IN THE HIGH COURT
QUEEN'S BENCH DIVISION

Thursday 5th August 2004

Before:

William Blair QC (sitting as a Judge of the High Court)

 

Between:

Champion Investments Ltd
Claimants

-and-

Eaitisham Ahmed
Defendant

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Bitu Bhalla (Saunders & Co) for the claimant.
Adrian Davies (Fenwick & Co) for the defendant.

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JUDGMENT

WILLIAM BLAIR QC:

1. This is an application by the Claimant, Champion Investments Ltd, to set aside a Tomlin Order made by Master Tennant on 14 January 2004. The Order effected a compromise of proceedings begun in November 2003 against the Defendant, Mr Eaitisham Ahmed for recovery of sums due from the Defendant under a loan. The grounds of the application are that the agreement as set out in the Tomlin Order was based on a fundamental mistake of fact, and is void. The relief sought is that the Order be set aside, and the case proceed to trial. Alternatively, the Claimant seeks to rectify the Schedule to the order, where the terms of the compromise are set out. The Defendant, on the other hand, maintains that the agreement was valid, and the Order should stand. On 29 March 2004, the Master directed a trial of the mistake and rectification issues, which following disclosure on the issues, has taken place before me.

2. The crux of the matter relates to the settlement of the interest element due under the loan. A figure of 55,000 was inserted in the Order following the settlement negotiations. In summary, the Claimant's case is that the parties proceeded on the mistaken assumption that this constituted interest at the rate of 45% per annum, whereas because of a mistake as to the date of drawdown in a spreadsheet from which both parties' solicitors were working, it amounts to a considerably lower rate. It is argued that the apparent agreement which the parties reached was no agreement, and that the Order should be set aside on the grounds of mutual mistake, alternatively the Claimant's unilateral mistake. In the alternative to the case based on mistake, the Claimant seeks rectification on the basis that the true intention of the parties was to incorporate into the contract a figure for interest representing 45% per annum on the loan from the date of drawdown.

3. The Defendants' position is that this is not a case of mutual mistake. The error in the spreadsheet is not seriously contested. But it is said is that the interest claim was settled at the agreed figure of 55,000, not an agreed rate of interest. Insofar as the parties were under a misapprehension, there was no sharp practice on the part of the Defendant's solicitor such as to entitle the Claimant to set the Order aside. This is not a case for rectification, it is argued, because the Schedule to the Order accurately records what the parties agreed.

 

The proceedings under the loan

4. Many of the facts are not in contention. The Claimant is an Isle of Man investment company, and the Defendant is a businessman. By a Loan Agreement made on 15 July 2003, the Claimant made available to the Defendant the aggregate principal sum of 1,000,000 on terms set out in a Facility Letter dated 14 July 2003. The loan was secured by a Legal Charge dated 15 July 2003 over various properties. The firm of solicitors which represented the Claimant lender with regard to the loan transaction was Seddons.

5. The transaction was an unusual one. In its submissions, the Claimant asserts, amongst other things that, "the purpose of the borrowing appears to be for pure share speculation". I make no finding in that regard, nor do I think that it is necessary to do so. Suffice it to say that this was a very short-term loan, at very high rates of interest. It was described in the Facility Letter as a "bridging loan facility", and was repayable by 6 October 2003. According to the Particulars of Claim this was extended to 20 October 2003. By the terms of the Facility Letter, the interest rate was eight per cent per month for the first month, and thereafter two and a half percent per week, rising to three percent per week, rising (according to the Particulars of Claim) to four percent per week after 6 October 2003. Interest was payable monthly in arrears. The purpose of the loan is described in the Facility Letter as being "for investment and business purposes".

6. The loan was not advanced direct from the lender's account to the borrower's account. A copy of a page from Seddons' accounts ledger (which was disclosed by the Claimant under the terms of Master Tennant's order of 29 March 2004) appears to show that the loan monies were advanced from the firm's account to the Defendant's account in two tranches, one of approximately 600,000 on 15 July 2003, and the other of approximately 400,000 on 16 July 2003.

