to those set out in the 1998 Lease? The defendant says it is unclear as to which it is, but that if the latter construction is correct then the effect of it would be to confer benefits on Leopardstown that it neither contemplated nor agreed in June 1998. The defendant asserts that it is inherently objectionable that Leopardstown has not attempted to identify the amendments necessary to give rise to whatever rectification it seeks. The defendant contends that the plaintiff is asking the Court to become the ultimate draftsman in relation to the agreements – contrary to established practice for very legitimate reasons.
He who comes to Equity must come with clean hands
8.15 The defendant says that insofar as it purports to deprive Templeville of car parking rights equivalent to those under the 1993 Lease, the claim is unstateable. Even assuming that the Court was satisfied that Leopardstown did not intend to demise land to Templeville, Leopardstown is not entitled to claim that car parking rights are less in quantum than those under the 1993 Lease. This is so as relief by way of rectification is an equitable remedy which is in the discretion of the Court. Discretionary factors are relevant to the exercise of this jurisdiction including the absence of clean hands. It is submitted that if a party has exaggerated its mistake, relief ought to be refused in the exercise of that discretion. The defendant asserts that there has been such exaggeration. According to the defendant, Leopardstown (on one version of its evidence) contends that Templeville’s rights are limited as set out in the 1998 Lease. The defendant says that this is plainly contradictory to the evidence of the drafter of the Licence (Mr. Brunker). He understood Templeville to have car parking rights over an area equivalent to the area hatched yellow. If Leopardstown contends that the extent of Templeville’s car parking rights (irrespective of their nature) are less than the area hatched yellow, it is now seeking to obtain a benefit that it did not itself envisage arising upon the execution of the documentation. Such a result is plainly inequitable. The defendant further respectfully submits that it is also a nonsensical result because it presumes that Templeville would have been satisfied with something less than it had under the 1993 Lease notwithstanding the loss of part of the area hatched yellow.
The Court should draw inferences adverse to the plaintiff
8.16 The defendant maintains that the plaintiff has failed to adduce evidence in respect of two critical matters (i) Leopardstown’s intention on the date of execution of the Licence and (ii) the intention of the I.H.A. as of that date. The defendant submits that on account of this alleged failure the Court ought to draw inferences in that regard adverse to the plaintiff.
8.17 The defendant submits that the circumstances in which a Court may draw such inferences was addressed by Laffoy J. in Fyffes p.l.c. v. DCC & Ors, (Unreported, Laffoy J., 21 December, 2005). She approved the principles set out in Wisniewski v. Central Manchester Health Authority, [1998] Lloyd’s Med. Rep, 223 where Brooks L.J. summarised them as follows:
“From this line of authority I derive the following principles in the context of the present case:
(1) In certain circumstances the court may be entitled to draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in an action.
(2) If a court is willing to draw such inferences they may go to strengthen the evidence adduced on that issue by the other party or to weaken the evidence, if any, adduced by the party who might reasonably have been expected to call witnesses.
(3) There must, however, have been some evidence, however weak, adduced by the former on the matter in question before the court is entitled to draw the desired inference: in other words, there must be a case to answer on that issue.
(4) If the reason for the witness’s absence or silence satisfies the court, then no such adverse inference may be drawn. If, on the other hand, there is some credible explanation given, even if it is not wholly satisfactory, the potentially detrimental effect of his/her absence or silence may be reduced or nullified.”
The Defendant’s Core or Principal Submissions – Common Mistake
8.18 The defendant’s core or principal submissions as to why the plaintiff has not established as a matter of probability the facts necessary to support a verdict in its favour may be summarized as follows: (1) The plaintiff has failed to identify by convincing proof the mistake /mistakes allegedly made; (2) The plaintiff has failed to demonstrate a concluded agreement and to establish any outward expression of accord; (3) The plaintiff has failed to identify the alleged “true” antecedent agreement; (4) The plaintiff is unable to clearly demonstrate its own intention, never mind any alleged common intention; (5) the plaintiff has failed to positively show a continuing common intention; (6) the draft Heads of Agreement and the 1998 Licence are entirely consistent with an intention to demise car parking; and (7) the Licence accurately represents Templeville’s intention.
8.19 It is proposed to deal in some detail with the submissions under these sub-headings. However, it is worth remarking that as there is considerable overlap between them, and some overlap with the preliminary points already made, the Court intends to eschew unnecessary repetition.
Failure to identify by convincing proof the mistake /mistakes allegedly made
8.20 The defendant contends that in reviewing Leopardstown’s alleged mistake, a number of matters ought to be considered. First, Leopardstown was legally advised at all stages in negotiations. In fact, not only was all documentation reviewed by Leopardstown, it was similarly reviewed by the I.H.A. Secondly, there was a difficult relationship between the parties. Hugh O’Neill S.C. noted that ‘quite a number of areas of dispute have arisen despite the fact that the Lease …was executed a mere four years ago’. He concluded that having regard to the ‘history of dealings between the parties to date it seems quite likely that further disputes will arise’. The defendant says that one must assume that against such a background, Leopardstown would scrutinise the written documentation carefully. They say that, presumably, it did so, as did A&L Goodbody and the I.H.A. Notwithstanding that Templeville signed the documentation on 23 January 1998, Leopardstown failed to do so until 5 June 1998 and only after it negotiated a series of further concessions from Templeville. It therefore had more than ample time to consider the documents and seek any necessary clarification and/or amendments and indeed did so in a number of respects. The defendant says that given the express definition of the ‘New Site’ and indeed the terms of the Licence itself, it is difficult for it to accept that Leopardstown did not agree to the demise of the New Site. Certainly, Leopardstown agreed to it in the wording of the document it signed and neither Mr. Halpenny nor Mr. Smyth had any reason to doubt that this was the case.
8.21 As the Arbitrator has found, the Licence provides for a demise of car parking. The defendant submits that if Leopardstown failed to understand the consequences of the agreement it executed (upon advice), that is not a matter which can or should be visited on Templeville. If Leopardstown made a mistake in respect of the definition of the ‘New Site’ or Templeville’s car parking entitlements, it is clear from the decision of the Arbitrator that it was mistaken in respect of many other provisions in the Licence. However, the defendant does not accept that the plaintiff was mistaken and urges upon the Court that the plaintiff has failed to produce convincing proof of any mistake. Further, it is the defendant’s case, that whatever about the plaintiff being mistaken (which it does not accept), there was no mistake on its part, and therefore there was certainly no common mistake.
8.22 The defendant has sought to review briefly, for the benefit of the Court, Leopardstown’s contention that it made a mistake in relation to the addition of the term ‘parking’ to the definition of the ‘New Site’ made on 9 January 1998. While Mr. Halpenny marked the initial change, it was in fact Mr. Brunker who made the change to the documentation. The defendant contends that it must be presumed that, in so doing, the amendment was considered and scrutinised. Indeed, it was reviewed by Leopardstown, its legal team and subsequently by the I.H.A. This is not a case where a change was made by a party and not alerted to another. There is no suggestion of suppression in the within proceedings. Leopardstown itself inserted the addition into the draft documentation. In fact, Mr. Brunker further clarified the term to include the word ‘car’. Again, says the defendant, one must assume that this issue was considered by Leopardstown and Mr. Halpenny was fully entitled to assume that it had been so considered. Mr. Brunker has stated in his evidence to the Court, that he considered that the purpose of the insertion was “just to ensure that there would be car parking rights with the new site” Therefore, the defendant says, it appears that a further ‘mistake’ is alleged by Leopardstown – that when Mr. Brunker took Mr. Halpenny’s word “parking” and changed it to “car parking”, he intended to, but did not change it to “car parking rights.” There is no evidence that Mr. Halpenny knew anything about these internal thought processes of Mr. Brunker, nor could he have done so.
8.23 The defendant says that although Leopardstown now contends that it was never its intention to grant a demise of car parking rights, there is evidence to suggest that Templeville agreed with this alleged intention. It is therefore submitted that that is sufficient in itself to address plaintiff’s claim based on common mistake.
