Monday 30 May 2011

Unilateral mistake: beyond the boundaries of fair dealing

Introduction

This case concerned TSL who made a critical mistake when submitting its tender and HWC with knowledge of the mistake turned a blind eye. It is necessary to start with a brief explanation of unilateral mistake and rectification.

Unilateral mistake and rectification

Unilateral mistake occurs where only one party is mistaken during negotiations as to the facts. It will only operate where the mistake is about the terms of the contract, for example, the price or the contractual description of the works. It is well established that rectification is a remedy solely designed to correct such mistakes if the other party knew about it and omitted to point it out. Rectification only applies to a written contract in order to correct it to reflect the parties’ true agreement.

Rectification for unilateral mistake will apply subject to the application of four principles:
1. That Party A erroneously believed that the contract contained or did not contain a particular provision which, mistakenly, it did contain;
2. That Party B was aware of the omission or the inclusion and that it was due to Party A’s mistake;
3. That Party B failed to draw the mistake to Party A’s attention; and
4. That the mistake must be one calculated to benefit Party B.

The facts of the case

HWC subcontracted the supply and installation of structural steelwork and roof cladding to TSL. In March 2008 TSL was invited to tender for the works based on drawings and specification, and in April 2008 TSL submitted it’s tender. There were however two versions of the tender:
1. The version sent by fax and post; and
2. The version retained by TSL on its file.

The two versions were identical except for one crucial difference: the last line on page 3 of the tender which TSL retained was missing from the version of the tender which TSL faxed and posted to HWC.
Page 3 read as follows:
Prices
For the supply and delivery of structural steelwork and cladding […] our budget prices would be:
Steelwork £37,573.43 + VAT
Cladding £32,365.83 + VAT

However, the text of the version of the tender sent by fax and post did not contain the last line of page 3 i.e. “[…] Cladding £32,365.83 + VAT”. In May 2008 HWC sent TSL an order “[…] to supply and fit the steelwork and roof cladding as per your quotation […]”
In July 2008 TSL sent HWC a letter which read as follows: “Following many discussions between Traditional […] yourself […] I am writing to advise as to our revised prices incorporating variations to the steelwork and cladding […]”. That letter engendered an instant protest from HWC who replied as follows: “[…] your quotation was for a total of £38,000, I don’t have the exact figures […] now your talking over £76,000 […]”. TSL responded as follows: “[…] our quotation […] clearly states the prices are steelwork £37,573.43 and cladding £32,365.83”. HWC replied as follows: “[…] there seems to be a problem […] the two copies are not the same. The quotation we received […] has only one figure yet yours now seems to have two”.

The Dispute

The essence of the dispute was founded on the difference between the two versions of the tender. TSL argued that it had made a mistake when it submitted its tender to HWC in a form which omitted the last line of page 3, and sought rectification of the contract on the grounds of unilateral mistake. HWC argued that it received TSL’s tender containing only one price, which it accepted for all the work.

The Judgment

In HHJ Grant’s judgment he established four critical findings of fact, two of these were as follows.

First, Mr. Henscoe for HWC in his witness statement regarding HSL’s tender said: “[…] TS is now saying that I must have known their price was too low to be both steelwork and cladding. The truth is I did not think the price was too low and I was not aware of any error in the price…it did not strike me as being unmistakably low […]”. He was cross-examined about that:
Q: […] you understood the words “steelwork” to mean both steelwork and cladding […]
A: Yes
Q: The Claimant (TSL) says […] it is inconceivable that a man of your experience could have mistaken the word “steelwork” as including […] roof cladding […]
A: If I get a quotation through that has all the scope of what is being supplied at the beginning, I check the bottom figure and this is the price I put in […]

The judge concluded that any reasonable reader of the paragraph on page 3 would have appreciated immediately that the figure of £37,573.43 related only to the steelwork. He made particular reference to the word “prices” in the plural and the line “steelwork […] £37,573.43 […]” Consequently he rejected Mr. Henscoe’s account of how he read the tender.

Second, Mr. Henscoe for HWC in his witness statement regarding TSL’s revised prices said: “I was very upset […] I drafted an email […] disputing the costs. In that email I also implied that other contractors had submitted prices of not much more than TS at the tender stage. In fact this not correct […] I am not sure why I said this […]”. He was cross-examined about that:
Q: You did not “imply” that other contractors had submitted prices […] but expressly stated […]
A: Yes
Q: […] you say that they were “only just above your cost”: that is very precise language…
A: Yes

The judge found Mr. Henscoe’s explanation of the events entirely unconvincing and rejected it. He said that the plain and obvious reason why Mr. Henscoe made reference to the other tenders was to put forward a reason why the price of £37,573.43 for both steelwork and cladding was a reasonable price for the totality of such work. Mr. Henscoe was prepared to tell a lie in order to support his case.

The four principles applied

The following findings of fact were established:
1. That when TSL sent its tender by fax and post in April 2008, it believed the document contained the last line on page 3 comprising the text “[…] Cladding […] £32,365.83 […]”;
2. That when HWC received the tender it was aware of the mistake;
As regards this second principle the degree of knowledge on the part of HWC was determined as follows:
• That HWC had actual knowledge because Mr. Henscoe wilfully and recklessly failed to enquire of TSL whether the price related to both steelwork and cladding, which an honest and reasonable person would have done;
• That Mr. Henscoe shut his eyes to the obvious fact that the price tendered was demonstrably a price related only to steelwork.
3. That from receipt of the tender in April 2008 through to July 2008, HWC failed to draw the mistake to TSL’s attention; and
4. That the mistake was calculated to benefit HWC.

Comment

It reiterates not only the duty to make enquiries of the other party if you think or have reason to believe that a mistake has been made in a tender but also the strict principles that a party has to establish before the court will grant rectification. It should be noted that rectification for unilateral mistake is an “exceptional” remedy. In this case HWC attempted to take advantage of an honest mistake in TSL’s tender which resulted in it having to pay the costs of the court case.