not a common mistake
On 30 July 2010, in the case of Daventry District Council v
Daventry and District Housing Ltd, the claimant local
authority (D) brought a claim against the defendant social landlord
(L) seeking rectification of a contract and damages for breach of a
duty of care.
The facts were that D had entered into a contract to transfer its
stock of housing to L. The parties had engaged in complicated
negotiations concerning the calculation of the price that L would
pay D. That calculation involved a number of elements, one of which
was the cost of making good a deficit of some £2.4 million in the
pension scheme of D's housing department staff, whose employment
was to be transferred to L. The transfer contract provided for D to
pay the deficit.
D's case was that the contract should have provided for L to pay
it. The issues were (i) whether there was a common intention that L
would pay the deficit; (ii) whether there had been a unilateral
mistake as to responsibility for payment; (iii) whether, as
asserted by D, the relationship between the parties and the
circumstances of the transaction were such that a reciprocal duty
of care existed to the effect that neither would seek to benefit
from the other's misunderstanding of any aspect of the transaction
or mistake, but would draw such misunderstandings or mistake to the
other's attention, so that the terms recorded in the transfer
contract would accurately record each party's intentions.
The court decided that the contract for the transfer of the
housing stock was not to be rectified on the ground of common or
unilateral mistake, because:
(1) the position on common intention had changed. One month
before the transfer contract was executed, the parties' common
intention, objectively viewed, was that L would pay the pension
deficit. However, having regard to an exchange of emails involving
the parties' solicitors which had taken place four days before the
contract was signed, the parties were to be taken as having
intended to include a clause in the contract which unambiguously
provided that D, not L, would pay the pension deficit
(2) the clause in the contract which provided for D to pay the
pension deficit had been fairly raised and approved and was
sufficient to deprive D of a case in unilateral mistake in the
absence of proof that L still knew after the approval of the clause
that D was mistaken; there was no such proof
(3) the parties had agreed in writing to "work within
partnership principles" and to avoid "causing any detriment to the
other". What L was doing was accepting the principle of fair play
and agreeing to negotiate in good faith. Such an understanding did
not give rise to any duty of care
what this means for social landlords
The court took the view that "the parties had to know where they
stood and that whatever they might have said to one another about
'behaving well', they had to know that they would only owe duties
of care to each other if their relationship went some way beyond
that of arm's length counterparties". In other words, the contract
must be read carefully to ensure that it accurately reflects the
intention of the parties.
For further information please contact Martin Hirst, partner in
the Real Estate team on T: 023 8085 7474 or email martin.hirst@bllaw.co.uk.