Failure to identify the true agreement and to establish outward expression of accord
8.24 The defendant says that that the evidence establishes that as of 24 November 1997, Leopardstown did not believe that it had a concluded agreement. It says that while it was clear that the parties were amenable to reach a compromise, a process of refinement was required whereby any agreement would be reduced to writing. The evidence makes plain that Leopardstown did not believe itself legally bound in respect of any arrangements with Templeville, as of November 1997. A drafting exercise was required which would involve consideration of the precise requirements of both parties. This would highlight, of necessity, differences between the parties. Leopardstown could not reasonably have believed following the meeting of 24 November 1997 that the matters in issue were finally concluded. While progress was made at the meeting to allow the drafting process to commence, that was a process which would highlight difficulties and raise further issues for negotiation between the parties. It could only be on the culmination of that process that a ‘concluded agreement’ be reached. In truth, the process continued until 5 June 1998 and the defendant says that at no stage can it be suggested that a concluded agreement was reached prior to that point.
8.25 The defendant submits that the most telling evidence that a concluded agreement was not reached on 24 November 1997 is from Leopardstown’s own witnesses. It says that, on the evidence of Mr. Justice Clarke and Mr. Law, Templeville agreed on 24 November 1997 to limit its car parking rights to specified areas. However, as of June 1998 (and indeed January 1998), Mr. Brunker was in no doubt that he understood Templeville to be entitled to car parking rights equivalent to that lost in the area hatched yellow. If Leopardstown’s evidence is accepted, there was a change in the agreement in respect of car parking between November and January 1998.
8.26 The defendant contends that when one considers the negotiations between the parties, it is clear that they were on-going until June 1998. Each party, but particularly Leopardstown, felt at liberty to re-open issues and raise new matters. There was no finality. It was by no means certain that any agreement would ultimately be concluded between them. Accordingly, the defendant contends that the plaintiff has failed to identify any “true” agreement concerning the provisions in controversy antecedent to the execution of the 1998 Licence, and has further failed to establish an outward expression of accord.
8.27 The defendant believes that Leopardstown may seek to claim such an agreement and outward expression of accord on the basis of the final Heads of Agreement. The defendant submits that, insofar as this is the case, it is misconceived for the following reasons:
8.28 First, the final Heads of Agreement contains no such provision such as that which the plaintiff now seeks to have inserted in the Licence by way of rectification. Secondly, and even more fundamentally, Leopardstown is now seeking to accord to the final Heads of Agreement a status which it refused to so confer when the final Heads of Agreement was drafted and/signed by Templeville. Leopardstown never executed the final Heads of Agreement. Following execution of the final Heads of Agreement by Templeville on the 17th of December 1997, Leopardstown refused to recognize it as binding. The defendant submits that in these circumstances, it is more than surprising that Leopardstown would now seek to rely at all upon the final Heads of Agreement. Though not a matter for Templeville, the final Heads of Agreement actually allows for a demise of car parking contrary to Leopardstown’s assertions.
8.29 The defendant further says that, insofar as the plaintiff now asserts that the final Heads of Agreement represents an outward expression of accord or a continuing common intention, this represents a volte face from the approach previously adopted by it. The defendant says that it is clear from contemporaneous correspondence that Leopardstown refused to acknowledge the final Heads of Agreement as being final or as having been “finalised”. By way of illustration only, the defendant refers to the letter dated 4 February 1998 from A & L Goodbody to P.C.L. Halpenny (previously quoted); a further letter dated 2 April 1998, from A& L Goodbody to P.C.L. Halpenny, marked ‘subject to Lease – Lease denied’ (previously referred to but not actually quoted), that stated:
“I would suggest that, in order to finalise all matters, a meeting should be held between us tomorrow, if possible. I believe it might also be appropriate that our clients’ respective Architects also attend such a meeting, to clarify any changes in the new plans and maps which should be reflected in the Lease and Licence documentation (emphasis supplied)”;
the letter dated 3 April 1998, from A & L Goodbody to P.C.L. Halpenny (previously quoted); the letter dated 29 April 1998, from A & L Goodbody to P.C.L. Halpenny (previously quoted); and a letter dated 25 May 1998, from A & L Goodbody to P.C.L. Halpenny (not previously referred to or quoted) which stated:
“…Our client’s insistence that your clients immediately cease the building works which they have undertaken is not wholly unreasonable, in that our clients have never formally consented to the carrying out of those works. No legally binding agreement was reached or concluded on 23rd January 1998, as alleged by you. At the meeting on 23rd January 1998 your clients were advised that before the documentation could be executed by our clients, it was necessary for them to procure the approval of the Irish Horseracing Authority. This approval was not forthcoming as various issues were raised by the authority, which required further discussion with you. These discussions have been ongoing since January.
The reason why our clients have delayed in seeking to prevent your clients from continuing with the buildings works, and have not acted on foot of earlier demands that your clients cease those works, is that they had anticipated that the issues raised by the Irish Horseracing Authority could be resolved and a full and final agreement reached. However, at this point in time, it appears it is not possible to reach final agreement…. (emphasis supplied)”.
8.30 The defendant submits that it is clear that, contrary to the case now sought to be made by Leopardstown, it did not regard the final Heads of Agreement as binding on it and at no point did Leopardstown regard the parties as having reached agreement until the documents were actually executed in June 1998.
8.31 The defendant further says that the following factors are illustrative of the fact that Leopardstown cannot sustain an argument that the final Heads of Agreement represented its expression of accord (let alone that of Templeville).
(i) The final Heads of Agreement were never signed by Leopardstown.
(ii) It does not appear that the final Heads of Agreement were ever furnished to the Board of Directors of Leopardstown or the I.H.A.
(iii) While the sixth Heads of Agreement was before the Board of Leopardstown on 5th December 1997, this was not approved by the Board. There was no unconditional agreement to the sixth Heads of Agreement. Instead, the minutes of the meeting of 5 December 1997 record that ‘the Directors agreed to approve the proposed Heads of Agreement subject to I.H.A. approval’ which in the event was not forthcoming. Furthermore, this is not the Heads of Agreement upon which Leopardstown now appears to rely. Instead, it is the final Heads of Agreement to which Leopardstown refers.
(iv) On 17 December, 1997 (the date that Templeville signed the final Heads of Agreement), the matter was before the Strategy and Finance Committee of the I.H.A. However, it did not approve any heads of agreement and made it clear that the I.H.A would not proceed unless all documents had been finalized and agreed. The defendant says that it is noteworthy that reference was made to matters to be agreed, and that this is contrary to Leopardstown’s assertions that the final draft Heads of Agreement was evidence of accord.
(v) There was further discussion concerning relevant issues, and an agreement was reached on some of them, subsequent to the preparation and execution by Templeville of the final draft Heads of Agreement, e.g. at the meeting held at the offices of A & L Goodbody on the 23rd of January 1998. Moreover certain matters were addressed in a manner inconsistent with the final Heads of Agreement. For example, it was agreed that Leopardstown would retain the option to build and/or fund the development. This, in turn, resulted in protracted negotiations between the parties. It was contrary to the final Heads of Agreement. Equally, it was ‘agreed’ that the ‘tarmacadam areas in front of the stand should not be used for car parking except for delivery purposes’. Again, this was at variance with the express wording of the final Heads of Agreement. The defendant submits that insofar as it is contended that the final Heads of agreement represented a concluded agreement in respect of car parking, plainly this cannot be so.
(vi) Not only did Leopardstown refuse to sign the said Heads of Agreement but the I.H.A. following review of the documentation signed by Templeville, made the signing of the Lease and Licence subject to 11 conditions.
(vii) Even assuming that the final draft Heads of Agreement represented an outward expression of accord (which cannot be sustainable), it cannot represent evidence of a continuing intention given that negotiations continued until 5 June 1998.
