NHS Commissioning Board v Silovsky [2015] EWHC 3141 (Comm)

Case No 2014 No. 1267

[2015] EWHC 3141 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Venue 7 Rolls Buildings, Fetter Lane

Date 24 September 2015

London

EC4A 1NL

Before

THE HONOURABLE MR JUSTICE LEGGATT

Between

NHS COMMISSIONING BOARDClaimant

DR KAROL SILOVSKYFirst Defendant

DR PAUL DRISCOLL

Second Defendant

Simon Butler (instructed by Hempsons Solicitors) for Claimant

David Lock QC (instructed by Lockharts Solicitors) for Defendants

Hearing Hearing date: 23 September 2015

Judgment

[1]The claimant has by statute taken over the role of the Suffolk County Primary Care Trust which I will call “the Trust”, the body which commissioned NHS primary care services in Suffolk. The defendants are general practitioners who run a GP practice in Felixstowe. In December 2007, the Trust entered into a contract with the defendants to govern their relationship, called a Personal Medical Services Agreement. Amongst many other things covered by the agreement, it provides for certain payments to be made to the defendants to compensate them for the cost of providing their premises. It is the claimant’s case in this action that it has, since 2008, mistakenly paid to the defendants larger sums in relation to their premises than they are entitled to receive under the contract. Alternatively, the claimant contends that, if that is not so, it is because the contract does not accurately record the agreement of the parties so that the contract ought to be rectified. The claimant is seeking on one or other of those bases to be repaid sums currently totalling some £428,000 plus interest on those sums.

[2]This is an application by the defendants for summary judgment. On their behalf, Mr Lock QC submits that the claim has no real prospect of success and should be summarily dismissed. There is a cross-application to make certain amendments to the particulars of claim, principally to plead more particulars of the claimant’s rectification case. There has also been a body of witness evidence served. For the purpose of the summary judgment application, I will take the claimant’s case to be as pleaded in the draft amended particulars of claim.

[3]I shall approach the application applying well established principles which I need not rehearse. In particular, where there is any issue or potential issue of fact to which the answer might be affected by a full investigation, I shall assume for present purposes that the issue is to be answered in the claimant’s favour. Where, however, the question is one of law or is otherwise one which I am as well placed to decide now as a judge would be at trial, it is appropriate that I should decide it now and not put the parties to further cost and delay. It seems to me that this is the position in relation to the issue of interpretation of the contract which arises.

Relevant background

[4]Before I come to the contract itself, I will outline the relevant background. There are two types of contract made between NHS Commissioners and GPs which are relevant for present purposes. The first type is called a General Medical Services (or GMS) contract. The second type is called a Personal Medical Services (or PMS) agreement. For each type of contract, there are statutory regulations relating to it which require certain terms to be included in the contract, although the regulations do not prevent other terms from being included as well. GMS contracts are the default form of contract which GPs are entitled to have unless they are offered and agree to enter into a PMS agreement.

[5]Under the National Health Service Act 2006 the Secretary of State has power to issue legally binding directions providing for payments to be made to GPs under GMS contracts. There is a similar power in relation to PMS agreements. There were directions made in 2004 in relation to GMS contracts which were in force at all relevant times governing payments to be made in relation to premises. Their full title is the National Health Service (General Medical Services - Premises Costs) (England) Directions 2004, and I will refer to them for short as the “GMS Premises Directions.” Those directions are detailed but the general scheme of the provisions relevant for present purposes is as follows. If the premises used by the GP practice are rented premises, the directions provide for reimbursement of the rent paid so long as it does not exceed the current market rent for the premises. If the premises are owned by the practice outright without a mortgage, the practice may apply for payments based on a notional market rent. If the practice has borrowed money to purchase or refurbish the premises, it may apply for financial assistance towards meeting the cost of borrowing. Importantly for present purposes, there have been no directions given by the Secretary of State providing for payments to be made for premises under PMS agreements.

