The agreement is signed but it contains an error – what can I do?
If you have entered a business contract which does not, with the benefit of hindsight, accurately reflect the terms that were discussed, or which contains a fundamental error or misunderstanding, then it may be possible to repair the damage retrospectively.
In particular, if the other contracting party will not agree to an amendment, you may be able to apply to the court to have the contract amended or declared void.
What is a mistake in law?
Legally, not all mistakes are the same.
There are four types of contractual mistake recognised in law:
- a common mistake, which occurs when all of the parties to a contract have relied on the same mistake – for example, a drafting error which neither party has picked up and which means that a particular contractual provision does not reflect either party’s intentions
- a mutual mistake, which occurs when the parties have misunderstood each other’s intentions and have clearly been acting at cross-purposes
- a unilateral mistake, which occurs when just one party has acted in reliance on a mistake, but the other party is aware of this and has sought to take unfair advantage
- a mistake as to identity, which occurs when there has been a mistake concerning the identity of one of the contracting parties
The mistake may relate to all manner of matters including:
- the factual basis on which the contract was agreed;
- the terms of a written agreement drawn up to reflect the deal negotiated;
- the law as it was at the time the contract was agreed; or
- the subject matter of the contract or the identity of the contracting parties.
When will the Court become involved?
The starting point is that a Court will not want to disturb a contract entered into by two commercial parties unless there is clear unfairness. Consequently, before the court will agree to intervene to deal with a contractual mistake, there are set criteria that need to be satisfied. These will vary depending on the type of mistake that has occurred.
For example, to prove that there has been a unilateral mistake which justifies a written agreement being amended (or rectified, to use the correct legal terminology), the party seeking to challenge the contract (Party A) needs to be able to establish that:
- they erroneously believed that the contract in question contained a particular term or provision which it turns out was not included, or alternatively that the contract did not contain a particular term or provision which it turns out that the contract did contain;
- the other party to the contract (Party B) was aware (or ought to have been aware) of the erroneous exclusion or inclusion of the relevant term or provision, and that this was attributable to a mistake on the part of Party A, and yet they did nothing to draw this to Party A’s attention; and
- the inaction of Party B in drawing attention to the mistake was calculated to enable Party B to benefit from the mistake.
The court has wide ranging powers when it comes to dealing with a contractual mistake. However, the exercise of these powers is discretionary and a compelling case will need to be presented to convince the court that an order ought to be made.
Among the things that you might be entitled to ask the court to do are:
- to make an order for the contract to be rescinded, i.e. cancelled;
- to make an order for the contract to be rectified, i.e. by changing one or more provisions to give effect to what was actually agreed or to reflect the common intention – note however that this type of order can only be made where there is a written, as opposed to oral, contract in place;
- to make an order for the payment of damages, for example to provide reimbursement for any overpayment or to reflect the profit that one party has made at the expense of the other;
- to make an order for the return of any money or property that has been handed over; or
- to make an order for specific performance, i.e. to compel a party to perform a specific act.
It is important to assess commercially sensible options for addressing the problem identified which recognise both the strength of your position and the desirability of dealing with the dispute as quickly and economically as possible. It is also important to say that legal proceedings are not inevitable. It is possible for such issues to be resolved by agreement possibly by a form of alternative dispute resolution
Where a claim based on mistake is not feasible, it is important to consider whether there may be any other action that you can take, such as bringing a claim for breach of contract or for innocent, negligent or fraudulent misrepresentation.
For further information, please contact Adam Colville-Robins in our Dispute Resolution team: firstname.lastname@example.org
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.
Published 28 November 2022