7. The Defendant failed to make full repayment when due, and on 6 November 2003, the Claimant began these proceedings. In the litigation, the Claimant was, and still is, represented by Saunders & Co. The Particulars of Claim recite that the loan was made in July 2003, and that it was drawn down, and interim payments made, as set out in the Schedule. The claim is for 391,071.33 which was said to be due as at 4 November as detailed in the Schedule. The Schedule consists of a table, the accuracy or otherwise of which has played a prominent part in the proceedings before me. It consists of five columns, headed Period, Interest Rate, Interest Amount, Capital Repayment, and Balance respectively. Importantly, it shows the date on which the loan was disbursed as being 14 August, rather than either 15 or 16 July, which are the dates of payment shown in the Seddons' accounts ledger. The Claimant's case was that it was ambiguous in this respect, but I do not think that it is ambiguous. The term "disbursement date" clearly means the date when the loan was paid to the borrower.

8. A defence and counterclaim was served on 5 December 2003. In it, the Defendant said that he had repaid 880,000. This is the same figure as is shown in the Schedule to the Particulars of Claim, where however it is broken down into principal and interest, with 700,000 apportioned to principal, and 180,000 apportioned to interest. Various allegations were advanced in the pleading, including one of fraudulent misrepresentation. However what is relevant for present purposes to note is that the Defendant sought an order re-opening the transaction under the provisions of the Consumer Credit Act 1974 which empower the Court to re-open "extortionate credit bargains". The counterclaim sought a reduction in the rate of interest to 18% per year. The Defendant was, and still is, represented in the litigation by Fenwick & Co.

 

The settlement negotiations

9. The Claimant made an application for summary judgment under CPR Part 24, which came on for hearing before Master Tennant at 10.30 on the morning of 14 January 2004. The day before, the Defendant made a taxed offer to Saunders & Co (paragraph 4 of Mr Desai's first witness statement). I have not seen this offer. Round this time a cheque for 120,000 was given to Saunders & Co by Fenwick & Co. There is a difference in the evidence of the respective solicitors in this regard, Fenwick & Co identifying 13 January as the date of tender, Saunders & Co identifying 14 January. As explained below I think that 14 January is the more likely date, but this is not a material issue. A payment of 120,000 would bring the Defendant's total payments to the Claimant to 1,000,000, though of course this takes no account of the apportionment of the payments between principal and interest.

10. Mr Raschid Desai of Saunders & Co attended the hearing for the Claimant, its counsel being Mr Bitu Bhalla, who has also appeared in the matter before me. Mr Graeme Fenwick of Fenwick & Co attended for the Defendant, along with his counsel, Mr Adrian Davies, who again has appeared in the matter before me. The Master was told that the parties wanted time to see whether it was possible to negotiate a settlement. Negotiations then ensued in the Masters' corridor, which continued all morning.

11. I heard oral evidence from both solicitors as to what happened. I found Mr Desai to be a truthful witness who did his best to recall the relevant events accurately and clearly. Mr Fenwick was subject to considerably more lengthy cross-examination. Counsel for the Claimant has criticised him for the inherent unreliability and implausibility of his approach in giving evidence to the Court. I do not accept that criticism. It is right to say that his replies to questions were often very guarded, but I do not think that this was surprising given that the Claimant is seeking to re-open the litigation with his client. I find him also to have been a truthful witness. Where I have preferred the evidence of one solicitor to the other, it is on the basis of my assessment of the quality of their recollection. Significantly, each committed his version of events to writing shortly afterwards when Mr Desai sought to re-open the Tomlin Order, and these contemporaneous letters are important indicators of the correct position. In particular, I have had regard to a faxed letter dated 15 January 2004 from Mr Desai to Mr Fenwick, and the latter's taxed reply of 16 January 2004. (There are subsequent letters as well. A letter from Mr Fenwick dated 16 January refers to a "letter message" of the same date, which I have not seen.)