(viii) At no time, from 17 December 1997 until 5 June 1998, did Leopardstown assert that the final Heads of Agreement represented a final and/or binding agreement. In fact, it contended the opposite was the case. The documentation before the Court is replete with reference to Leopardstown’s contention, in 1997/1998, that nothing was agreed until everything is agreed.
Failure to identify the alleged “true” antecedent agreement
8.32 The defendant maintains that an instrument can only be rectified in accordance with the true agreement, and accordingly that agreement must be articulated. The defendant submits that Leopardstown has failed to do so and that, on this basic point alone, the rectification sought ought to be refused.
8.33 Moreover, and without prejudice to the generality of this assertion, the defendant says that Leopardstown has, in particular, failed to specify what it alleges the agreement was in relation to Templeville’s car parking rights. Equally, it is silent as to what Templeville’s entitlements were for surrendering its interest in the area hatched yellow. The defendant makes clear, for the avoidance of doubt, that it (Templeville) understood that it was to receive a demise of car parking (inter alia), as is reflected in the Licence.
8.34 The defendant contends that Leopardstown’s refusal to particularise the agreement that it alleges was made is startling given the heavy onus on a party seeking rectification. It further submits that it is entirely inappropriate for a party seeking, what it characterises as “the drastic remedy of rectification”, to refuse to do so, and that it is fatal to the plaintiff’s claim.
8.35 It was submitted that the onus is upon the party seeking rectification to establish what it alleges was the common intention. It is not sufficient to simply state that there was no agreement for a demise of car parking. Even if that was so (which is strenuously denied by Templeville), it is but part of a picture. The defendant posits the question: what exactly does Leopardstown say were its intentions in respect of car parking? It says that the plaintiff is singularly silent in that regard.
8.36 Indeed, as the defendant has pointed out, Templeville raised particulars on the Statement of Claim delivered by Leopardstown. The defendant characterises the Replies delivered by Leopardstown as “surprising” in light of the nature of an application for rectification. The defendant says it is clear that a party seeking rectification must precisely identify the alleged agreement (the defendant’s emphasis), and it cites the decision in Irish Life Assurance Co. Ltd. v. Dublin Land Securities Ltd. in support of this. To illustrate its point the defendant has drawn the Court’s attention to the way in which the plaintiff dealt with requests for particulars in respect of just one aspect of the claim. In the defendants said Request for Particulars, the following particulars were sought as item no 9 on its list:
“Arising out of paragraph 9 of the Statement of Claim provide full and detailed particulars of what was the Plaintiff’s intention as regards car parking rights to be provided to the Defendant in each of the (i) Lease and (ii) Licences, including [(a)-(s)…].
Leopardstown replied as follows:
“The Requests herein do not arise out of Paragraph 9 of the Statement of Claim and, in any event, the issues raised herein are matters for cross-examination and are not matters for particulars.”
8.37 The defendant submits that this represents a fundamental misunderstanding on the part of Leopardstown. Not only does the issue of its “intention in respect of car parking rights to be provided” in the Lease and Licence, respectively, arise from the Statement of Claim, it most certainly is not a matter solely for cross examination. It is necessary for any party seeking rectification of an alleged agreement to specify exactly what it says the agreement was. The defendant says that “remarkably”, Leopardstown appears loath to do so. The defendant has submitted that it is not open to a plaintiff to attempt to prove its case on the basis that it will wait for the defendant to be called and then cross-examine the defendant. The onus is on the plaintiff to establish its case through the evidence which it calls.
8.38 Further, at item no. 15 on its list in the same document, Templeville also sought the following particulars:
“Further arising out of paragraph 10 of the Statement of Claim, specify precisely to what car parking rights the Plaintiff believed that Templeville was entitled.”
Leopardstown purported to reply as follows:
“The issue raised herein does not arise out of paragraph 10 of the Statement of Claim and, in any event, is not a matter for particulars”.
8.39 The defendant maintains that it was entirely inappropriate for a party in the plaintiff’s position to adopt “such an evasive and equivocal approach to basic questions” regarding Leopardstown’s actual intentions in respect of Templeville’s car parking entitlements.
Plaintiff’s inability to clearly demonstrate its own intention
8.40 The defendant submits that the failure to articulate the alleged true agreement poses a more fundamental difficulty for Leopardstown. Leopardstown has failed to demonstrate its own intention. The defendant says that this represents an insuperable difficulty for Leopardstown and, it is submitted, for the Court. They posit the question, how can a Court rectify an agreement when faced with varying and inconsistent assertions of intention on the part of the Plaintiff? The defendants contend that it is apparent from the testimony of Leopardstown’s witnesses that they were mistaken as to each others’ intention, but that they did not recognise that they were so mistaken.
8.41 It is the defendant’s case that no coherent intention has been established by Leopardstown. The defendant submits that there is on the evidence, if accepted, an internal conflict between Leopardstown’s agents as to its intention regarding car parking entitlements. Consequently, the plaintiff has failed to demonstrate that Leopardstown itself (the defendant’s emphasis) held a specific intention as to the car parking rights to be granted under the Licence. Having failed to establish its own intention, it cannot establish a common intention with Templeville. Varying accounts have been given as to the rights granted to Templeville under the 1998 Licence in respect of car parking. On one hand, certain witnesses contend that the only entitlement to car parking was that as set out in the 1998 Lease (significantly less than the rights enjoyed by Templeville under the 1993 Lease). Equally, evidence has been given that in drafting the Licence and 1998 Lease, it was Leopardstown’s intention to give Templeville car parking equivalent to that lost by virtue of the CPO. The defendant says that in truth, the only intention upon which Leopardstown’s witnesses can be said to have agreed was the intention to execute, and be bound by, the documents, which occurred in June 1998.
8.42 The defendant points to the fact that Mr. Justice Clarke and Mr. Law both gave evidence that they understood that pursuant to the Licence (and draft Heads of Agreement) that Templeville was only granted car parking rights in certain specified car parks as set out in the 1998 Lease. (The defendant also asserts that there was a further internal conflict on Leopardstown’s part as to when Templeville allegedly agreed to this diminution in its entitlements. This is dealt with further below.) According to the defendant it is equally clear that this was not the understanding of Mr. Brunker who drafted the Licence and 1998 Lease. While initially Mr. Brunker seemed to accept (as Templeville contends) that Templeville is entitled to car parking in the new site commensurate to that lost under the 1993 Lease, he later appeared to retreat from this position. The defendant says that while Mr. Brunker’s evidence as to whether the ‘New Site’ itself was to contain car parking varied, he made it clear beyond question that his understanding at all times was that Templeville was to get car parking under the Licence equivalent to its car parking facilities as under the 1993 Lease. He consistently maintained that this was so.
8.43 The defendant says that it is clear from Mr. Brunker’s testimony that in drafting the Licence he intended that it would provide Templeville with car parking rights equivalent to those enjoyed in the area hatched yellow. He also confirmed that this was in accordance with the draft Heads of Agreement as he understood them. The defendant points out that Mr. Brunker, in his evidence, consistently stated that the Licence as drafted reflected the provisions of the Heads of Agreement. He gave evidence that the documents drafted by him were based on the Heads of Agreement and the 1993 Lease as he understood them.
8.44 Accordingly, says the defendant, it is apparent that Leopardstown did not itself have a concluded intention in respect of the car parking rights to be provided by the Licence. Mr. Brunker, who drafted the Licence, clearly had one understanding. It appears that a different understanding may have been held by some witnesses (though they were all less involved than Mr. Brunker throughout 1998). The defendant says that the plaintiff’s representatives have given varying evidence as to its alleged intention. That being the case, Leopardstown cannot contend that it itself had a specified intention in respect of car parking rights, still less that it shared a common intention with Templeville. The defendant says that it appears implicit that an internal dissonance between various Leopardstown agents may have been an issue of ongoing concern to Leopardstown. It points out that, in that regard, Mr. Law wrote to Mr. White on 31 October, 1997 in advance of the first meeting between representatives of Leopardstown and Templeville stating that ‘It is imperative that we are clear in our own minds as to what we are hoping to achieve by this meeting.’ According to the defendant, if Leopardstown’s evidence is to be accepted, the only reasonable conclusion is that this imperative was not realised.
