Implication of terms compared with interpretation/construction and rectification for mistake

When a dispute arises over the meaning of a document, then as well as arguing for the implication of a term to give it the meaning sought, a party will also often raise arguments based on:

• Interpretation/ construction. If properly interpreted (or construed), the express terms of the document will (without the need for any implied term) have the meaning sought. Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract (Investors Compensation Scheme). The approach is similar to that taken when implying terms and sometimes a decision can be justified on the basis of either interpretation or the implication of a term (see Spencer v Secretary of State).

However, in Marks and Spencer the Supreme Court stressed that the implication of terms should not be classified as part of the process of interpretation. Although construing the words which the parties have used in their contract and implying terms into the contract both involve determining the scope and meaning of the contract they are separate exercises which must be carried out sequentially. Construing express terms involves resolving ambiguities or reconciling apparent inconsistencies in the language the parties have used. By contrast, implying terms involves adding new words to address situations which the parties have not dealt with in their agreement and, as such, the process should be subject to strict constraints.

• Rectification for mistake. There is a mistake in the language of the document which requires rectification, again to give the meaning sought. Broadly, an action for (mutual) mistake requires the parties to have had a common continuing intention with regard to a particular matter, which, by mistake, was not reflected in a documented agreement between them. Their common continuing intention must be assessed objectively, what would an objective observer have thought their intentions to be? Mistakes are now often dealt with by construction. In Chartbrook Ltd v Persimmon Homes Ltd & Ors [2009] UKHL 38 (1 July 2009), Lord Hoffman commented that, in construing a document there is:

"no limit to the amount of red ink or verbal rearrangement or correction which the court is allowed. 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, in a 2012 Court of Appeal case Lewison LJ stated that, contrary to many legal commentators, he considered that there is still a useful role for rectification to play as a remedy, despite the modern approach to interpretation of contracts (Cherry Tree Investments Ltd v Landmain Ltd [2012] EWCA Civ 736). One reason rectification is often pleaded as well as interpretation is that evidence of the parties' negotiations is admissible in a claim for rectification, whereas in a claim based on construction (or a claim for the implication of a term) it is not.