12. My findings of fact in this regard are as follows. The negotiations on the morning of 14 January 2004 were about outstanding interest. The rate of interest was the subject of prolonged discussion. Those discussions became irritable, which was perhaps inevitable given the Defendant's allegation that the contractual interest rate was extortionate. However I am satisfied that Mr Desai and Mr Fenwick approached the interest question differently. Mr Desai wanted to settle at a reduced rate of interest, but Mr Fenwick's instructions were to negotiate a lump sum payment in full and final settlement of the claim for interest.

13. A figure of 55,000 emerged. As to how it emerged, Mr Desai says that the discussions concentrated on settling on a percentage of interest, and that after much negotiation, the Defendant offered an interest rate of 45% per annum on the sums owed which Mr Fenwick indicated translated into a specific sum of 55,000. In his letter of 16 January 2004, on the other hand, Mr Fenwick says that he refused to negotiate on the basis of agreeing a percentage. He was firm in cross-examination that it was a settlement on a 55,000 figure not a settlement on percentages. He says, and I accept, that the Defendant had instructed him to compromise the claim for interest at about 50,000. That being so, I think it is more likely that, as he says, he offered 55,000 rather than 45%. In so far as they differ on this point, I prefer Mr Fenwick's account. However I also accept Mr Desai's evidence that Mr Fenwick indicated that 55,000 represented a rate of interest of something more than 45% per annum.

14. Mr Desai says, and again I accept, that his position was that he would only finally agree the figure of 55,000 if it was proved to him that it represented interest at 45% per annum. (He made the same point in his letter of 15 January 2004) It is this "proof" that is the heart of the problem that has arisen between the parties. Neither solicitor had come to Court equipped with a lap-top computer to calculate interest. In November of the previous year however, as part of his preparation of the defence, Mr Fenwick had produced an Excel spreadsheet on his office computer into which he could feed different rates of interest to calculate the outstanding amount. Mr Fenwick made various references to this spreadsheet during the negotiations. Sometime after midday, the two men decided to go to Mr Fenwick's office. I accept the Claimant's submission that this was so that Mr Fenwick could satisfy Mr Desai that 55,000 equated to interest at 45%. Counsel asked the Master to adjourn the application on the basis that it was likely that an agreed form of Tomlin order would be placed before him for approval later that day or early the next day, which course the Master agreed to.

15. There was a print out before the Court of the spreadsheet, which was produced for the hearing. What Mr Fenwick printed out for Mr Desai back in his office on 14 January however, was a simpler document. It shows interest calculated at a daily rate on the reducing balance under the loan. For these purposes, the drawdown date is taken as 14 August 2003 which is the date shown in the Schedule to the Particulars of Claim, rather than July, when the loan was actually advanced. The remaining four dates up to 19 September 2003 are the dates of the payments totalling 880,000 made by the Defendant. According to the document, interest at 45% per annum produces an interest figure of 52,693.15. According to the document, 55,000 is the product of an interest rate of 48%. Mr Fenwick told me that after they had looked at the spreadsheet and saw that 45% produced a figure of less than 55,000, he asked if in a jocular way whether his client would get a refund, which Mr Desai declined. The spreadsheet gave Mr Desai the satisfaction he was seeking. But we now know that the rates shown are based on the wrong drawdown date, and so are themselves wrong.

16. Mr Fenwick's evidence was that he took the drawdown date of 14 August 2003 from the Schedule to the Particulars of Claim. He was cross-examined at some length on this point. It was put to him, as is indeed the case, that whereas the Facility Letter provides that interest was payable monthly in arrears, the Schedule shows 80,000 (which was the first payment of interest) as having been paid on 15 August. It was put to him that accordingly any reasonable solicitor would have concluded that the money had been disbursed at least a month earlier, or would have made inquiry of his client or the Claimant. He said that he did notice the discrepancy, which he found odd, and did inquire about the Schedule generally. But, he said, the spreadsheet had been intended for his own use and discussion with his client. Whatever way he did the calculation, he could not get to the figure of 391,071. He said that he had not thought that the money was advanced a month earlier than the Schedule showed, and had no reason to believe that it had been. He now accepted that it was likely that the money was advanced in July.

