Predictably, if
unfortunately, the UKSC with a judgment given by Lord Leggatt and Lady Simler,
with which the other members of the court agree, has affirmed the earlier
understanding of Leggatt LJ (as he then was) of the doctrine of rectification,
in National Union of Rail,
Maritime and Transport Workers v Tyne and Wear Passenger Transport Executive.
https://www.supremecourt.uk/cases/uksc-2022-0180.html
A mistake arguably
occurred in the recording of a collective bargaining agreement between employer
and trade union. Under this agreement, the entitlement to a “productivity
bonus” was altered by being incorporated into basic salary. The terms of
the collective agreement were then incorporated into contracts between employer
and employee.
The problem that arose
was whether the consolidation of the productivity bonus also increased the
shift allowance payable, as a simple increase in basic salary would. A claim
was successfully brought by employees against the employer that under the terms
of their amended contracts they were entitled to the higher shift allowance.
The employer brought a
claim against the union that the collective agreement as recorded did not
reflect the common intentions of the employer and unions, that shift allowances
would be unaltered by the increase in basic pay achieved by the consolidation,
and sought rectification. This claim was dismissed by the UKSC on the basis
that the correct party to any action for rectification should be the individual
employees whose contracts the employer was seeking to thereby change, not the
union.
Unfortunately, the
court also embarked on a discussion of the principles applicable to
rectification. We are told (quoting approvingly Snell’s Equity)
The first and fundamental point is that the
basic role of rectification is not to correct mistakes in transactions, but to
correct mistakes in documents recording transactions. [26]
How this could be
correct is, without more, completely mysterious. Documents are merely pieces of
paper (or, today, pdfs or other electronic files). If the rights of the parties
are X, but a piece of paper says they are not-X, why is a court or the law concerned
with the inaccurate recording of the parties’ rights? The court should just cut
to the chase and give effect to the parties’ rights, not the inaccurate
statement of them in a document. Where then is the need for any doctrine of
rectification if all that is being done is a change to a document? If the
document itself has been lost or destroyed, presumably it would be thought that
no need for rectification would then arise at all.
We are also told that
Although rectification alters documents and not
the agreements or other transactions recorded in documents, its effect is to
alter legal rights. It does so because the document must thereafter be
interpreted in accordance with the reformed wording. [34]
But why are we giving
effect to the document at all if it does not accord with the parties’
agreement? Why not just give effect to the agreement? The document is, again,
just a piece of paper or an electronic file.
The step that is
missing in the analysis is that we give effect to the terms as recorded in the
document because that is what the
parties have agreed. They have agreed that the terms in this document, and
this document alone, contains their agreement and that any earlier agreement
between them is replaced. (ie the doctrine of rectification can only be
understood if you also understand the parol evidence rule).
Therefore, the doctrine
of rectification does correct mistakes in transactions, but of one kind. It
alters the transaction that this document, and this document alone, contains
the terms of the parties’ rights and obligations. Where the parties have been
mistaken in thinking that the document accurately reflected what had been
agreed, that part of their agreement may be set aside because of their mistake.
The question then
arises: what is given effect to when the agreement that the document embodies
their contract is then set aside? Is it what the parties themselves
subjectively intended? Or what the parties had objectively agreed, but failed
to accurately record? The correct answer is the latter: which is what the House
of Lords had said in Chartbrook
v Persimmon. The
Supreme Court now says it is the former, but glossed (why?) by a requirement
that there must have been some “outward expression of accord” falling some way
short of an actual agreement. ([34]).
The criticism of Chartbrook that is often made, and
repeated here is that
it was never explained why the objective
meaning of a formal written instrument intended to create legally binding
obligations should be displaced in favour of the objective meaning of earlier
less formal and less considered communications which were never intended to be
binding if the objective meaning of those communications did not accord with
the parties’ shared subjective intention. [31]
This is misconceived
(it is actually a justifiable criticism of Hoffmann’s dissenting decision in Britoil). Contracts
are objectively made, they are not found in the minds of the parties. The
doctrine of rectification is not a “safety valve” ([30]) whereby the court can
sometimes give effect to the parties’ subjective intentions. If this were so,
why not always just give effect to subjective intentions? I suppose one answer
might be “commercial certainty but just not too much of it.”
There is no reason in
principle why a document recording an unenforceable, but perfectly valid,
agreement could not be rectified. The UKSC correctly hold that unenforceability
of the collective bargaining agreement presented no bar to rectification if a legal
issue arose from the agreement.
However, where an
employee sues an employer for her unpaid shift allowance, could an employment
tribunal rectify her contract of employment? No because under the statute that
creates them, the orders an employment tribunal may grant are restricted and it
lacks the jurisdiction to order rectification.
However, we are then
told that this poses no barrier because an equitable magic spell dispenses with
the need for any court order. Where the employee sues for the unpaid shift
allowance the “issue of rectification could be raised as a defence” because “equity
can take as done that which ought to be done.” Because an order ought to be
made, the need to actually make one could therefore be dispensed with. Hey
presto.
This is wholly
unpersuasive, and is an illustration of the dangers of invoking equitable
maxims. The reason that rectification has, hitherto, been required to be
affected through an order of the court is the same reason why equitable
rescission, specific performance, injunctions or any other equitable order
needs to actually be made. The court is changing the legal position between the
parties. In doing so it can take into account a range of countervailing reasons
(have third party rights now intervened in a way to make the order unfair? has
too too much time now elapsed?). Presumably where those countervailing reasons
now apply, what “ought to have been done” at some moment in the past no longer
does, and so no “defence” of “ought to be rectified” can be invoked.
Effectively the employment tribunal can now order rectification without having
the statutory power to do so.
The end result is to
drive a coach and four through the basics of contract doctrine: that agreements
are made by the words and actions of people in the world, words and actions
that have objective meanings, and are not found in their subjective states of
mind. Not only can the doctrine of rectification give effect to subjective
intentions that have not been objectively agreed, the court should “treat this
as done” even where rectification has not been ordered.
Rob