[6]The defendants’ practice had borrowed money under mortgage to purchase the premises which they use. They obtained a bank loan for a period of 25 years which commenced on 1 April 1998. For an initial period of 10 years, the loan was at a fixed rate of interest. Interest then became payable at a variable rate of one percent above the bank’s base rate for the remaining period of the loan. The defendants applied for financial assistance towards their costs of borrowing. In accordance with the GMS Premises Directions, the Trust agreed to make payments of £77,238 per annum. The calculation of those payments was based on the fixed rate of interest which the practice was then paying.

[7]In 2004, the Trust entered into a PMS agreement with the defendants. That agreement contained at clause 440 a term which provided that:

“Where premises costs are payable to the Contractor, these are excluded from the annual contract price and paid separately in accordance with the [GMS Premises Directions].”

It is common ground that the contract by that clause expressly linked the calculation of sums payable for the premises under the contract to the GMS Premises Directions.

[8]A schedule to the agreement, which specified the sums payable under it, included the item:

“Cost rent (fixed interest rate) 77,238”

[9]On 18 December 2007, a new PMS agreement was made between the parties which replaced the previous contract with effect from 1 April 2008. It is this 2007 agreement which is the subject of the present action. The new agreement was in a different form from the previous agreement, having been redrafted by a different firm of solicitors. It is a long document of over 300 pages. Contracts in a similar form were offered at the same time to all GP practices with which the Trust contracted. The terms of the standard contract were negotiated between the Trust and the Suffolk Local Medical Committee, a body with which the Trust was statutorily obliged to consult.

[10]The payment provisions in the 2007 agreement are contained in Part 17 which starts at clause 373. Clause 375 provides:

“Payments to be made to the Contractor and any relevant conditions to be met by the Contractor in relation to such payments in respect of services where payments or the amount of any such payments are not specified in directions pursuant to clause 374 are set out in Schedule 7 to this Agreement.”

[11]The directions referred to in clause 374 are directions relating to PMS agreements. As mentioned earlier, there have been no directions made in relation to premises under the statutory power to make directions relating to PMS agreements.

The dispute

[12]Schedule 7 to the agreement has a heading, “Premises Payments.” Under that heading, opposite the word “Rent” and in a column headed “Annual Value”, appears the figure of £77,238. The claimant’s case is that, although the agreement specifies the figure of £77,238 which I have just mentioned, this is not the amount which the defendants are entitled to receive annually under the agreement in respect of the costs of their premises. On behalf of the claimant, this case is put by Mr Butler in two ways. First, Mr Butler argues that, although the 2007 agreement does not contain any clause equivalent to the clause in the 2004 agreement which provided for premises costs to be paid in accordance with the GMS Premises Directions, this is what has impliedly been agreed. Second, he argues that, if this is not the effect of the contractual document as drafted, the document should be rectified to have that effect either on the basis of a common mistake or a unilateral mistake.

[13]Mr Lock on behalf of the defendants submits that neither way in which the case is put has a real prospect of success. He argues that the contract on its plain meaning provides for premises payments to be made in an amount of £77,238 each year, which is a fixed amount and not an amount which may vary in accordance with the regime of the GMS Premises Directions. In contrast to the 2004 agreement which incorporated that regime by reference, the present agreement does not. Nor, Mr Lock submits, has the claimant pleaded or put forward admissible evidence of facts which are capable, if proved, of supporting a claim for rectification. The claim is, therefore, bound to fail and should be summarily dismissed.

Construction

[14]I take, first, the question of construction or implication of a term. The claimant’s pleaded case is that the agreement contains an implied term that entitlement to financial assistance for the premises shall be subject to and consistent with the GMS Premises Directions. There is a further plea that there is an implied term that the entitlement to financial assistance for the premises shall be payable in accordance with the terms and conditions of the loan agreement but that contention was not pursued in argument and I therefore need not address it, except to say that it is in my view clearly untenable.

[15]It was common ground in argument that the question whether a term ought to be implied is now seen as an aspect of the interpretation of the contract. As explained by Lord Hoffman in the case of Attorney-General of Belize v Belize Telecom Ltd

[2009] 1 WLR 1988

, the question for the court is whether the words said to be implied spell out what the contract would reasonably be understood to mean, even though it does not say so expressly.