17. Mr Fenwick was subject to trenchant criticism in the Claimant's written closing submissions. I agree that one would have expected him to have been clearer as to the drawdown date. But I do not agree, as is submitted, that he cannot be believed, or that his conduct fell far short of that expected of a reasonable solicitor. Having listened to his oral evidence, I am satisfied that his calculations were based on those set out in the Schedule to the Particulars of Claim. He did not think that the money had been advanced a month earlier than the date he used in the spreadsheet, and he thought that his spreadsheet was accurate. In these negotiations on 14 January 2004 he had no intention in his spreadsheet or otherwise of misleading Mr Desai, who himself says that, "I am not suggesting anything other than a mistake". Furthermore, in my view, there was nothing unreasonable in Mr Fenwick as solicitor for the borrower relying on the figures provided by the lender. The source of the error in the spreadsheet was the lender's own Schedule. If the error in the document the two solicitors were looking at should have been apparent to the borrower's solicitor, it should have been equally apparent to the lender's solicitor.

18. According to Mr Fenwick, when Mr Desai was in his office, he spoke to his clients at least twice on the phone. Mr Desai, he said, was sitting across the desk from him. He agreed that he had not listened to the conversation, but said that Mr Desai had told him that he had spoken to his clients. He made the same point in his witness statement. In the second witness statement which Mr Desai made in response to it, Mr Desai does not contradict this evidence. Mr Desai was not asked questions about it when giving evidence, but in his closing speech Mr Bhalla told me that his instructions were that the Claimant is owned by Malaysian interests, and because of the time difference, the persons Mr Desai spoke to were not his clients.

19. When giving evidence, Mr Desai told me that his instructions were that if offered 45% he should take it, which suggests that he did talk with his clients that day, though of course it may have been earlier than when he got to Mr Fenwick's office. In any case, I am satisfied from Mr Fenwick's evidence that when Mr Desai was in Mr Fenwick's office, he spoke either to his clients, or to persons in a position to authorise him to do the deal on behalf of his clients. I am satisfied that a careful solicitor like Mr Desai would have taken this step before finally agreeing, and in doing so would have reported the amount of the proposed settlement figure, as well as the rate of interest which he thought that it represented.

20. The two solicitors then agreed and signed a draft Tomlin Order. The Schedule to the Order records the 55,000 figure. I shall come back to the precise terms of the Schedule. Mr Fenwick gave Mr Desai a cheque for 120,000. Mr Desai then took the Order to the Court for sealing. The document bears the Court's stamp showing a date of 14 January 2004.

21. When he returned to his own office, the fact that the wrong drawdown date had been used in the spreadsheet became apparent to Mr Desai (he does not say how). He immediately rang Mr Fenwick saying that a whole month of interest had been missed since the disbursement was in fact made on 15 July 2003. Mr Fenwick responded by saying that he had assumed that the start date was 15 August 2003. There was then the exchange of letters which I have already referred to. On 15 January 2004, Mr Desai wrote that there was no doubt that they both "laboured under the misapprehension that the moneys were actually disbursed on the 14th August 2003. Since it was made clear that the contractual settlement was on the basis of interest of 45%, it is a mistake of fact that requires rectification". He asked for the figure to be adjusted under the slip rule, and the order resealed. Mr Fenwick replied the same day denying that the interest calculations contained any errors, and saying that "although the 'interest rate' may have been in your client's mind the basis of settlement, the sum of 55,000 was what we agreed to". He added that he would not have agreed to interest at the rate of 45% if it had resulted in a further month's interest at that rate. The following day, he wrote saying that if the moneys were advanced on 14 July, 55,000 represented a rate of return of approximately 33% per annum.

 

The terms of the Order

22. In the conventional way, the Tomlin Order imposes a stay on the proceedings except for the purposes of carrying out the terms of the Schedule, Each party was to bear its own legal costs. By paragraph a of the Schedule, the Defendant was forthwith to pay the sum of 120,000 to the Claimant, which was done by way of a cheque as I have already described.

