The bank loaned to a couple’s company to enable them to sub-divide and develop a parcel of land and they each provided guarantees. When the company defaulted, the bank sued for possession and to enforce the guarantees. Some sloppy drafting on the bank’s part meant that the guarantees only referred to one not both of the facilities and the wife’s guarantee only referred to one of the wife’s properties as security for the guarantee while both her properties had been intended to form part of the security.
The judge noted that where there is a mistake in drafting but it is clear what was meant there is no problem:
All that is required is that it should be clear that something has gone wrong with the language and that it should be clear what a reasonable person would have understood the parties to have meant.
However this was not available here because:
If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different.
Under these circumstances the lender needed to seek rectification. Rectification is only available if it is clearly established that the parties all actually intended something different to what was signed in some clearly identified way. In short, what is required is “clear and convincing proof” that, by mutual mistake.
The Court reviewed the evidence of emails from the broker to the lender and other pre-contractual negotiations and concluded:
the evidence pointed strongly to the conclusion that it was indeed the intention of Mr Merton and Ms Butler that the guarantees extend to both facilities.
The court gave judgment for the bank.