The High Court held recently that an entire agreement clause in an agreement between two parties did not prevent the court from ordering the rectification of the agreement to correct their mistake.

This extends the principle decided in an earlier case that an entire agreement clause did not prevent rectification in the case of unilateral mistake.

Some definitions and background

A court can be asked to “rectify” a written agreement when there’s been a mistake and the document doesn’t record what was agreed between parties.

A “unilateral” mistake is when one party is aware that the other has made the mistake but doesn’t tell the other about it. A “common” mistake is when both parties have made the mistake.

An “entire agreement clause” in a written agreement aims to ensure that all the parties’ rights and obligations between themselves concerning the subject matter of the contract are reflected in and arise only from the document itself.

The facts of Surgicraft Limited v Paradigm Biodevices Inc

In October 2004 Surgicraft, a British manufacturer and distributor of orthopaedic and medical products, appointed Paradigm as its exclusive distributor of a surgical spinal implant in the US. The initial written contract was amended and restated in a later contract between the parties in March 2005. Both contracts contained the same entire agreement clause, which stated that the agreement constituted “the entire understanding between the parties with respect to the subject matter” of the agreement. The second agreement was terminated by Surgicraft in December 2008, after a change of control of Surgicraft.

Paradigm contended that the 2004 contract contained a mistake, which was repeated in the 2005 contract. Paradigm argued that it had been the common intention of the parties that Surgicraft would pay Paradigm compensation if Surgicraft terminated the contract following a change of control of Surgicraft, even though the contracts as executed did not provide for this. Surgicraft denied that this had been the intention of the parties and argued that, in any case, the entire agreement clause prevented Paradigm from seeking rectification.

Judgment

The judge found that, on the evidence, both parties had intended that Paradigm would receive compensation from Surgicraft if Surgicraft underwent a change of control and terminated the contract. So there had been a common mistake. The judge rejected Surgicraft’s argument that the entire agreement clause was a bar to rectification.

The judge made it clear that entire agreement clauses are included in agreements to limit possible contractual claims arising from dealings outside the contract. Where both parties have made a mistake in expressing their true agreement, this does not prevent the court from rectifying the contract so that it expresses what was their true agreement.

Our thoughts on this case

The reasoning in this decision makes sense. Rectification essentially rewrites a contract to make the wording reflect what should have been there originally. This is consistent with the aims of the entire agreement clause, which is to make what is set out (or should be set out) in the contract the only agreement between the parties.

Although this decision demonstrates that entire agreement clauses will not act as a bar to rectification as of right, convincing the court to order the rectification of a contract remains a difficult option. The burden of proof of showing that there has been a mistake lies with the party seeking rectification. It will have to produce convincing evidence that the contract does not accurately reflect the parties’ original intentions and as to what those intentions were.

In this instance, the error in the 2004 contract was, in part, caused by the parties amending the contract document themselves at the very last minute before execution. It is always worthwhile taking the time to ensure that a contract accurately embodies what has been agreed, rather than having to go to the time-consuming trouble and expense of later having to prove to the court that it is wrong or omits key terms.

This case: Surgicraft Limited v Paradigm Biodevices Inc [2010] EWHC 1291 (Ch)

The earlier case: JJ Huber (Investments) Limited v The Private DIY Co. Limited [1995] NPC 102

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Fraser McKeating

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