23. The crucial term for present purposes is in paragraph b of the Schedule, where it was agreed that:

the Defendant shall on or before 4.00 pm 28 January 2004 pay to the Claimant the sum of 55,000 with interest thereon calculated at 48% pa from 14 January 2004 (being a daily rate of 72.33) in full discharge of the balance due to the Claimant ...

The agreement apparently recorded therefore, is an agreement to pay a sum of money in full discharge of the balance due to the Claimant. A rate of interest which produces that sum is not recorded. The interest payable on that sum between the date of the Order and the date of payment is 48% per annum.

24. There is then reference to the discharge of security for the loan held by the Claimant over three properties consequent on the settlement.

25. The payment of 120,000 by the Defendant was accepted on a "without prejudice" basis by the Claimant's solicitors on 19 January 2004, but otherwise the settlement has not been carried into effect.

 

Common (mutual) mistake

26. The parties' case is set out in the respective witness statements, and in their written and oral submissions (there have been no pleadings on the mistake/rectification issue). The Claimant puts its case primarily on the basis of common (or as it is often called, mutual) mistake. The argument is that the figure of 55,000 inserted in the Schedule to the Tomlin Order was based on the spreadsheet which showed that figure as amounting to interest at the rate of 45% per annum, the rate at which the Claimant was prepared to settle the case. Both parties contracted on the basis of a spreadsheet which they believed to be true and upon which they relied, but which was in fact incorrect, because it showed the lending as having been advanced in August instead of July 2003, with the consequence that 55,000 was less than 45% per annum. Thus it is argued that the apparent agreement reached by the parties was no agreement, and that the Order should be set aside on the grounds of mutual mistake.

27. The Defendants' position is that this is not a case of mutual mistake. The argument is that while the effective rate of interest was plainly of importance to the Claimant's solicitor in the settlement negotiations, all that mattered to the Defendant's solicitor was to achieve finality by agreeing a money sum. This was done, and the agreed figure was 55,000.

28. The principles applicable to mistake in the law of contract have recently been elucidated the Court of Appeal in Great Peace Shipping Ltd v. Tsavliris Salvage (International) Ltd [2002] EWCA Civ 1407, [2003] QB 679. In that case, the claimant contracted with the defendant salvage company to provide a ship to assist a damaged vessel. At the time of contracting, the parties believed that the two vessels were about 35 miles away from each other, but they were in fact 410 miles apart. After the true facts become known, and having found a nearer ship able to assist, the defendants cancelled, and refused to make payment for hire on the grounds that the contract had been vitiated by reason of a fundamental mistake of fact, namely that the vessels were in close proximity to each other.

29. Giving the judgment of the Court, Lord Phillips of Worth Matravers MR pointed out that mistakes may be relevant in a number of different circumstances (paragraphs 28-32). They may prevent the mutuality of agreement that is necessary for the formation of a contract, as where the parties are at cross-purposes, so that no agreement is ever reached. In such a case there will be a mutual mistake in that each party will erroneously believe that the other has agreed to his terms. Another type of mistake is that where the parties erroneously spell out their contract in terms which do not give effect to an antecedent agreement that they have reached. Such a mistake can result in rectification of the contract. A third type of situation, and that which arose in the Great Peace itself, is where the mistake relied upon is as to an assumption that it is claimed underlies the terms expressly agreed, which renders the service that would be provided if the contract was performed in accordance with its terms something different from the performance that the parties contemplated.