[16]Mr Butler founded his argument on Schedule 7 of the agreement which he said must be read against the background of matters within the knowledge of the parties, in particular: i) the statutory scheme relating to payments in respect of premises, including the GMS Premises Directions; ii) the loan arrangements made by the defendants’ practice; iii) the fact that the defendants’ practice had made an application in accordance with the GMS Premises Directions, which the Trust had granted, for financial assistance towards the cost of its loan; and iv) the fact that the amount of financial assistance payable had been calculated in accordance with the directions at £77,238 a year based on the fixed rate of interest payable for the initial period of the loan.

[17]I accept that all these matters, whether or not actually known to the defendants, are information which was available to them as well as to the claimant and which forms part of the relevant background or factual matrix for the purpose of construing the agreement.

[18]Mr Butler in his submissions also relied on evidence adduced by the claimant that it was at all times the Trust’s policy to make payments to GPs for premises costs which were calculated in accordance with the GMS Premises Directions and to do so irrespective of whether the contract between the Trust and the GP was a GMS agreement or a PMS agreement. I am not sure whether Mr Butler was seeking to rely on this evidence in relation to the issue of construction or only in relation to rectification. But if he was seeking to rely on it in relation to the issue of construction, I do not accept that the evidence is admissible. Leaving aside the fact that it is not suggested that this policy was published or communicated to the defendants, it amounts to evidence of subjective intention which as a matter of law is not relevant and must be disregarded when ascertaining what the contract means.

[19]Construing Schedule 7 against the relevant background, Mr Butler submitted that the word “rent” cannot be interpreted literally because, as the parties knew, the defendants were not paying any rent for their premises. With the background knowledge which the parties had or may be taken to have had, the word “rent” must be taken to mean what he referred to as “cost rent” – that is, financial assistance towards the cost of borrowing which had been granted in accordance with the GMS Premises Directions. The parties may be taken to have known that this was what the figure of £77,238 represented. It would have been reasonably understood that, if this sum ceased to be payable in accordance with the directions, it would cease to be payable under the contract and there would be payable instead whatever sum the defendants were entitled to receive under the directions in respect of premises costs.

[20]Thus, Mr Butler argued that it could not reasonably have been contemplated that, as and when the defendant’s practice was no longer incurring the cost of borrowing money at a high fixed interest rate under its loan agreement, the practice should go on receiving financial assistance which had been granted on the basis that the practice was incurring that cost. To go on making payments for premises to the practice in the same amount even though the cost of borrowing had fallen very substantially because interest on its loan was now accruing at the much lower current variable rate would make no commercial sense and would produce an undeserved windfall for the defendants which could not have rationally been intended. In those circumstances the reference in Schedule 7 to “77,238” would reasonably be understood to mean that sum or whatever different sum the defendants are at any given time entitled to receive in accordance with the GMS Premises Directions.

[21]In answer, Mr Lock for the defendants emphasised that the GMS Premises Directions do not apply to PMS agreements unless the parties have agreed that they should apply. Whereas the previous 2004 agreement had included a clause for providing for the GMS Premises Directions to apply, the 2007 agreement which replaced it contains no such provision. That indicates, Mr Lock submitted, a positive intention that the Directions should not apply.

[22]I do not accept that such a positive inference can be drawn from the fact that the 2007 agreement did not contain a term corresponding to clause 440 of the earlier agreement. It seems to me that the omission of such a clause is equivocal. It could be explained on the basis that the parties have chosen not to make the GMS Premises Directions applicable, as Mr Lock suggested. But it is also consistent with the view being taken that such a clause was redundant and unnecessary because the agreement had the effect that premises payments were to be calculated on the basis of the GMS Premises Directions without it.

