The extent to which the courts can be prevailed upon to intervene in business deals has recently been the subject of a case concerning the equitable remedy of "rectification". The principles considered and developed in relation to this remedy apply as equally to the insurance industry and any other contracts as they do to a commercial lease, the particular form of contract that was under consideration.
Parties seeking to rectify a contract might be pleading : "But that is not what I meant" or "We were talking about something different". If pleading the former, the claim is likely to be for unilateral mistake, if the latter, for common mistake. For a claim of common mistake to succeed, both parties must have been mistaken on the same basis. There must be no doubt as to their common intention.
In unilateral mistake, there is often an element of spice. One party stands by and allows, even encourages the other, to fall into error by acting in the words of the cases, "unconscionably". The party claiming the remedy will have to satisfy the "maxims of equity", including the requirement to "have clean hands"!
The party seeking rectification must prove that the other knew of its mistake and took advantage of it. This is no easy task. The case of Oceanic Village v Shirayama Shokusam Company (1999 EGCD 83) concerned leases of the former GLC Headquarters, County Hall, and the London Aquarium, located in the basement (well worth a visit, by the way, to see 6ft sharks as opposed to the two-legged variety, face-to-face).
Gift shop dispute
Shirayama had granted a lease of the Aquarium to Oceanic, in which Shirayama covenanted not to permit any other gift shop to be operated in the building, except in relation to any hotel in the building.
When the Millennium Wheel Company wanted to set up and run its own gift shop on the site, Oceanic sought an injunction against Shirayama. Shirayama counterclaimed for rectification. It said that it had intended that the restriction contained in the lease was not meant to extend beyond articles having a connection with the London Aquarium. Evidence was given that the effect of the restriction could cost Shirayama (as landlord) millions of pounds.
The landlord's representative, who was under great pressure to clinch the deal at the time, agreed to the wording in question without the benefit of legal advice. He said that was because of the likelihood of increased costs and delay. The judge observed that that was "something he may now regret". Lawyers everywhere, including me, gave three cheers and raised a glass to Mr Justice Neuberger.
It was not the duty of one party in commercial "arm's length" negotiations to correct a misapprehension from which the other party might be suffering. The tenant successfully argued that it should not be deprived of what it had gained through tough negotiations, where the other party had been unwise or missed a point, or failed to appreciate the possible or likely effect of a particular provision. The actual damages payable have yet to be assessed.
What if the clause had been included after the taking of negligent legal advice? Would the remedy of rectification be available or would the landlord have to sue its lawyer (perish the thought)? Answer: The fact that the mistake was negligent is no bar to relief. If rectification is granted the order has a retrospective effect in most cases so that the rectified document is treated as though it had always been in the rectified form.
Those football fans among you who may have visited County Hall in the past six months or so, and wish to point out that Oceanic might have a problem with any gift shop located in the F.A. Premier League Hall of Fame, would be entirely right. Oceanic recently brought a case to enforce the benefit of the gift shop restriction against the tenant running that enterprise and in fact failed, even though that tenant had notice of the covenant contained in its landlord's lease with Oceanic. The Hall of Fame tenant refused to give an assurance that no gift shop would be opened. It appears that this second case was brought as part of Oceanic's need to show that it was mitigating its loss. There could even be further satellite litigation.
County Hall has not seen such exciting times since the demise of the Livingstone era when the number of unemployed were displayed on it for the benefit of Margaret Thatcher in the House of Commons opposite.