30. In the Great Peace, the Court pointed to the distinction drawn by Lord Atkin in Bell v. Lever Bros Ltd between circumstances where the parties contract under the common mistaken assumption that the subject matter of the contract exists when, in fact, this is not the case. and the position where two parties purport to conclude an agreement under a common mistaken assumption in relation to the subject matter of the contract. In the former situation, the contract will necessarily be one that cannot be performed. As to the latter, the Court cited the passage in Lord Atkin's judgment in Bell v. Lever Bros Ltd that, "Mistake as to quality of the thing contracted for ... will not affect assent unless it is the mistake of both parties, and is as to the existence of some quality which makes the thing without the quality essentially different from the thing as it was believed to be" ([1932 AC 161 at 218, [1931] 1 All ER Rep 1 at 28). The Court also cited from the judgment of Steyn J in Associated Japanese Bank (International Ltd.) v. Credit du Nord S.A. [1989] 1 WLR 255 at 268, which is to similar effect, namely that in order to attract legal consequences, the mistake must be such as to "render the subject matter of the contract essentially and radically different from the subject matter which the parties believed to exist".

31. Drawing analogies with the law relating to frustration of contracts, the Court went on to say that:

... the following elements must be present if common mistake is to avoid a contract: (i) there must be a common assumption as to the existence of a state of affairs; (ii) there must be no warranty by either party that that state of affairs exists; (iii) the non-existence of the state of affairs must not be attributable to the fault of either party; (iv) the non-existence of the state of affairs must render performance of the contract impossible; (v) the state of affairs may be the existence, or a vital attribute, of the consideration to be provided or circumstances which must subsist if performance of the contractual adventure is to be possible. (paragraph 76)

In the result, upholding the decision of the judge, it was held that the parties' mistaken assumption of the position of the two vessels did not have the effect of avoiding the contract (paragraphs 94, and 164 to 166). The Court also held that there is no equitable jurisdiction to grant rescission for common mistake in circumstances that fall short of those in which the common law holds a contract void, in that respect not following Solle v. Butcher [1950] 1 KB 671.

32. In the present case, as I have held, contrary to the understanding of the solicitors for the respective parties, the interest rates shown in the spreadsheet were indeed mistaken, a mistake that had its origin in the erroneous drawdown date given in the Schedule to the Particulars of Claim. But the question is as to the effect of this mistake on the compromise agreement which the parties reached, applying the principles set out above. There was no warranty by either party as to the spreadsheet, and as I have held, the mistake was not attributable to the fault of either party. The key point in my view is that the parties agreed to settle the interest element of the claim on the basis of the payment of the sum of 55,000, and not on the basis of a percentage rate of 45%. Indeed, the printout from the mistaken spreadsheet which the two solicitors looked at in Mr Fenwick's office purported to show that 55,000 amounted to 48%, and that a percentage rate of 45% produced a lower sum of 52,696.15. The fact that the percentage rate in the Order applied to the settlement figure between 14 January and the date of payment was 48%, not 45%, indicates that the parties took the settlement figure to calculate the percentage rate, rather than the other way round. I fully accept that the percentage rate was a matter of importance to Mr Desai, who doubtless wished to satisfy his clients that the settlement he had achieved was a reasonable one, but it did not matter to Mr Fenwick, whose instructions were to settle for a fixed sum. On the correct basis, namely that the monies were advanced on 14 July 2003, I am told that 55,000 represented a rate of return of approximately 33% per annum. In my view, the mistake in the parties' understanding in that regard did not prevent a contract from coining into existence. Nor, applying the tests set out in Bell v. Lever, and the Great Peace, did it make the settlement of the interest claim essentially different from what the parties believed it to be, nor did it render performance of the contract impossible. Nor, as has also been argued, was the correctness of the spreadsheet a condition precedent to the contract. The parties settled the interest claim at 55,000. They each got what they bargained for. It follows that I find against the Claimant on the common mistake point.

 

Unilateral mistake

33. Though I do not accept his conclusions, I think that Mr Bhalla was right to present his case primarily on the basis of common mistake. In supplementary submissions, he put the case in the alternative on the ground of unilateral mistake on the part of Mr Desai. A unilateral mistake by one party as to the terms of a contract, if known to the other party, may affect a contract: see Chitty on Contracts, 29th edn (London, Sweet & Maxwell, 2004), paragraph 5-063. My finding that the mistake as to the spreadsheet was a mutual one on the part of both solicitors in effect rules out Mr Bhalla's argument in this regard, which also therefore fails. However in case it should be relevant, I should deal with some factual matters he raised concerning Mr Fenwick's conduct.