[23]I do, however, accept that, in the absence of any such express term, the burden of persuasion is on the claimant to show that this is nevertheless what the parties have agreed. The starting presumption is that, if the parties had intended premises payments to be calculated on the basis of the GMS Premises Directions, they would have included words to say so. That presumption seems to me all the stronger in relation to what is a detailed, professionally drafted agreement, the form of which was negotiated between the Trust and the Local Medical Committee, and where it is reasonable to expect that the financial terms, including payments that would be made in respect of GP premises, would be a focus of considerable interest and attention for those involved in the preparation and negotiation of the contract.

[24]I accept that in Schedule 7 the word “rent” cannot bear its ordinary meaning because the defendants were known not to be paying rent for their premises but I see no reason why it should be taken to refer solely to borrowing costs. Indeed, I did not understand Mr Butler ultimately to contend that the expression is so confined because, on his case, the defendants could opt to have payments made on the basis of a notional market rent and Mr Butler accepted that such payments would fall within this item of Schedule 7. It seems to me that, in its context, the word “rent” would reasonably be understood to encompass any payments made to reflect the cost of providing premises, whether the practice is actually paying rent for its premises or not. What I think clear is that the ordinary and natural meaning of the inclusion opposite the word “rent” in the column headed “Annual Value” of the number 77,238 is that the Trust was agreeing to make payments in that amount in respect of premises for each year that the contract remained in force. This inference is reinforced by the fact that for two of the items in the schedule (set out under the heading “Core contract service provision” and not relating to premises) there is no specific figure in the Annual Value column but, instead, the word “variable” appears with a note at the bottom of the page to explain how the amount will be calculated.

[25]It seems to me that the claimant’s case really rests on the contention that agreeing to make fixed annual payments of £77,238 in respect of premises costs is such an unreasonable intention to attribute to the parties that this cannot have been the intended effect of the agreement. I think that this contention does, indeed, have force if attention is focused only on the situation of the defendants. It does seem improbable that in circumstances where(a) a figure of £77,238 had been calculated on the basis of fixed interest payable by the defendants’ practice during the initial period of their loan and

(b) their cost of borrowing was about to plummet, as was foreseeable when the contract was signed, on the very day when the contract came into effect, the Trust would agree to go on making payments at the old rate and to do so indefinitely. That said, it might also be thought improbable that the parties would have specified the figure of £77,238 in the agreement if their intention was not just that this figure might change but that it should never be the applicable figure, which is the effect of the claimant’s construction.

[26]Mr Lock made the point, however, that this was not a one-off contract. The same form of agreement was used by the Trust for all agreements which it offered to GPs and the terms were negotiated with the Local Medical Committee. In these circumstances, Mr Lock suggested that the Trust could, for example, have taken the view that the sums paid for premises costs should be fixed at whatever was their current level. On this basis, the Trust would have certainty as to its future expenditure in respect of premises costs and would also know that for as long as the agreements remained in effect the amount of its expenditure would not increase. For the GPs, there would be winners and losers from such an approach but the winners would not complain and the losers were in no position to negotiate different terms for themselves, since the agreements were presented on a take it or leave it basis.

[27]Whether this corresponds to what actually happened is not the point. The point is that agreeing to continue making premises payments in the amount current when the contract was made without provision for future alteration upwards or downwards is not an obviously irrational arrangement. In Chartbrook Ltd v Persimmon Homes Ltd

[2009] 1 AC 1101

, at para 20, Lord Hoffman said:

“It is of course true that the fact that a contract may appear to be unduly favourable to one of the parties is not a sufficient reason for supposing that it does not mean what it says. The reasonable addressee of the instrument has not been privy to the negotiations and cannot tell whether a provision favourable to one side was not in exchange for some concession elsewhere or simply a bad bargain.”

[28]More recently, in Arnold v Britton

[2015] 2 WLR 1593

, at para 20, Lord Neuberger, giving a judgment which expressed the view of a majority of the Supreme Court, said:

“While commercial common sense is a very important factor to take into account when interpreting a contract, a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight. The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed. Experience shows that it is by no means unknown for people to enter into arrangements which are ill-advised, even ignoring the benefit of wisdom of hindsight, and it is not the function of a court when interpreting an agreement to relieve a party from the consequences of his imprudence or poor advice. Accordingly, when interpreting a contract a judge should avoid re-writing it in an attempt to assist an unwise party or to penalise an astute party.”

