Fri 30 Sep 2016

Commercial Contracts: Correcting Mistakes as a Process of Interpretation

In 1997 the House of Lords issued its decision in Mannai Investment Company Limited v Eagle Star Life Assurance Company Limited.

In that case the lease between the parties contained the following provision:

The tenant may by serving not less than six months' notice in writing on the landlord or its solicitors such notice to expire on the third anniversary of the term commencement date determine this lease and upon the expiry of such notice this lease shall cease and determine and have no further effect…"

The third anniversary was 13 January 1995 but the break notice served by the tenant incorrectly used 12 January 1995 as the relevant date. The question was whether, notwithstanding the mistake in the break notice it was still effective to terminate the lease.

By a majority, the House of Lords held that it was effective and in doing so essentially established a firm principle that errors in a contract can be ignored or corrected in a process of construction if it is obvious to the informed reader what the entire contract means on a whole reading of it and considering the background. Lord Hoffmann compares the situation to one in everyday speech saying:

"If one meets an acquaintance and he says "And how is Mary?" it may be obvious that he is referring to one's wife, even if she is in fact called Jane. One may even, to avoid embarrassment, answer "Very well, thank you" without drawing attention to his mistake. The message has been unambiguously received and understood".


The principles in the Mannai Investment case are perhaps not applied in practice as much as they might be. However, they were central to the decision of the Inner House this week in the case of Regent Quay Development Company Limited v Tyco Fire & Integrated Solutions (UK) Limited. This case was also an issue between a landlord and tenant where a break notice was served by the tenant. The question was whether, viewed objectively, a reasonable recipient would have understood the notice as meaning that the tenant was opting to terminate the tenancy of all 3 of the units let as at 31 August 2016.

The Inner House adhered to the decision of the Lord Ordinary and held that a reasonable recipient would have understood the notice in that way. There were mistakes in the notice - notably the heading of the letter (which referred to only two of the units) - but if the landlord read the whole letter it would have been clear that the heading was simply incomplete. The tenant had clearly intended to terminate all tenancies. The Inner House found that the landlord's interpretation of the contract to be too literal and reminded them that, as Lord Hoffmann had held in Mannaithe meaning of what is said can be unambiguous despite the wrong words having been used.

The decision is a good reminder of the principles in Mannai and also a reminder that the process of contractual interpretation is not just about the black letter words of the contract. It is a more nuanced exercise than that, in which context and background still play an important role.

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