34. These relevance of these matters appears from O.T. Africa Line Limited v. Vickers plc [1996] 1 Lloyds Rep 700, in which the Defendants' solicitors mistakenly made an offer of settlement denominated in sterling, when they had intended to offer the sum concerned in US dollars. The Plaintiffs who were unaware of the mistake accepted the offer. It was held that the compromise agreement was binding. At page 703, Mance J said:

Here, there is objectively agreement on a particular sum. The question is what is capable of displacing that objective agreement. The answer on the authorities is a mistake by one party of which the other knew or ought reasonably to have known. I accept that this is capable of including circumstances in which a person refrains from or simply fails to make enquiries for which the situation reasonably calls and which would have led to discovery of the mistake. But there would have, at least, to be some real reason to suppose the existence of a mistake before it could be incumbent on one party or solicitor in the course of negotiations to question whether another party or solicitor meant what he or she said.

35. It follows that a contract may be affected by unilateral mistake on the part of one party if the other party ought reasonably to have known of the mistake, even if he did not in fact know of it. Mance J was however discussing the situation in which a settlement offer had been made by the solicitor for one party, the question being whether the solicitor for the other party should have realised that a mistake had been made in the terms of the offer. In the present case, Mr Fenwick created his spreadsheet in November 2003, as part of preparing the defence. Mr Bhalla has submitted that even if (as I have held) Mr Fenwick did not in fact realise that the drawdown period was earlier than 14 August 2003, he certainly ought to have done. His criticisms however go in particular to the creation of the spreadsheet, and failure to make appropriate enquiries at that time. The underlying principle as regards unilateral mistake in this kind of situation is that it would be unconscionable to hold a party to a compromise agreement if the other party knew or ought to have known that he entered into it under a mistake. In my view, a failure to make inquiries to be relevant for these purposes must arise in the context of the settlement, for example in the course of the negotiations, as passage cited from the judgment of Mance J suggests. But in any case, I am satisfied that there was no such failure on Mr Fenwick's part. This was a loan with four different contractual rates of interest applying at different times. Payments were made by the borrower on four dates, some payments attributed in the Schedule to the Particulars of Claim to principal, some to interest. In the circumstances, in my view there was nothing unreasonable in Mr Fenwick as solicitor for the borrower relying on the figures provided by the lender, and I do not think that he can be criticised for the way he handled the matter.

 

Rectification

36. In the alternative to the case based on mistake, a claim in rectification is advanced. In this regard, the case for the Claimant was put slightly differently in its opening and closing submissions. In the former, it is said that the parties intended a figure reflecting a sum in excess of 45% interest per annum, and mistakenly assumed that they had in fact achieved that in putting a figure of 55,000 in the Schedule to the Order. No substitute figure was given, and when the case began, I asked the Claimant to calculate it, which was done during counsel's opening. I am told that the resultant figure is 89,250. In the closing submissions, it is said that the Court "may find that the true intention of the parties was to incorporate into the contract a figure representing 45% per annum from the date of drawdown". The Court is asked on the rectification claim to substitute this for the figure of 55,000 in the Schedule to the Tomlin Order. I need not say much on this part of the claim. If I had found that the parties had agreed a settlement of the interest claim at the rate of 45%, rectification would have followed. Given my finding that they agreed a sum of 55,000, and that the Tomlin Order accurately recorded the agreement between the parties, the rectification claim necessarily fails.