[29]The question, as I see it, comes to this: would reasonable people who entered into a contract in the terms these parties did have thought it so obvious that the sum specified to be payable for premises costs was intended to be subject to alteration by reference to the GMS Premises Directions that there was no need to say that in this detailed and complex agreement and it could be simply taken as read? In my view, the clear answer to that question is “No”. I do not think it possible by some process of creative interpretation to make up for the deficiency in the drafting in omitting to include any clause equivalent to clause 440 of the 2004 agreement. Thus, in my opinion, the agreement on its proper construction provides that the amount payable annually for premises costs is a fixed sum of £77,238 and there is no implied term that this sum is to change to reflect whatever sum the defendants would be entitled at any given time to receive if their entitlement were determined in accordance with the GMS Premises Directions.

Rectification for common mistake

[30]I turn then to the claimant’s alternative case which seeks rectification of the agreement. The applicable legal principles are not in dispute. Dealing first with rectification based on common mistake, the relevant requirements were summarised by Peter Gibson LJ in Swainland Builders Ltd v Freehold Properties Ltd

[2002] 2 EGLR 71

, at para 33, in a passage approved by the House of Lords in the Chartbrook case at para 48 of Lord Hoffman’s judgment, as follows:

“The party seeking rectification must show that: (1) the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified; (2) there was an outward expression of accord; (3) the intention continued at the time of the execution of the instrument sought to be rectified; (4) by mistake, the instrument did not reflect that common intention.”

[31]In the Chartbrook case, Lord Hoffman (with whose opinion on this point the rest of the House agreed) took the view that, in determining whether parties had a continuing common intention for this purpose, it is not their actual states of mind which count but what a reasonable observer would have thought their intentions to be. Whether the test for rectification is truly objective in this strong sense is a question which Lord Neuberger has said in the Court of Appeal in Daventry District Council v Daventry Housing Ltd

[2012] 1 WLR 1333

, at para 195, and I with great respect agree, may need to be reconsidered at some point; but that approach must, as it seems to me, be treated for now as authoritative by a judge at first instance. There is, therefore, no need for present purposes to investigate the parties’ subjective intentions.

[32]The central point made for the defendants by Mr Lock is that there are no specific facts alleged in the particulars of claim and there is simply no evidence which is capable, taken at its highest, of demonstrating either an objectively manifested common intention or any outward expression of accord between the parties to the effect that the contract should provide for premises payments to be calculated in accordance with the GMS Premises Directions.

[33]On the claimant’s behalf, Mr Butler sought to rely on two matters. The first was evidence given in a witness statement of Sadie Parker who worked for the Trust at the relevant time and was involved in a review of its contractual arrangements with GPs. She says in her statement that, in January 2007, detailed negotiations commenced between the Trust and the Local Medical Committee which continued at regular intervals until October 2007. She does not say whether she herself took part in those negotiations. She does, however, state her understanding that the Trust’s policy was to apply the GMS Premises Directions to GPs who entered into PMS agreements with the Trust and states that, “There was no change of policy when the new PMS agreements were drafted in 2007 and implemented in April 2008.” She goes on to say:

“As far as I am aware, there were no discussions with the LMC [i.e. the Local Medical Committee] regarding any changes to the policy of parity on premises funding or any discussions with the defendants to change the Trust’s position on costs rent or the application of the Premises Costs Directions.”

[34]Manifestly, evidence that there were no discussions on the point in issue is not evidence that there was an objectively manifested common intention or an outward expression of accord on the point. In any event, there is nothing to suggest that the Local Medical Committee was authorised to enter into a PMS agreement on behalf of the defendants. On the contrary, the evidence clearly shows that the Local Medical Committee did not have that authority and did not purport to contract on behalf of the defendants. It was the defendants’ choice whether or not to enter into the PMS agreement which was signed on 18 December 2007 and they who made the decision to do so. In these circumstances, any intention or accord which the Local Medical Committee may have expressed cannot be attributed to the defendants.

