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Mistakes are a part of life and, despite best efforts, they can also occur with a contract. Depending on the nature of the mistake, the consequences can vary significantly. Initially, you might expect that a mistake made in an executed and binding contract would be an error with significant consequences. While that may be true, mistakes made in contracts can, in some cases, be fixed through the rectification of a contract.

Rectification is a legal remedy designed to rectify contracts so that they align with the parties’ original and true agreement. However, rectification is not an easy remedy to obtain. On the assumption that an executed contract is a carefully prepared and considered document, the court’s preference is that a contract should not be rectified by the court unless it is sufficiently convinced otherwise.

In order to obtain an order for rectification, the party seeking the order must establish that there was a common intention between the parties to the contract that does not align with the written document. The party seeking the order must establish that there is a mistake in the contract.

What is common intention in the context of rectifying a contract?

When people enter into contracts, they will have specific ideas about what they want to agree upon. Common intention means that both parties had the same understanding or goal when they made the agreement. For example, at the time an agreement is made, both parties may have shared a common intention that they would split the cost of the purchase of a car. However, if the agreement which is ultimately signed only refers to one person contributing to the cost of the car, the agreement would be contrary to that common intention.

While the above example may seem simple, proving that the parties had a common intention that differs from the contract can be difficult. Consistent with the court’s approach to not amend executed agreements, in order to obtain an order for rectification, the court expects that the party seeking the order for rectification has “clear and convincing proof” of the common intention, which is not reflected in the document.

To demonstrate the common intention, the court will assess the surrounding evidence, such as emails, letters and records of conversations. This assessment is conducted on an objective basis and the court does not have regard to either party’s subjective thoughts or perspective.

Types of mistakes

It almost goes without saying, but to have a contract rectified there must be a mistake in the document that is inconsistent with the parties’ common intention. The mistake must be significant enough to fundamentally alter the contract in a way that does not reflect the common intention. That means that minor typographical errors or mistakes that still reflect the common intention will not be sufficient to warrant an order for rectification.

If there is a mistake in a contract, it will fall into one of two categories:

• a common mistake; or
• a unilateral mistake.

Common mistake

A common mistake is a mistake where all parties to the contract are mistaken regarding a fundamental element of the contract. For example, both parties may have entered into a contract with the understanding that an individual was purchasing a 2020 Aston Martin vehicle from a car dealer. However, if that contract mistakenly states that the vehicle is a 2002 Aston Martin, the purchaser may want to seek an order for rectification to ensure that they receive the vehicle they understood they were purchasing.

Unilateral mistake

Distinct to a common mistake, a unilateral mistake occurs when one party is mistaken about an aspect of a contract, and the other is not. To establish a claim for rectification where it is alleged that there is a unilateral mistake, there are four elements that must be proven.

1. One party (Party A) had a mistaken belief that the document did or did not contain a particular term.
2. The other party (Party B) was aware, or should have been aware, of the other party being mistaken.
3. Party B did nothing to correct the mistaken belief of Party A.
4. The mistake was beneficial to Party B and/or detrimental to Party A.

Rectification of a contract

Assuming that a party is able to prove there has either been a common or unilateral mistake, and the court finds it inequitable to continue the contract in its current form, the court will make an order to rectify the contract to ensure that it conforms with the parties’ common intention. Once such an order is made, the contract will be amended retrospectively, meaning that the contract will be enforceable as if the mistake was never made.

How we can help

If you believe that there has been a mistake in your contract that is negatively affecting you or your business, it is important to seek legal advice as soon as possible. Our team is more than happy to help with these issues.

The information contained in this article is general in nature and cannot be relied on as legal advice nor does it create an engagement. Please contact one of our lawyers listed above for advice about your specific situation.