If a party makes a mistake about what it is agreeing to, what are its chances of wriggling out? The Appeal Court has just made a controversial ruling on this point
The Court of Appeal judgment on Hurst Stores and Interiors Limited vs ML Europe Property Limited was a rare case about the extent to which the party that makes a mistake in entering an agreement can avoid the bargain it would otherwise be taken to have made.

ML's construction manager and Hurst had been agreeing interim statements of accounts as they went along. After CMI 399 the construction manager asked for a final account. Hurst produced a draft final account effectively listing all the CMIs with values as previously agreed in the interim statements. Hurst's project manager then signed a document stating that the amount set out for CMIs 1 to 399 in the draft final account would be accepted "in full and final settlement of all our claims arising out of or in connection with the trade contract works which have accrued up to and including the date of this statement" (my italics).

That means what it says on the label, ML's construction manager told Hurst when presented, a year later, with a claim for delay and disruption arising out of issues largely attributed to CMIs 1 to 399. We made a unilateral mistake claimed Hurst. Hurst's man signed the document but thought he was dealing with the direct costs of CMIs and not traditional loss and expense type claims.

The test to establish that a contract should be rectified where one party was mistaken as to its meaning was set out in Commission for New Towns vs Cooper 1995; was there:

  • a mistake as to the content of the documents

  • actual or "shut eye" knowledge of that mistake (see below for an explanation of this)

  • conduct that was unconscionable.

Hurst's man had an amnesia attack and could not remember how, if or when he signed the agreement. ML did not call evidence.

The trial judge assumed that the construction manager had posted the document to Hurst that contained, for the first time, the words "full and final settlement". The "probability is that [the construction manager] was wilfully shutting his eyes to the risk that Hurst would not notice the newly introduced, potentially prejudicial, words that he had no reason to suspect might be there," he said. Or the construction manger was "wilfully and recklessly failing to take such steps as an honest and reasonable man would take if he knew that the document he had prepared did not simply reflect the agreement on CMI values".

It could be argued that the more incompetent you are the more likely you are to get away with it

That was upheld by the Court of Appeal even though it found that the judge did not separately address the issue of unconscionable conduct but "plainly had that in mind". What did the construction manager do that was unconscionable? The judge never said. But how many draft contracts are submitted that include matters that have not been specifically discussed? Surely all the construction manager was doing was making it absolutely clear that there were to be no more claims arising from CMIs 1 to 399. At the time, none had been intimated.

The court did not have to consider what was more unconscionable; sending a document for signature which, if read, is clear what it is, or signing a document purportedly in full and final settlement of all claims and then presenting claims over a year later for the first time.

What was the "shut eye" knowledge assumed to be? Sending somebody an agreement labelled final account and containing in block capitals the words "the final payment would be accepted by us in full and final settlement of all our claims".