[35]The other matter on which Mr Butler relied was some correspondence which took place in the period shortly before the agreement was concluded. He referred, in particular, to two letters dated, respectively, 18 September and 8 October 2007, addressed by the Trust to all practices in receipt of costs rent funding from the Trust and requesting up-to-date information regarding their loan arrangements in order to calculate correct levels of reimbursement in line with the GMS Premises Directions. On 16 October 2007, the defendants’ practice manager replied to the second letter providing the information requested. All that these letters show, however, is that in September and October 2007, at a time when the 2004 PMS agreement was still in force, the Trust believed that the amounts payable in respect of borrowing costs were to be calculated on the basis of the GMS Premises Directions and was acting on that basis. It is not in dispute that this was, indeed, the position under the terms of the 2004 PMS agreement. The letters say nothing about what the Trust intended that the new form of agreement then under discussion should provide. Nor does the reply sent to the Trust by the defendants’ practice manager say anything whatever about what the defendants intended the new agreement to provide in respect of borrowing costs. All that it did was to supply information which the Trust had requested about the current loan arrangements of the practice, nothing more.

[36]There was nothing else to which Mr Butler was able to point which might possibly support an allegation that there was an accord or common intention of the parties outwardly expressed that the new PMS agreement should provide for premises payments to be calculated on the basis of the GMS Premises Directions. The case of rectification for common mistake is, therefore, lacking in any evidential basis and in my view has no prospect of success.

Rectification for unilateral mistake

[37]The claimant seeks in the alternative to put forward a case based on a unilateral mistake. It is common ground that, for this purpose, the subjective states of mind of the parties are relevant and that, to succeed on this basis, the claimant would need at trial to show that: i) at the time when the contract was signed, the Trust was under a mistaken belief that the contract provided for premises payments to be calculated in accordance with the GMS Premises Directions; ii) the defendants were aware that the Trust was labouring under this mistake; and iii) the defendants behaved unconscionably in not correcting the Trust’s mistake before the agreement was signed.

[38]I am prepared for the purpose of this summary judgment application to assume that the claimant would be able to establish at a trial that it believed, when the contract was signed, that the contract provided for premises payments to be calculated in accordance with the GMS Premises Directions – a belief which I have found to be mistaken. I cannot see, however, that the claimant has the remotest prospect of establishing either of the other two requirements. There is no evidence at all to support the allegation that the defendants were aware when they signed the agreement, first of all that it did not provide for payments to be calculated in accordance with the GMS Premises Directions and, secondly, that the claimant mistakenly believed otherwise. The only evidence on the point is evidence from the first defendant, Dr Silovsky, who says in a witness statement:

“I can say with absolute confidence that neither I nor any of my then partners were aware of this error by the Trust at the time when the 300 page document was presented to us to sign. I am not sure that at that time I could have explained the difference between the scheme for premises payments under GMS and PMS contracts and am clear that nobody drew my attention to the difference between a fixed payment and one based on the GMS formula.”

[39]Mr Butler has sought to argue that this evidence is simply incredible. He submits that the one thing the defendants would have been extremely interested to read were the financial terms of the agreement. They would have been bound, therefore, to look at Schedule 7 of the agreement and to see that it provided for premises payments to be made in a fixed sum and not in accordance with the GMS Premises Directions. Assuming, however, that the defendants read Schedule 7 before signing the agreement, that would not by itself have established the position. The material part of the schedule was in similar terms to the equivalent schedule of the previous agreement and the figure of £77,238 was exactly the same in both. That figure in the previous agreement was subject to variation because that agreement included, among its detailed terms at clause 440, a term which linked premises payments to the GMS Premises Directions. I would be amazed if a general practitioner in the defendants’ position when presented with the 2007 agreement to sign had studied the detailed terms of the agreement with the care necessary to notice that it did not include any equivalent clause to clause 440 of the previous agreement, supposing that the general practitioner was aware of the existence of that clause.