8.45 As indicated above the defendant also maintains that there is a lack of clarity as to when it is alleged that Templeville allegedly agreed to waive its entitlement to car parking equivalent to that of the area hatched yellow and instead to accept only the car parking rights set forth in the 1998 Lease. The defendant says that it is not necessary for this Court to adjudicate upon this issue in light of the evidence of Mr. Brunker. However, it also maintains that this disconnect is indicative of the conflicting approach adopted by Leopardstown. Its consequences ought not to be visited upon Templeville. This conflict revolves around the issue of ‘quantum’ and the various accounts of the meeting of 24 November 1997. The first draft ‘Heads of Agreement’ provided by Mr. Smyth to Mr. White sought at clause 1(a) ‘a similar quantum of parking will be given in areas surrounding the Templeville property’.
8.46 It was contended on behalf of Leopardstown, that Templeville agreed that it would accept specified areas of car parking as set forth in the 1998 Lease instead of similar quantum as provided for in the 1993 Lease. There is however an internal conflict in Leopardstown’s evidence as to when this supposed concession or agreement was made by Templeville. The defendant draws the particular attention of the Court to the evidence given by Mr. White, Mr. Justice Clarke and Mr. Law, respectively, concerning what they understood a ‘similar quantum’ to mean. The relevant quotations appear earlier in this judgment at paras 2.28 to 2.31.
8.47 Further, an internal meeting of Leopardstown personnel took place on 11 November 1997. The defendant contends that it was ostensibly agreed by Leopardstown itself that it would provide at least similar quantum of parking to Templeville. However, on Mr. White’s evidence, he appears to have already formed the view that Templeville would only receive car parking sufficient for its needs. The defendant says that Mr. Law and Mr. Justice Clarke appeared to suggest in evidence that on 24 November 1997, Templeville agreed to relinquish any entitlement to a similar quantum of parking. The defendant submits that on the basis of the attendance note of Mr. Law, this does not appear to be the case. It says that Mr. Law very fairly acknowledged that he did not have an independent memory of these meetings and was relying on his attendance notes. However, according to the defendant, it is plain that it was agreed that a ‘similar quantum of parking’ would be provided.
8.48 The defendant submits that even more fundamentally, it is entirely implausible that Mr. Smyth, who Leopardstown contends it viewed as an experienced negotiator, would relinquish such rights as he enjoyed for inferior rights. Mr. White gave evidence that Mr. Smyth ‘would have pushed it to the limit in relation to many things’ and that he was ‘a hard person to negotiate with’. The defendant says it is wholly unrealistic to believe that Templeville would accept diminished entitlements, particularly given the acknowledged superior bargaining position it enjoyed in November 1997. It was crucial for Leopardstown that Templeville relinquish its rights to the area hatched yellow. The defendant maintains that it is inconceivable that Templeville would do so for lesser rights than it enjoyed under the 1993 Lease. This is especially so given that it appears that Leopardstown was open to maintain such rights and, in fact, to “concede extra parking” (per the testimony of Mr. Justice Clarke concerning the meeting of the 11th of November 1997).
8.49 The defendant submits that if Leopardstown truly believed that Mr. Smyth surrendered Templeville’s rights to the area hatched yellow for the inferior rights set out in the Lease, this was naive at best. It was absolutely inconsistent with Leopardstown’s stated previous negotiation history with him and his acknowledged superior bargaining position that he would so act. He effectively had Leopardstown ‘over a barrel’. Without his consent to move from the area hatched yellow, the very attractive deal negotiated with Dun Laoghaire/ Rathdown County Council was in peril. This, in turn, jeopardised the very existence of Leopardstown. It appears that Leopardstown attended the meeting of 24 November cognisant that it would likely concede extra parking. The defendant says that against that backdrop, Leopardstown cannot conceivably have believed that Templeville without demur waived its car parking rights in the area hatched yellow. If Leopardstown truly believed that it was so, it must have been clear to it that Mr. Smyth was mistaken in so doing. (Of course, the defendant denies that any such agreement was reached.)
8.50 Finally, says the defendant, in light of the evidence of Mr. Brunker, it is clear that he believed that Templeville was to enjoy car parking rights (rather than a leasehold interest) equivalent to those enjoyed in the area hatched yellow.
Failure to positively show a continuing common intention
8.51 The defendant submits that it is for Leopardstown to establish by convincing proof that it is entitled to rectification. It says that Leopardstown has not identified what it alleges was the agreement/continuing common intention between the parties despite twelve days of evidence. The defendant says this cannot be done as on the plaintiff’s own evidence it appears that its intention was contradictory, although it does not appear to have recognised this contradiction. There is no evidence that at some moment both parties were ad idem as to what Templeville was to get by way of recompense for the car parking lost to the CPO, that such agreement continued up to the date of signing the agreement and that the written licence did not reflect that (ex hypothesi) agreement. In those circumstances, Leopardstown cannot succeed in an action for rectification.
8.52 The defendant says that Leopardstown’s attempt to call evidence to demonstrate a continuing common intention of the parties has only demonstrated that there was no clear intention on Leopardstown’s side in relation to car parking. The defendant says this should not be surprising. There was a change of personnel (Mr. Clarke to Mr. Moloney), a change of lawyers (Mr. Law to Mr. Brunker) and most importantly the change created by the intervention of the I.H.A. and its determination to approve all the terms of the agreement before execution.
8.53 According to the defendant, not only has the plaintiff failed to establish a common and continuing agreement between Leopardstown and Templeville different to what is contained in the written agreements, but it has failed to establish a common understanding as to what this supposed alternative agreement was, even as between their own witnesses. They ask how, if that is so, could Templeville have been aware that Leopardstown was mistaken in any way?
8.54 The defendant contends that Leopardstown’s witnesses have been examined mantra-like as to whether it was their intention to grant a demise of an area for car parking to the exclusive use of Templeville. It has been submitted consistently on behalf of Leopardstown that it did not so intend. The defendant says that that, of course, begs the true question. The relevant issue is what was the parties’ continuing common intention in respect of Templeville’s entitlement to car parking pursuant to the Licence. To say that there was no intention to demise an area for car parking is to give an incomplete answer. It is to ignore what was the precise intention (and agreement) in relation to car parking. The defendant submits that if Leopardstown claims that Templeville was to get something other than what is in the written agreements by way of recompense for the loss of car parking on the area hatched yellow, Leopardstown has to establish by convincing evidence what it says the alternative “true” agreement was. Not only has Leopardstown not established this in evidence, it has not even articulated what it claims the alternative “true” agreement was.
8.55 The defendant submits that it is a singular feature of these proceedings that Leopardstown is silent as to its intention regarding car parking. More stark is the absence of evidence as to its intention on the date of execution of the documentation (June 1998). Witness after witness has given evidence as to what he did not intend. That evidence relates, in the main, to the period from November 1997- January 1998 (with the exception of Mr. Brunker). According to the defendant, no positive assertion has been made as to the plaintiff’s intention on signing the documentation. The defendant has submitted that this gap is fatal to an action for rectification.
8.56 The defendant says that Leopardstown has chosen to focus on the period to 19 December 1997 (and to a lesser extent to 23 January 1998). However, it says, that is to disregard a fundamental requirement for rectification i.e., the intention (and agreement) as of the date of execution (the defendant’s emphasis). The defendant submits that Leopardstown cannot itself elect to limit its evidence as it purports to do. It contends that given the heavy onus on a party seeking rectification, it is more than surprising that evidence as to this necessary pre-condition has not been provided.
