Thomas Bates & Son Ltd v Wyndham’s (Lingerie) Ltd [1980] EWCA Civ 3 (21 November 1980)

During lease renewal negotiations, a rent review clause was mistakenly omitted by the landlord. The tenant knew of the landlord's mistake but did not point it out. The court ordered rectification of the lease to include the rent review clause.

Facts

The plaintiffs (landlords) and the defendants (tenants) entered into negotiations for the renewal of a business tenancy for a term of 14 years. A previous arbitration between the parties had determined the rent for the existing lease. During negotiations for the new lease, both parties proceeded on the common understanding that the new lease would contain provisions for rent reviews every five years. However, through an oversight by the landlords’ agent, the draft lease and the final executed lease omitted any rent review clauses. The tenants’ director realised this omission and that it was a mistake on the landlords’ part, but chose to remain silent and proceeded to have the lease executed without the clauses. Upon discovering the error, the landlords commenced proceedings seeking rectification of the lease to include the omitted rent review provisions.

Issues

The central legal issue was whether the court had the jurisdiction to grant the equitable remedy of rectification for a unilateral mistake. Specifically, could the lease be rectified where one party (the landlords) made a mistake in the terms of the written agreement, and the other party (the tenants) knew of that mistake and its significance, yet failed to draw it to the mistaken party’s attention, thereby acting unconscionably?

Judgment

The Court of Appeal unanimously dismissed the appeal from the tenants, upholding the trial judge’s decision to grant rectification of the lease. Lord Justice Buckley delivered the leading judgment, with Lord Justice Brandon and Lord Justice Eveleigh concurring.

The court held that it had the power to rectify a document in cases of unilateral mistake. Lord Justice Buckley analysed the existing case law, particularly A. Roberts & Co. Ltd. v. Leicestershire County Council [1961] Ch. 555, and synthesised the conditions required for such a remedy. He formulated a clear test for granting rectification in these circumstances:

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 A’s attention. And, fourthly, that the mistake must be one calculated to benefit B.

On the facts, the court found that all these conditions were met. The landlords mistakenly believed the lease would contain rent review clauses. The tenants’ director was aware of this mistake and deliberately did not inform the landlords, knowing that the omission was to the tenants’ advantage.

Lord Justice Eveleigh added a fifth, overarching element, stating that for the court to intervene, the conduct of the non-mistaken party must be unconscionable. He stated:

I would add a fifth requirement, namely, that the mistake on the part of A must be such that it would be unconscionable for B to avail himself of the advantage which he has obtained. The other four requirements are, it seems to me, designed to ensure that it should be unconscionable for B to resist rectification.

The court concluded that the tenants’ conduct in knowingly taking advantage of the landlords’ clear mistake was unconscionable, justifying the court’s equitable intervention to rectify the lease by inserting the agreed-upon rent review clauses.

Implications

This case is a leading authority on the equitable remedy of rectification for unilateral mistake in English contract law. It clarifies and consolidates the principles upon which a court will correct a written instrument that does not reflect the true intention of one party, where the other party is aware of the error. The judgment provides a clear, structured test that emphasises the requirements of knowledge and unconscionable conduct on the part of the non-mistaken party. It underscores the court’s role in preventing one party from unconscionably profiting from another’s manifest mistake in the drafting of a formal legal document.

Verdict: The appeal was dismissed, and the court upheld the order for the rectification of the lease to include rent review clauses.

Source: Thomas Bates & Son Ltd v Wyndham's (Lingerie) Ltd [1980] EWCA Civ 3 (21 November 1980)