Contract rectification is the last resort – The Council of the Borough of Milton Keynes v Viridor (Community Recycling MK) Ltd (No.2) [2017]

What is the court’s approach to rectification of a mistaken contract?

The facts

Milton Keynes Borough Council and Viridor entered into a contract (the Contract) for waste recycling.

The payment regime under the Contract was subject to indexation, but when the contract was collated by Milton Keynes they failed to include the correct schedule. They in fact included an incomplete schedule without the indexation mechanism.

Milton Keynes sought to rectify the Contract on the basis of mistake by simply replacing the schedule, but Viridor were unwilling to do so. They disagreed that this was a case of mistake and argued that rectification should not be allowed.

Viridor’s arguments at Court centred on the Contract’s entire agreement clause, the delay and seemingly silent consent of Milton Keynes, and that rectification would be contrary to the Public Contracts Regulations 2006.

The decision

The Court rejected Viridor’s arguments, finding for Milton Keynes. It held that Milton Keynes was entitled to rectify the Contract on the basis of common mistake.

The Court concentrated on a discussion of the requirements for rectification. It clarified previous case law, including Swainland Builders Limited v Freehold Properties Limited [2002], stating that the four requirements are:

• the parties had a common intention with regards to the particular matter in the instrument to be rectified
• there was an outward expression of agreement
• the common intention continued at the time the instrument was executed and
• due to mistake this common intention is not reflected in the instrument.

The Court considered that the alternative case of unilateral mistake, ie that Viridor was aware of Milton Keynes’ mistake but did not raise it with them for Viridor’s benefit, was also made out.

The Court also answered the question as to whether an entire agreement clause prevented rectification. It noted that, whilst this may happen in some circumstances, it did not in the present case. Following judgment in LSRF III Wight Limited v Mill Valley Limited [2016] if there is a strong case for rectification then an entire agreement clause shall not preclude it, as this would not reflect the true intention of the parties.

Finally, the Court noted that the Public Contracts Regulations 2006 do not preclude rectification. The fact that the Contract would be different from that originally tendered did not make it unlawful. Instead, rectification would restore an agreement to the originally intended form.

Why is this important

This case does not present any new law but serves as a useful reminder of the principles of rectification.

Any practical tips

Take care to carefully compile contract documents – attention to detail is key, especially for contracts with large volumes of annexes, schedules and important material. NB: the Court noted the “sloppy work” of both the external consultant and the solicitor – don’t be named and shamed!