8.57 The defendant asserts that another lacuna is the absence of evidence in respect of the I.H.A.’s intention. The defendant says that it is clear that from December 1997 no agreement could be concluded without its consent. Yet what did it view as Templeville’s car parking entitlements in June 1998? The defendant submits that the Court has not been provided with any information in relation to this.
8.58 The evidence establishes, according to the defendant, that Messrs. Clarke, Law and White represented Leopardstown until December 1997. Thereafter, from January 1998, Messrs. Brunker and Moloney conducted further negotiations and finalisation of the relevant documents. The defendant says that it is clear from documents exhibited by Mr. Walsh (Exhibit ‘PW2 – Minutes of Board of Leopardstown of 5 February, 1998, 5 May 1998, 7 July, 1998; Minutes of I.H.A. of 19 January 1998, 20 April 1998, 19 May 1998, 29 June 1998; Minutes of Finance and Strategy Committee of 19 January 1998, 23 February 1998, 20 April 1998) that it was Mr. Moloney who led negotiations and updated the Board of Directors of Leopardstown, the I.H.A and the Finance and Strategy Committee in relation to negotiations. Mr. Justice Clarke in his witness statement, which he adopted as part of his evidence in chief, stated as follows:
“At this I.H.A. Board meeting on the 19th January 1998, Mr. Pierce Moloney was also appointed as the Chairman of Leopardstown and, thereafter, he led the negotiations on behalf of Leopardstown with Templeville.” [Emphasis supplied].
The defendant says that it is also clear from the evidence that it was Messrs. Brunker and Moloney who primarily reviewed the documentation now sought to be rectified.
8.59 The defendant says the following matters are noteworthy:
– Drafts of the documentation were sent to Mr. Law. He gave evidence that he does not recall giving them detailed consideration as ‘Eric was involved in the drafting of documents and obviously liaising quite closely with Frank Clarke’. (transcript, day 4, p79)
– In fact, Mr. Clarke gave evidence that he did not consider the documentation in detail because he assumed ‘they had done what they were meant to do’. He saw his role in January 1997 as all but finished and Mr. Moloney took over from that time. (the defendant’s emphasis) (transcript, day 6, p53)
– Mr. White gave evidence that he read the documentation but thought it ‘very much a legal thing’ (transcript, day 8, p38). He gave further evidence that while he was updated as to progress of negotiations in April 1998, his role ‘was coming to an end, in that it was really the legal people and Pierce Moloney was driving it’ (transcript, day 7, p 68).
8.60 The defendant points out that it was Mr. Moloney and Mr. Walsh alone who attended on behalf of Leopardstown on 5 June, 1998. Further, it was Mr. Moloney who signed the documentation now sought to be rectified.
8.61 The defendant submits that insofar as any evidence is before the Court of Leopardstown’s intention as of 5 June, 1998, it is from Mr. Brunker. He appears to be the only person with direct knowledge of negotiations with Templeville at June 1998. The other parties (who gave evidence) were no longer centrally involved. Mr. Moloney, the party who was leading the negotiations, was identified as a relevant witness by Leopardstown. A statement of proposed evidence was proffered. Yet, no evidence has been called from him. The burden is on Leopardstown to show by convincing evidence that there was a continuing common intention (the defendant’s emphasis). It was submitted that the absence of evidence as to its own intention, let alone Templeville’s, on 5 June, 1998 is glaring. The defendant says that the absence of Mr. Moloney cannot be explained on the basis that other witnesses gave evidence as to Leopardstown’s intentions in June 1998. They could not do so as they were no longer directly involved in negotiations (with the exception of Mr. Brunker). The defendant says that Mr. Moloney’s absence is all the more notable as he was a member of the Board of the I.H.A. and submits that given his central role it was incumbent on Leopardstown to call him.
Boliden Tara Mines Limited v Cosgrove
[2010] IESC 62
JUDGMENT delivered by Mr. Justice Hardiman on the 21st day of December, 2010.
This is an appeal from the judgment of the High Court (Finlay Geoghegan J.) delivered on the 9th March, 2007, and of the order of that Court perfected the 14th March, 2007. The effect of this judgment and order was to dismiss all of the plaintiff’s claims.
The scope of the plaintiff’s claim is now considerably narrowed and on the hearing of this appeal was confined to a claim for:
“… rectification of paragraph D of the Deed of Amendment by the insertion after the word “member” where it first appears of the following words namely ‘(other than a member receiving a benefit under the Employers Income Continuance Plan as of the 20th February, 1998)’ so that the definition of ‘pensionable salary’ in the Schedule to the Rules shall then read as follows:
‘Pensionable salary shall mean the members’ annual rate of basic salary less an amount to be determined by the Employer but not exceeding 1½ times the annual rate of the retirement pension attributed to a single person payable under the Social Welfare Acts provided in the case of a member (other than a member receiving benefit under the Employers Income Continuance Plan as of the 20th February, 1998) whose benefits are being calculated by a reference to a date on or after the 20th February, 1998, it shall be his annual rate of basic pay excluding overtime, bonuses or other fluctuating emoluments provided further in the case of a member in the category of employment of direct miner it shall be 1.25 times such annual rate of basic pay’.”
Background.
As appears above, this case is about the Plaintiff Company’s pension scheme. This has been twice amended, in 1996 and in 1999. These amendments relate to the meaning of the term “pensionable salary”. This action relates to an amendment effected in the latter part of the year 1999.
The Company operates a pension scheme for its employees. The benefit of this scheme also applies to former employees who are drawing benefits from one of the Company’s two Income Continuance Plans. These two Plans may for practical purposes be treated as one, as the learned trial judge did.
Under the terms of the Income Continuance Plan, an employee may be accepted into this Plan by reason of disability from working. If this happened he received (after a deferral period), an income benefit which was subject to periodic medical assessment. Subject to such assessment, the benefit continued to be available until the age of 65. A person who derived the benefit from this plan had his employment terminated but, by reason of the terms of the Pension Plan was deemed to be an active member of that Plan so that, at the appropriate age, he could draw a pension. A percentage of an Income Continuance Plan beneficiary’s pensionable salary at the date of acceptance into the Plan was paid to the Pension Plan.
Accordingly, for practical purposes, a disabled employee’s years spent in receipt of the benefit under the Income Continuance Plan were considered for Pension Plan purposes as years of service with the Company.
1991 dispute.
A dispute arose about the year 1991 as whether the annual compound increase of 5% provided under the Income Continuance Plan should apply also to a beneficiary’s salary for the purpose of computing pension benefits. This dispute was referred to the Labour Court and was the subject of a recommendation to the effect that the Company’s offer to increase the basic salaries of Income Continuance Plan beneficiaries be used for pension purposes, in line with the increases granted to the grade or category in which they were working when they went on the Income Continuance Plan benefits. This was in lieu of the 5% compound increase which had been claimed by the Union.
The 1999 Amendment.
This Deed of Amendment forms an essential part to the background of the present dispute. The background to it goes back to about 1996. The Company is a zinc producer and in that year was in a poor and worsening competitive position. It appears to have been agreed that major changes were necessary if the Company was going to survive.
In July, 1996, a Plan called “Tara 2005” was introduced but was not acceptable to the employees. Following recourse to the Labour Relations Commission, a Joint Working Group was created and this started work in March, 1997. This in turn recommended a joint strategy be agreed between management and Unions to implement a new scheme of work organisation, specific to the Company.
A further body, the Joint Steering Committee, was established in June, 1997, to implement the change process identified in the Joint Working Group’s report. This report had identified the Pension Plan as a major issue. Accordingly, the Joint Steering Committee appointed yet another body, the Pensions Project Group to investigate the Pension Plan and report back.
This group presented a final report on the 18th July, 1997. Its proposals related to changes to the definition of pensionable salary, indexation, funding, normal pension date and the identity of trustees.
The proposal as to the definition of pensionable salary substantially involved the elimination of “integration” i.e. an end to the practice of making a deduction from the basic salary for pension purposes to represent the amount based on the Social Welfare Pension available to a single person.