 

Inherent jurisdiction

37. The Claimant's final submission is based on Mohamed v. Farah [2004] NSWSC 482, a recent decision of the New South Wales Supreme Court. In that case, there were two different sums in contention between the parties, namely $107,666, and $163,838. The plaintiffs solicitor made an offer of compromise under the Supreme Court Rules of $90,000, which was accepted by the defendant within the time stipulated in the rules. By mistake, the offer was made by reference to the lower sum in contention. The defendant's solicitors thought there might be a mistake, and asked for confirmation. This they received, but in giving it, the plaintiffs solicitor continued to labour under her original mistake. The issue was whether the plaintiff should be held to the compromise. Barrett J held that the defendant's solicitors did not act in any unconscientious way to take unfair advantage of a mistake of which they knew or should have known when they subsequently accepted the offer, and that in the circumstances, the things that must be proved in order to have a contract set aside for unilateral mistake had not been proved. Equity would not intervene, he said, to grant relief to the mistaken party (paragraphs 65 and 66). However he went to hold:

I am, however, satisfied that this is a case in which the court cannot allow the compromise to stand. The plaintiff has invoked the jurisdiction of the court in an attempt to vindicate a right he considers himself to have against the defendant. The defendant, for her part, has entered an appearance and the parties, through their legal representatives, have embarked upon the ordinary steps directed towards obtaining adjudication by the court. The offer of compromise was made and accepted in the course of those events but is affected by unilateral mistake. Had the plaintiff and his solicitors realised that the offer to accept in full settlement a sum of $90,000 plus costs related to a claim of $163,838 rather than a claim of $107,666, the offer would not have been made. Enforcement of that compromise in this case would not represent a just result of the kind the court is bound to impose in determining every dispute it is called upon to adjudicate. As the New Zealand Court of Appeal said in Waitemata City Council v. MacKenzie [1988] 2 NZLR 242 at 249, procedures designed to further the ends of justice cannot be allowed to become instruments of injustice or oppression. I am of the opinion that it would be unjust to enforce the apparent compromise rather than allowing the controversy to proceed towards trial as if the offer had not been made and accepted. (paragraph 67)

Similarly, it is argued that the enforcement of the Tomlin Order would be unjust in the present case, and it should be set aside under the Court's inherent jurisdiction.

38. The decision in Mohamed v. Farah concerned an offer of settlement by the plaintiff (seemingly similar to a Part 36 offer under the CPR), and an application for leave to withdraw that offer, so that the procedural context is not quite the same as the present case. The Court analysed the mistake in terms of unilateral mistake, though it might perhaps have been considered as a case in which the parties were at cross-purposes, so that no agreement was ever reached (see the passage from the Great Peace cited above). Further, although the Courts will clearly not allow procedures designed to further the ends of justice to become instruments of injustice or oppression, this leaves open the question as to the measure by which injustice is to be ascertained. This it might be said is the function of the law relating to the effect of mistake. Finally, I note that compromise of litigation may be effected by a settlement contract or by a Tomlin Order, depending often on the stage that the proceedings have reached. Whilst the procedures applicable in the case of a subsequent dispute as to the terms of the agreement obviously differ, it is not immediately clear why a mistake should have a different substantive effect depending on the form which the settlement agreement takes.

39. My conclusion on this issue is as follows. Although in appropriate circumstances, the Court has inherent jurisdiction to rectify a mistake in a Tomlin Order without the need for recourse to fresh proceedings (Islam v. Askar (CA) Oct 13, 1994 unreported), no English authority was cited to me which puts the matter as broadly as in Mohamed v. Farah. In those circumstances, whilst acknowledging the valuable reasoning, I do not think that it is open to me to follow the approach adopted in that case.

40. However, I would add this. Despite the skill with which Mr Bhalla has argued the case for the Claimant lenders, I am not persuaded that the result is unjust. These are both commercial parties. As part of an overall settlement, they agreed to settle the interest element of the claim for 55,000, and there was no mistake as to that sum. I do not think that it would be just to set the settlement aside on the basis of a mistake as to whether the sum annualised as an interest rate of 45%, or to be more accurate, 48%, or as in fact seems to be the case, 33%, with the consequence that these proceedings must start up again. Even if I did feel able to follow the approach adopted in Mohamed v. Farah, I would not do so on the present facts.

41. I would appreciate assistance from counsel as regards the form of the order which the Court is now to make.