If you make a mistake in a contract, can you fix it up later?
About the Author:
GEOFF HARDY
Partner at Martelli McKegg
Geoff has 44 years’ experience in commercial and construction law. He is a prolific producer of articles and seminar papers, and is heavily involved in law reform and continuing education.
It is reasonably common to make mistakes when completing a contract.
For example, you might overstate the number or quality of the items being sold, with the result that the purchaser can insist on receiving something much more valuable than you are entitled to charge him for. Or you may have understated the contract price or the applicable hourly rate, in which case your customer gets an unintended bargain at your expense. It may be that you have inadvertently deleted some clauses that are critical to you. Or you may have done a side deal that never got recorded in the contract at all, and the contract says something entirely different.
When you discover the mistake, your clients might be understanding enough to let you change the contract. But I have seen many cases where they haven’t, particularly when the change is going to cost them a lot more money. After all, when they committed to the deal they might have completely spent their budget, and it might not have occurred to them that you had made a blunder when writing up the terms of the contract.
Consequently, even if they accept there was a mistake, they are likely to take the view that if anyone is going to suffer the financial pain then it ought to be you. And of course, if you are in dispute with your clients by the time you discover the mistake, they are likely to strenuously deny that there was any mistake at all.
Where your clients aren’t willing to let you change the contract, can you do it anyway? The answer is, not easily. You can understand why. If everyone who later regretted the deal they had entered into, could simply argue that the contract doesn’t reflect their true intention and the terms ought to be changed, then no contract would ever be worth the paper it was written on. So very early on, the law adopted the approach that whatever the contract says is what you intended it to say, and it is up to you to read it carefully and get legal advice if necessary, to ensure that it does reflect your true intention.
However, humans are not infallible, and there are some situations where the strict application of that rule would be unfair. So occasionally the rule is relaxed. Our law allowing you to correct mistakes in contracts goes back a long way, but in 1977 Parliament decided to tidy it all up by passing the Contractual Mistakes Act which is now known as Part 2 Subpart 2 of the Contract and Commercial Law Act 2017. That Act allows any court or tribunal to make any order that it thinks is just, including an order modifying the contract or an order that the other party pays you compensation.
That doesn’t mean that you can ask the Judge to annul your marriage on the grounds that you didn’t realise your spouse would laze around on the sofa all day, nor does it allow you to reverse that $50,000 bet you put on the All Blacks when Namibia pulled off the upset of the century. It doesn’t help you when you simply took a gamble. It only applies when what you believed was the true situation, turns out not to have been true at all. Like when you thought you had bought that Ford Mustang from Japan that you have on-sold to a classic car collector in New Zealand – or in fact both of you thought that – but unbeknown to you the Japanese seller has duped you and there is no such car. What you don’t want, is for the classic car collector to sue you for failure to deliver what you said you would, and compound your misery.
Unfortunately for you, the contractual mistakes legislation isn’t the get out of jail free card you might have thought. For a start, you have to apply to a court or tribunal - and that means significant costs, interminable delays, strenuous opposition by the other side, and no guarantee of success. Furthermore, the fact that you are the one who made the mistake counts against you.
But most importantly, the Act says the court or tribunal can’t do anything for you if your mistake was a mistake about the interpretation of your contract. And if your contract doesn’t say what you thought it said, that is a mistake about its interpretation. For example, in a 2002 High Court decision (Clements v Singh) the Judge ruled that a mistaken belief that a contract price was exclusive of GST when in fact it was inclusive of GST, was a mistake about the interpretation of the contract, and the contractual mistakes legislation could not assist.
All is not lost, however. There is another law called the “equitable doctrine of rectification of contract” which is not subject to the same limitations as the Contract and Commercial Law Act 2017, and it can assist when your mistake related to the interpretation of the contract. To get the contract corrected under the equitable doctrine, you have to prove that both parties had agreed on something – for example that the property owners you are building the house for would pay for the cost of obtaining the building consent – but when the building contract was drawn up it mistakenly placed the obligation to obtain the building consent on you. If the owners later deny they were liable for the Council’s fees, and your building contract doesn’t back you up, the equitable doctrine might just help you out. Of course, you would have to produce some pretty compelling evidence that you are right.
The equitable doctrine won’t help you, however, where the written contract correctly records both parties’ understanding, even though that understanding was mistaken. For example, if both the party hire company and the parents of the bride thought that the wedding was booked for the 14th of May, but the venue has them booked for the 24th, even though they were ignorant of the mistake at the time. Or when you both thought the boundary pegs were in the correct position, but it turns out they weren’t, so you have built a portion of the warehouse on the neighbours’ land.
If in actual fact the contract doesn’t record what the parties had agreed on, and you can use the equitable doctrine, you face similar disadvantages to those you face with the Contract and Commercial Law Act 2017 – you have to apply to a court or a tribunal, and it is a bit of a gamble. Rectification of the contract isn’t automatic, so if they think it would be unfair to the other party, they won’t grant it.
Fortunately, there is another way you can get some relief from the consequences of a contractual mistake, which isn’t subject to the same strict rules, and is quick and economical. The only hitch is that the other party to the contract must dispute your claim, and the loss it has caused you must be $15,000 or less. What you can do is apply to the Disputes Tribunal, which is our small claims court. It costs you very little to file a claim and the case gets disposed of within a few months. It doesn’t cost much in legal fees because at the hearing (which is quite informal) you argue your case yourself. Your lawyer can help you to put your claim together, but not to argue your case on the day.
The Disputes Tribunals do have power to resolve disputes relating to contracts. Not only can they order that one party pays a sum of money to another, but they can make changes to a contract. They can make those changes where a term of the contract is “harsh or unconscionable”, or a party was induced to enter into it by a mistake, or it doesn’t reflect their true agreement. So if you have become the victim of a mistake in a contract, don’t give up hope – get in touch with us, and find out what can be done.
Partner
Martelli McKegg
09 379 0700
Related Articles
For a guarantee to be enforceable, the requirements set out in section 27 of the Property Law Act 2007 (Act) must be strictly complied with. This is what the NZSC held in Brougham v Regan.