The Joint Steering Committee is said to have agreed proposals on the 25th November, 1997. These are set out at para. 15 of the judgment of the learned trial judge. These proposals were approved by the employees in January of 1998. They were also approved by the Company in a manner which is not precisely clear, though the fact of approval cannot be gainsaid, and no attempt do so was made.
The proposals agreed by the Joint Steering Committee, extended to the following matters:
(1) The elimination of integration,
(2) An increase in the direct miners’ pensionable salary to 1¼ times basic salary,
(3) An extra supplement to be paid, in the form of a bridging pension, between the ages of 62 and 65 years,
(4) A reduction in the compulsory retirement age to 62 years,
(5) Member trustees to be elected to the Board of Trustees of the Scheme.
Following these approvals in March, 1998, a meeting was held between representatives of the Company and of Irish Pensions Trust. The changes proposed to the Pension Plan were reviewed at that meeting. Subsequently a notice was prepared by Irish Pension Trust addressed “to all active employees as of the 20th February, 1998”, outlining what were described as “Pension Plan Improvements”.
A year later, in March, 1999, Mr. Alan Doherty of Irish Pensions Trust gave instruction to that Company’s legal department to prepare documentation to amend the Pension Deeds and Rules, to reflect the agreed changes.
The 1999 Deed of Amendment was executed under seal by both the Company and Irish Pension Trust, and is dated the 19th October, 1999.
New trustees were subsequently appointed.
Background to the proceedings.
A Mr. Oliver Hilliard was originally the eight-named defendant, and is described as the “representative defendant”. This means that he is a representative of the class of beneficiaries of the Pension Plan who would be affected by the amendment. He has now been replaced by Mr. Sheils.
Mr. Hilliard was an employee of the Company who left its employment in 1988, aged 51. He achieved his 65th birthday on the 1st July, 2002. Later that month he seems to have received information from the new trustees and administrations of the Plan about his pension benefits. This led to correspondence between Mr. Hilliard and the Pensions Board and between the latter body and the trustees.
The net point in this correspondence was that integration was being applied to Mr. Hilliard’s pensionable salary that is for pension purposes his basic salary was regarded as the actual basic salary as provided in the Income Continuance Plan, less a sum to reflect the availability of the Old Age Pension. After correspondence lasting two years the position of the Company emerged as follows:
“The Trustees and the Company having taken legal advice now understand that the rules of the Scheme, as currently constituted do not reflect what was intended. The Company are now moving to seek rectification from the High Court to reflect what was intended which if granted will confirm that Mr. Hilliard was in receipt of his correct benefits since his normal pension date. If rectification is not granted then the trustees will ensure that his benefits are amended immediately and back dated to his pension commencement date.”
Rectification.
The technical form of the rectification sought in this case has already been set out. The effect of this rectification, if granted, would be that the practice of “integration” would cease only in the case of those members of the Pension Plan who were in active employment (i.e. not on Income Continuance benefit) on the 20th February, 1998 or later. The only members of the Pension Plan whose benefits will be calculated by a reference to a date on or after the 20th February, 1998, and in respect of whom it is contended that the amendment does not apply are those members of the Pension Plan who were Income Continuance beneficiaries on that date. Mr. Hilliard was within that category at the time of his retirement as the representative defendant and so is Mr. Sheils who replaced him in that capacity.
Rectification was the principal, and is now the only, relief sought by the Company.
The law.
The parties in this case were agreed as to the legal principles applicable to an application of this sort, and indeed they had been agreed on these issues in the High Court as well.
In Irish Pensions Trust Ltd. v. Central Remedial Clinic [2006] 2 IR 126, at para. 114, Kelly J. considered the nature of rectification and what it required to be shown by someone who claims it. He says:
“114. Rectification permits the Court to correct an instrument which has failed to record the actual intentions of the parties to an agreement. It is a discretionary equitable remedy.
115. The circumstances in which rectification is available was authoritatively considered by the Supreme Court in Irish Life Assurance Company Ltd. v. Dublin Land Securities Ltd. [1989] IR 253. In that case, Griffin J. speaking for the Supreme Court adopted the principles outlined by Lord Lowry LCJ in Rooney and McParland Ltd. v. Carlin [1981] NI 138. At 146, the former Lord Chief Justice of Northern Ireland said:
(i) There must be a concluded agreement antecedent to the instrument which is sought to be rectified, but
(ii) The antecedent agreement need not be binding in law (for example it need not be under seal if made by a public authority or in writing and signed by the party if relating to a sale of land) nor need it be in writing, such incidents merely help to discharge the heavy burden of proof, and
(iii) A complete antecedent concluded contract is not required, so long as there was prior accord on a term of a proposed agreement, outwardly expressed and communicated between the parties, as in Joscelyne v. Nissan (this last case is quoted elsewhere in this judgment).”
Having adopted this passage Griffin J. giving the judgment of the Court proceeded as follows:
“Applying those principles to the facts of this case, and bearing in mind the heavy burden of proof that lies on those seeking rectification, the question to be addressed is whether there was convincing proof, reflected in some outward expression of accord, that the contract in writing did not represent the common continuing intention of the parties on which the Court can act, and whether the plaintiff can positively show what that common intention was in relation to the provisions which the appellant says were intended to exclude the vacant lands at Palmerstown.”
Evidence.
The evidence of those witnesses who were officers or employees of the parties to the Deed who swore affidavits in this case, which will be summarised below, in my opinion shows an unusual degree of cogency and unanimity. The case was tried on affidavit and none of the witnesses whose affidavits were relied on by the plaintiffs was cross-examined on behalf of the representative defendant. Moreover, the evidence filed by on behalf of both parties to the Deed was to the same effect: the Deed of Amendment does not reflect the intention of either of Tara Mines or of Irish Pensions Trust and ought to be rectified so as to express the actual intention of these parties. This was to exclude members in receipt of Income Continuance benefit as of the 20th February, 1998, from the entitlement to exclude the deduction in respect of the Social Welfare Pension, known as “integration”.
Apart from this unanimity in the evidence on behalf of the plaintiff and of Irish Pension Trust, there was ample evidence, also summarised below, that the Company and the Trustees at all material times behaved, in their dealings with pensioners and in their statements, on the basis that the true position was as they intended it to be. This, indeed, is illustrated in the narrative of events in relation to the original representative defendant, Mr. Hilliard, as appears from the summary above.
Moreover, it is a feature of the evidence that there is a detailed explanation, again unchallenged by cross-examination, from the in-house lawyer in Irish Pension Trusts who, together with others, drafted the Deed of Amendment, as to how, precisely, an error occurred. This error gave rise to the situation in which the Deed as executed did not reflect the intention of the parties. It is vital to note that this evidence, too, was unchallenged by cross-examination.
The principal affidavit on behalf of the plaintiff/appellant was that of one of its executives, Mr. Christopher Blake. At Para. 19 he deposed:
“The principle changes to the pension arrangements arising from the Joint Standing Committee agreement which were embodied in the 1999 Deed of Amendment can be summarised as follows:
(a) ‘Integration’ with the State Pension was to be eliminated for the then active and future members of the work force. In effect this meant that the Company’s pension plan would no longer take into account any pension paid from Social Welfare in calculating a pensioner’s pensionable salary post 20th February, 1998, for then active and future members retiring from that date;
(b) Direct miners’ pensionable salary was increased to 1.25 times basic salary;
(c) On retirement at age 62 a ‘bridging pension’ would be paid to age 65 referable to a multiple between one and two times the single person’s personal Social Welfare Pension.”
This account was supported by all deponents on behalf of Boliden Tara Mines Limited and Irish Pensions Trust. Moreover, it was consistent with the documentation created and circulated to the employees around that time: for example the communication from Irish Pensions Trust in embodying these changes was addressed “to all active employees as at 20th February, 1998”. It relevant witnesses were not cross-examined.
