An interesting story appeared in Saturday’s edition of The Independent (Saturday 16 February 2019) about a contractual dispute – my thanks to my friend, Jim Glass who alerted me to the matter.
Nothing unusual about contractual disputes you might retort, the courts are full of them. This particular dispute, however, got my attention because it appeared to be what is known as a ‘slip of the pen’ case.
The dispute centres around a property dispute where a London flat was sold by Islington Borough Council to one of its long term tenants, Antony Zomparelli, for £340,000 in 2014 under the right to buy scheme. The trouble, according to the Council, was that the flat should have been sold at its actual value of £700,000. Mr Zomparelli is now being pursued at before Clerkenwell and Shoreditch County Court for the outstanding £360,000 the Council claims that he owes for the property. The Georgian listed property was wrongly classified as a one bedroom home when, as the Council claims, it should have been categorised as having two bedrooms. Mr Zomparelli, on the other hand, has responded by saying that he was not aware of the mistake.
It would appear that someone has messed up (to put it mildly) and it got me thinking about the possible legal consequences of the situation.
A link to the article can be found below:
The £700,000 London flat that was sold at half price’
Slip of the pen cases
In Chapter 2 of Introductory Scots Law, I discuss so called ‘slip of the pen cases’. I note that an offer can be cancelled at any time before it is accepted. In Scotland, the exception to this rule would cover a situation whereby the offeror has made a unilateral promise to potential offerees to the effect that s/he will keep the offer open for a specified period of time, for example, that the offer will remain valid until noon this Friday.
If no one has accepted the offer by noon on the Friday, the offeror is quite free to withdraw it, but not before this (self-imposed) deadline. Once it has been accepted, an offer cannot be withdrawn and this will be the case even if the offeror has made a mistake in the terms of the offer as can be seen in the following case:
Centrovincial Estates PLC v Merchant Investors Assurance (1983) Com LR 158 (CA) a firm of solicitors, acting for a property letting company, had communicated a definite offer to the effect that their clients were willing to rent offices to potential tenants for the sum of £65,000 per year. The offerees promptly accepted this offer of the tenancy at the stated rent. However, in what turned out to be an extremely costly mistake, the solicitors realised that the landlord wished to charge the tenants a sum of £126,000 for the yearly rent. The solicitors then telephoned the tenants and invited them to regard the terms of the original offer as changed to reflect the true position of their clients. Understandably quite happy with the outcome of the negotiations, the tenants refused to take this request seriously. The landlord then attempted to have the contract with their new tenants cancelled by reason of the unilateral mistake contained in the original letter of offer.
Held: by the English Court of Appeal that a binding contract had been formed. The tenants would get the benefit of the tenancy for a very favourable price. Unfortunately for the landlord, it had learned a very harsh lesson in the sense that the law did not protect it from the consequences of its own stupidity when it made an exceptionally bad bargain with the new tenants. It should be stressed that the tenants were completely unaware of the landlord’s error and that they had acted in good faith when accepting what they regarded as a very favourable offer. Had the tenants known that the landlord had made such a serious error then the case would have had a very different outcome. As something of a consolation, the landlord would have a claim for damages against the solicitors as a result of their negligence.
Awareness of the mistake
If the offeree knows that the offeror is mistaken, the contract may be void on the grounds of unilateral mistake. The following Scottish case provides a good illustration of this legal principle:
Krupp v John Menzies Ltd (1907) SC 903 stands in stark contrast to the decision of the English Court of Appeal in Centrovincial Estates (above). In Krupp, the parties had already made a verbal agreement that the employee, the manageress of the Mallaig Station Hotel, would receive a salary representing 5% of the profits of the business. When this agreement was formalised, the written contract contained a clerical error which stated that the employee’s salary was to be 20% of the profits of the business. This, of course, was a considerably more attractive salary than the employee had originally anticipated. The employee knew that this calculation in the written contract was completely in error, but it did not prevent her from attempting to enforce this much more favourable agreement in preference to the original, verbal agreement.
Held: the Court of Session permitted the employer to have the written contract changed to reflect the true contractual position which the original verbal agreement represented.
The difference between this case and the Centrovincial Estates’ decision was that the hotel manageress was not acting in good faith – she was fully aware of the clerical error in the written document. The Contract (Scotland) Act 1997 now permits additional, external sources of information (for example, verbal statements or documentary evidence) to be used in court in order to give true expression to the parties’ intentions in a written contract. Generally speaking, of course, the 1997 Act takes the position that a written document will contain all the main terms of the agreement.
It will be interesting to see how Mr Zomparelli fares against the Borough Council. It may come down to whether or not it can be proved that he should have been aware that the property was a two bedroom house, thus, attracting a higher value. In other words, did he act in good or bad faith when entering the contract? Watch this space.
Copyright Seán J Crossan, 18 February 2019