A recent development in contract law is the Court of Appeal’s decision in the case of Project Angel Bidco Ltd (in administration) v Axis Managing Agency Ltd (as representative of Syndicate 1686 at Lloyd’s of London) and other companies. This case has significant implications for the interpretation of contracts, particularly concerning the correction of mistakes within contractual documents. The court’s approach in this case highlights the stringent criteria that must be met for a court to correct a mistake through construction rather than rectification.
In Project Angel Bidco Ltd (in administration) v Axis Managing Agency Ltd (as representative of Syndicate 1686 at Lloyd’s of London) and other companies, the issue revolved around the interpretation of a ‘Buyer Side Warranty & Indemnity Insurance Policy’ issued in relation to the acquisition of a target company. HHJ Pelling KC, in the first instance, stated that the literal meaning of a provision in a contract could be corrected if it was clear both that a mistake had been made and what the provision was intended to say. This principle was derived from the earlier case of Chartbrook Ltd v Persimmon Homes Ltd and others, where Lord Hoffmann emphasised that courts do not easily accept that linguistic mistakes have been made, especially in formal documents.
The Court of Appeal upheld the decision by a majority, with Lord Justice Phillips dissenting. The court reiterated that for a mistake to be corrected through construction, it must be obvious on the face of the document. This means that the error should be evident without recourse to extrinsic evidence of pre-contract negotiations. The court’s decision in this case aligns with the principle that the correction of mistakes is more challenging when it involves exemption clauses, as parties seeking to restrict or exclude their liability must do so in clear terms.
This case is part of a broader trend in contract law where courts are increasingly willing to interpret contracts in a way that corrects obvious mistakes, provided the criteria are met. This trend is rooted in the contextualist approach to contract interpretation, which has gained prominence over the past two decades. The contextualist approach considers the transactional context and the reasonable expectations of the parties, rather than strictly adhering to the literal wording of the contract.
The implications of this case are significant for commercial contracting, as it underscores the importance of clear and precise drafting. It also highlights the courts’ reluctance to intervene unless the mistake is glaringly obvious and the intended meaning is clear. This approach aims to balance the need for certainty in contractual terms with the necessity of achieving a fair and reasonable interpretation that reflects the parties’ true intentions.
In conclusion, the decision in Project Angel Bidco Ltd (in administration) v Axis Managing Agency Ltd (as representative of Syndicate 1686 at Lloyd’s of London) and other companies reinforces the high threshold for correcting mistakes in contracts through construction. It also exemplifies the ongoing transformation in contract law towards a more contextual and reasonable interpretation of contractual terms, reflecting the evolving judicial approach to commercial agreements.
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Molly Ross
This information was correct as of September 2024