Similarly, an internal I.P.T. memorandum from Mr. Alan Doherty to I.P.T.’s in-house lawyer recorded, on the 20th July, 1999:
“Further changes were introduced on 20th February, 1998, and again these only apply to active employees and not to those on disability benefit.”
The lawyer, in commenting upon a draft produced in-house said:
“I am not sure that [the draft] adequately reflects the fact that the changes introduced as at 20th February, 1998, apply to active employees only [excluding previous withdrawals and Income Continuance Claimants at that time].”
A meeting of the Joint Steering Committee for the purpose of clarifying aspects of which clarification had been requested was held on the 23rd February, 1999. In response to a specific request for clarification of the position of “employees on Income Continuance or going on Income Continuance”, the answer was given “they will receive Income Continuance up to the age of 65 and will then receive pension as per the old scheme (emphasis added).
Similarly, in I.P.T.’s document “Brief Outline of the revised Pension Plan”, eligibility was defined as “full time permanent salaried staff and hourly paid employees who have attained the age of 21”.
The minutes of the meeting of the 3rd March, 1998, between Tara Mines and IPT, i.e. between the parties to the Deed, record, at item 6 “it was confirmed that the Pension Plan changes will only apply to active employees. Announcement letters will specifically include them.”
How the mistake was made.
By reason of the Constitution of the Pension scheme, the consent of IPT, as trustee, was required to the Deed of Amendment. It was not controverted that the intention of the parties to the Deed was to eliminate “integration” in the calculation of pensionable salaries for employees of the appellant Company as at the 20th February, 1998 and thereafter. (The term “integration” has been explained above). The terms of the Deed of Amendment as executed went further than this intention and provided for the elimination of integration not only for current employees and future employees but also for former employees who were, as of the 20th February, 1998, in respect of Income Continuance benefit and who were not, therefore, in active employment with the Company.
The in-house lawyer who oversaw the drafting of the amendment explained the error as follows in her affidavit. At para. 7 it is stated:
“I clearly understood, on the basis of Mr. Doherty’s memoranda of the 20th July and the 5th October, 1999, that the changes introduced on the 20th February, 1998, were only to apply to ‘active employees’. I understood from this that ICP [Income Continuance Plan] beneficiaries were not to benefit from the changes introduced. However, I was of the view that the concerns expressed by Mr. Doherty in his memoranda of the 5th October, 1999, were unfounded. I considered that there was no need for express wording excluding ICP beneficiaries as I considered that they were, by definition already excluded as they were no longer employees of the [appellant Company] and therefore no longer active beneficiaries of the plan. In effect, I considered that the amendment proposed to the definition of ‘pensionable’ salary… insofar as it made reference to a ‘member’ encompassed active members only and therefore excluded ICP beneficiaries.”
It is now agreed that express language should have been used to exclude Income Continuance Plan beneficiaries. The very frank and entirely credible account of the in-house lawyer as to why this was not done has not been contradicted, or in any way challenged on its facts. She was not cross-examined.
Accordingly, there is unanimity in the evidence of all the persons engaged in the preparation of the Deed of Amendment as to what their several and mutual intention was. There is frank and un-glossed evidence from the in-house lawyer engaged by the trustee (Irish Pensions Trust, of the exact nature of the misapprehension which led her to think that express language was unnecessary to exclude former employees who are deriving an income continuance benefit from the proposal to end “integration”. None of this evidence was in any way controverted, challenged or glossed on its facts by counsel on behalf of the representative defendant. Although, as the next section of this judgment will show, there has been a good deal of discussion of the standard of evidence required in a rectification case, none of the authorities in my view features on its facts such cogency and unanimity of evidence as is found in this case.
Rectification and questions of Evidence.
The issues which arose on the trial of this matter in the High Court were exclusively issues of evidence. The representative defendant, who opposed the granting of the relief sought, did not contradict any of the deponents who swore affidavits on behalf of the plaintiff on their evidence. He did not put forward contradictory evidence himself.
In the words of the learned trial judge:
57. “The principal ground upon which the application for rectification is opposed on behalf of the representative beneficiary is that the evidence relied upon by the plaintiff and supported by I.P.T. and the current trustees to establish an intention of the Company and I.P.T. to exclude I.C.P. beneficiaries from the amendment in para. D of the 1999 Deed, falls short of the ‘convincing proof’ or ‘cogent evidence’ required in accordance with the principles set out above.”
It cannot be too strongly emphasised that, where evidence is presented on affidavit, a party who wishes to contradict such evidence must serve a Notice of Intention to Cross-examine. In a case tried on affidavit, it is not otherwise possible to choose between two conflicting versions of facts which may have been deposed to. In a case where there is no contradictory evidence an attack on the evidence which is before the Court must include cross-examination unless the contradicting party is prepared to rely wholly on a submission that the plaintiff has not made out its case, even taking the evidence it has produced at its height.
A claim for rectification is a claim for an equitable remedy whereby the Court orders that a written instrument be altered so that its text, as altered or “rectified”, expresses the actual intention or agreement of the parties. The principles applicable to an application for rectification, and in particular the rectification of an occupational pension scheme were considered by the High Court in Irish Pensions Trust Ltd. v. Central Remedial Clinic and Ors. [2006] 2 IR 126. There, Mr. Justice Kelly referred to the decision of this Court in Irish Life Assurance Company Ltd. v. Dublin Land Securities Ltd. [1989] IR 253 and to its treatment of a decision of the English Court of Appeal on the question of the standard of proof required in such an application. The English case was Joscelyne v. Nissan [1970] 2 QB 86 where it was said, by Russell L.J. at p.98 of the Report:
“We do not wish to attempt to state in any different phrases that which we entirely agree, except to say that it is in our view better to use only the phrase ‘convincing proof’ without echoing an old fashioned word such as ‘irrefragable’ and without importing from the criminal law the phrase ‘beyond all reasonable doubt’… it would be a sorry state of affairs if when that burden is discharged a party to a written contract could, on discovery that the written language chosen for the document did not on its true construction reflect the accord of the parties on a particular point, take advantage of that fact.”
I respectfully agree with the general approach in the quotation above but would also express the view that in Ireland, no form of words other than “proof on the balance of probability” should be used and that the multiplication of phrases may cause confusion. It appears clearly established in Irish law that there are but two standards of proof: that applicable in criminal proceedings, which require proof “beyond reasonable doubt” and that applicable in civil proceedings, where proof on the balance of probability is required.
The judgment of this Court in Banco Ambrosiano v. Ansbacher and Co. [1987] ILRM 669 is authority for the proposition that there are only two standards of proof and that it would be difficult to express any intermediate standard and the attempt would introduce a vague and uncertain element into the law. The reasoning behind this was held to have been aptly put in a passage from Kerr on Fraud and Mistake, 7th edition, p.672:
“In matters that regard the conduct of men mathematical demonstration cannot be expected or required. Like much of human knowledge on all subjects, fraud may be inferred from facts that are established. Care must be taken not to draw the conclusion hastily from premises that will not warrant it; but a rational belief should not be discarded because it is not conclusively made out. If the facts established afford a sufficient and reasonable ground for drawing the inference of fraud, the conclusion to which the proof tends, must, in the absence of explanation or contradiction, be adopted.”
Continuing, Henchy J. said:
“Proof of fraud is frequently not so much a matter of establishing primary facts as of raising an inference from the facts admitted or proved. The required inference must, of course, not be drawn lightly or without due regard to all the relevant circumstances, including the consequences of a finding of fraud. But that finding should not be shirked because it is not a conclusion of absolute certainty. If the Court is satisfied, on balancing the possible inferences open on the facts, that fraud is the rational and cogent conclusion to be drawn, it should so find.”
Banco Ambrosiano was a case of fraud but I would adopt what is said there in relation to the standard of proof in civil proceedings generally. If a conclusion is likely to have severe consequences for an individual, such as fraud, dereliction of duty, grave professional shortcomings, conduct generally considered disgraceful, the Court must of course be careful not to jump too easily to a conclusion on grounds that do not support it. But then, a court must avoid doing that in any case but should perhaps self consciously remind itself of that need in a case of particular sensitivity.
