Correcting Errors in Contracts by interpretation

Clarity achieved despite an obvious drafting error and inconsistent terms.

SSJ Properties Ltd -v- Osinaike – Chancery Division Appeal before Mr Martin Griffiths QC (sitting as a Deputy Judge)

This case provides a classic example of a situation where it was appropriate to correct a clear and obvious mistake made in the drafting of a contract in accordance with the observations of Lord Hoffman in Chartbrook Ltd -v- Persimmon Homes [2009] UKHL 38.

In October 2015 there was a meeting aimed at settling the Claimant’s claim for specific performance of a contract for sale of a residential flat by the Defendant. The terms of settlement were agreed in principle at that meeting on the basis that the Defendant would be given an opportunity to resell the land to a third party but if such a sale had not been achieved within a set period that the Defendant would then be required to complete the sale to the Claimant at the original price.

The settlement required formalisation in documentation and there was no concluded settlement until this documentation had been agreed and signed, which occurred on 23 December 2015.

The whole settlement was achieved by way of three formal documents, namely:

  1. A Tomlin Order staying the claim until 14 April 2016 on terms of settlement; 
  2. A Deed of Variation of the original contract so as to revise the completion date for the sale of the property to the Claimant to 14 April 2016; and
  3. A Settlement Agreement which provided the opportunity to resell during a permitted period and prior to the completion date. The completion date was to be the new date for completion of the original contract in the event that a resale to another purchaser had not been completed.In the Settlement Agreement the completion date was stated to be 14 April 2016, the completion date of the original contract as varied BUT the Permitted Period for the resale was defined as being a period of 6 months from the date of the Agreement (or 22 June 2016) this being 6 months after the parties entering into the document. 

Master Price made an order enforcing the settlement agreement and the Defendant appealed arguing that the 6 month period was intended and it was the completion date of the original contract which should be changed.

The Judge on appeal, relying on Chartbrook, held that it was clear that something had gone wrong with the drafting of the agreement, and it was also clear what that was and how it should be corrected as a matter of interpretation so that the error could be corrected.

It was clear that the end of the permitted period had to be aligned with the completion date and the way to do that was to make the permitted period end on 14 April, as the master had concluded. That required only a small change to the settlement agreement. The appellant's interpretation would require the settlement agreement, deed of variation, original sale contract and Tomlin order all to be changed. How the error had occurred could also be explained by reference to the meeting of 14 October to agree the settlement terms. The problem had arisen because the documents were not executed until December. However, moving the completion date was much less likely to be the interpretation arrived at by a reasonable person considering the settlement agreement in context and the transaction as a whole.

Russell Stone appeared for SSJ Properties instructed by Anthony Johnston of Jaswal Johnston LLP.