[40]To appreciate the significance of the omission, the general practitioner would also need to have known that, in the absence of such a clause in the agreement, the GMS Premises Directions would not be applicable to the contract as a matter of law. The notion, indeed, that a general practitioner presented with the agreement to sign must have noticed a defect which had evidently escaped the lawyer who drafted it and all those who had reviewed its terms over the course of its preparation and negotiation during the previous months strikes me as utterly fanciful. At any rate, I can see no possibility whatever of the claimant being able to prove that the defendants did, in fact, notice the defect without any evidence to support such an allegation and no prospect of obtaining any such evidence. The allegation that the defendants were or, as it is pleaded by the claimant, “would have been” aware of the Trust’s mistake is, therefore, wholly unsubstantiated and not one which in my view has any reasonable basis.

[41]Even if the claimant was somehow able to show that the defendants were aware of the Trust’s mistake when they signed the agreement, the claimant would still need to satisfy the third requirement of showing that it was unconscionable for the defendants not to correct the mistake. No such allegation has been pleaded, even in the draft amended particulars of claim. Nor did Mr Butler identify anything in his submissions which would justify pleading such an allegation.

[42]Mr Lock referred to the decision of the Court of Appeal in the case of George Wimpey UK Ltd v VI Construction Ltd

[2005] EWCA Civ 77

. That case concerned a contract by which the defendant, VIC, agreed to sell some land to the claimant, Wimpey, for development. Part of the consideration payable by Wimpey was to be calculated in accordance with a complicated formula. Wimpey’s representative made a mistake in drafting the formula, in leaving out one element of the calculation. On the facts found, VIC noticed the error or what appeared might well be an error before the contract was signed but did not point it out. The judge ordered rectification of the agreement but that decision was reversed by the Court of Appeal. The Court of Appeal held that it was not unconscionable in the circumstances for VIC not to raise with Wimpey the apparent error in the contractual formula. Sedley LJ said at paras 65 and 67:

“65. … An arm’s-length negotiation between parties of unequal competence and resources may well place greater constraints of honest and reasonable conduct on the stronger party than on the weaker. But the present case practically reverses the paradigm: it is the weaker party which is accused by the stronger of having unconscionably misled it by failing to draw the stronger party’s attention to its own oversight. ... 67. If ever a party was entitled to assume that its opponent knew what it was doing, it was VIC in its negotiations with one of the country’s largest construction and development enterprises. In my judgment the mistake made by Wimpey was a result of their own corporate neglect for which VIC bore no legal or – so far as it matters – moral responsibility.”

[43]In my view, those observations are exactly in point here.

Conclusion

[44]For these reasons, I conclude that the claim for rectification based on unilateral mistake also has no real prospect of success. In the result, I hold that the defendants are entitled to summary judgment.

[45]I add this. The agreement which is the subject of this case has brought about, as it seems to me, a windfall for the defendants. They could not reasonably expect to continue receiving payments from the Trust based on the fixed interest rate originally payable for their loan once that rate ceased to be payable. However, the mistake which the Trust in all probability made in agreeing to make such payments is not a mistake of a kind which enables the terms of the contract to be altered by the court pursuant to the doctrine of rectification.

[46]What I find hard to comprehend is why the Trust did not, as soon as it became aware of the problem in late 2012, take the obvious step within its power to remedy the position at least going forward. Under the terms of the agreement, the agreement can be terminated by the Trust on six months’ notice. It has therefore been open to the Trust (and the claimant as its successor) at any time to terminate the 2007 agreement and offer the defendants a new contract in identical terms, save that it provides for premises payments to be adjusted on the basis of the GMS Premises Directions. Even if the claimant thought that it had a reasonable case on the construction of the present agreement and/or for rectification, it must have realised that the effect of the agreement is at the very least far from clear. The obviously sensible thing to do in that situation, as it seems to me, is to introduce clear wording. The failure to take this simple step has meant that money continues to be squandered by the claimant.