No doubt the trier of fact will always bear in mind the particular difficulties of any particular case, or type of case and the scope for the Court to be imposed upon. Nonetheless, this is a civil case and therefore requires proof on the balance of probabilities. To achieve this standard, naturally, convincing evidence will be required.
I regard the statements just made as quite consistent with what is said in the 7th edition of Spry’s classic work on The principles of Equitable Remedies (London, 2007):
“In early cases, when the doctrine of rectification had not been fully developed, the strength of the evidence that was required before the terms of a document would be rectified was much emphasised. More recently, when the application of the doctrine has become more clear, it has been established that the ordinary rules in regard to the standard of proof apply, although those rules may require that, according to the precise circumstances, particular evidence should be received with caution.”
Indeed, some of the cases show a tendency to apply too high, or too nice, a standard in such cases. Thus, in Thomas Bates and Son Ltd. v. Wyndhams (Lingerie) Ltd. [1981] 1 WLR 505, Buckley L.J. said:
“In some cases the standard has been equated with a criminal standard of proof ‘beyond reasonable doubt’. I think that the use of a variety of formulations to express the degree of certainty with which a particular fact must be established in civil proceedings is not very helpful and may indeed be confusing. The requisite degree of cogency or proof will vary with the nature of the facts to be established and the circumstances of the case. I would say that in civil proceedings a fact must be proved with that degree of certainty which justice requires in the circumstances of the particular case. In every case the balance of probability must be discharged, but in some cases that balance may be more easily tipped than others.”
I think the last sentence very aptly expresses the fairly simple insight which lies behind the use of different phrases. There is but one standard of proof (apart from criminal proceedings) which is the balance of probability, but in some cases that standard will be more easily met than in others. For example, a case where commercial parties have had their intentions expressed in a professionally drafted legal document, which document is later said not in fact to express the intentions of the parties’, will naturally call for evidence which is clear, coherent and convincing if the onus of establishing on the balance of probability that the parties’ intention was not correctly expressed is to be discharged. This is so obvious as to be almost a truism. The onus will, of course, be easier to discharge if the facts put forward are entirely uncontradicted notwithstanding that a representative of the class of persons interested in having the claim for rectification rejected was present and professionally represented, and did not cause the witnesses as to fact to be cross-examined.
In this connection, it seems to me of great significance that there was in fact no dispute that the amendments to the Deed had been executed by the appellant and by I.P.T. I do not wish to say anything at all to take from the learned trial judge’s very proper insistence on cogency in evidence. But the cogent evidence will be directed to matters in issue in the proceedings.
While therefore the learned trial judge was quite correct to demand a high degree of cogency in the evidence, it is nevertheless difficult to avoid thinking that her very proper zeal in this direction may have led her to adopt a standard which certainly approaches, if indeed it does not mirror, the criminal standard. For example, her findings in relation to an absence of evidence of formal corporate approval by both Tara Mines and Irish Pensions Trust suggest a standard which is unnecessarily exacting. The Deed of Amendment was executed by Tara Mines but the learned trial judge found that “no evidence has been adduced of any decision taken by or on behalf of [that Company] to approve the Deed, nor to authorise the execution or affixing of the seal of [that Company] to the Deed; nor of the requirements of the Articles of Association of [that Company] in relation to the use of [its] seal”.
Where the due execution of a document has been deposed to by a witness who is not challenged, contradicted or cross-examined, I do not regard it as a significant defect in the evidence that the terms of a Company’s Articles of Association in relation to the use of its corporate seal have not been proved.
In light of these principles as to the law of evidence applicable on an application like the present, I turn to consider the central features of the evidence in this case.
The Sworn Evidence.
The following was established in the sworn evidence in the present case, and is representative of the purport of a good deal of other evidence:
(a) The Company’s contention that “… it was always intended by the Company and the Trustee of the Plan at the time the 1999 Deed of Amendment was executed… that the elimination of integration should apply only to members of the Plan who were or are employees of the Company in active employment as of the 20th February, 1998, or thereafter…”. (Affidavit of Christopher Blake, 12th March, 2006).
(b) “It was widely known that integration had been removed from the Pension Plan but, as already deposed to on behalf of the Company, this was only intended to be for those active members of the work force as at 20th February, 2008”. (Affidavit of Christopher Blake sworn the 7th December, 2006).
(c) “At all times it was the understanding of each of the current trustees that the elimination of integration was only intended to apply to members of the Pension Plan who reached normal pension age (62) after the 20th February, 1998, provided that such persons were in active employment with the Company as of the 20th February, 1998, or thereafter. In this regard I would emphasise that the three worker representatives of the trustees… were all members of the Pension Project Group that came up with the proposals which formed the basis of the Deed of Amendment. The initial three management representatives i.e. this deponent, the second defendant and Mr. Tully, were all aware of the details of the amendment in their capacity as senior members of the Company’s management throughout the process – i.e. prior to the setting up of the Joint Working Group, during its deliberations and following the implementation of the Joint Steering Committee proposals. As noted above, Mr. Broxon was similarly aware of the details of the amendments through his involvement with I.P.T.
The trustees are conscious of the fact that the improvements to the Pension Plan were as a consequence of agreed cost savings and productivity increases which were agreed with the Company’s active workforce, the only people who could deliver such savings and improvements. Throughout the Joint Steering Committee process, the Company only consulted and negotiated with its then active workforce”. (Affidavit of John Kelly, a Tara Mines Executive and Chairman of the Board of Trustees of the Tara Mines Pension Plan, in his affidavit sworn 11th July, 2006.)
(d) “In his Memorandum of 20th July, 1999, Mr. Doherty set out that the changes introduced on the 20th February, 1998, were to apply ‘to active employees and not to those on disability benefit’. In his subsequent Memorandum of 5 October, 1999, he referred to the draft Deed of Amendment which had been prepared by my colleague, Des Murray, and stated that he was not sure that the draft adequately reflected ‘the fact that the changes introduced as at 20th February, 1998, applied to active employees only (excluding previous withdrawals and income continuance claimants at that time)”. (Affidavit of Raymonde Kelly sworn 9 November, 2006).
It seems to me that the foregoing material is cogent evidence of the intention of both Tara Mines and of the Trustees. It is also in my view cogent evidence of the precise manner in which the Deed which was entered into by the parties whose intention is relevant, the Company and the trustees, failed to express their mutual intention.
The evidence on behalf of these parties is to my mind quite clear, free of ambiguity, and consistent with their actions. These actions, indeed, manifest several outward expressions of the intention which they say they formed, although I agree with the learned trial judge that further evidence of outward intention is unnecessary (though it may be much to be expected) in cases where there is other cogent evidence of intention.
I repeat, not for the first time, the fact that the witnesses whose evidence is quoted were not cross-examined or on behalf of the representative defendant. I do so because I think it to be a salient feature going to the weight of the evidence.
It appears to me that, to some extent, the learned trial judge addressed herself to an issue which was not the issue in these rectification proceedings: the issue of what was or was not agreed between the parties to the industrial relations discussions which predated the amendment to the Deed. While this is undoubtedly part of the narrative in the broader picture of the dealings between the Company, the trustees, and certain groups of workers and their trade unions, it does not appear to me to be an issue in the present proceedings. The representative defendant did not counterclaim that if the Deed fell to be amended it damaged the position of those whom he represented, and indeed it is hard to see how that case could have been made. But the present case relates to the question of whether the Deed entered into properly expressed the intentions of the Company and of the trustees, who are parties to the Deed and not any broader question involving other persons or interests.
I consider that there is ample evidence unchallenged in any relevant respect as to the intention of the Company and of the trustees and that it establishes that the Deed did not express that intention. I would therefore grant a rectification in the terms claimed.