What happens if there are mistakes in a contract?

23 May, 2024 | Nathan Tetzlaff

It is inevitable that some contracts will contain mistakes that impact on the parties. What can be done to resolve this?

If all parties to a contract agree that there is a mistake and that it should be corrected, you can together vary the contract by rewriting it in part or in whole. This requires careful consideration of the impacts of the change on other parts of the contract, related contracts, or business arrangements. There is no inherent reason a contract must remain as it is, if errors are found or circumstances change.

The situation is more difficult where the mistake has resulted in one party standing to receive a benefit which they would like to keep (or allows them to avoid some liability). In that case, one party may refuse to correct the contract, and may even claim that there is no mistake and the contract is correctly drafted. In some cases, the Contract and Commercial Law Act 2017 provides powers to the courts to correct contractual mistakes.

Assuming there is a disagreement over varying the contract, the first question is, is this the type of mistake that the courts will remedy? Mistakes can be in fact or in law and can relate to the same mistake or different mistakes by the parties. The court will also be concerned about whether the mistake resulted in an “unequal exchange of values”.
If the problem is you simply didn’t know about something that you now seek to change (ignorance of fact) you cannot allege “mistake” – you cannot be mistaken about something you are ignorant about.

Mistakes of Law

A mistake of law includes a mistake in the legal interpretation of a document used to enter into a contract, but not the actual clauses of the contract itself.
It is not a mistake in law if a party is aware of something in law before that party enters into the contract, that they later claim to be a mistake in the contract. That party will be deemed to have considered that clause and can no longer claim it was an error.

Mistakes of Fact

A mistake of fact refers to an incorrect belief about the facts surrounding a contract, that could have been set right through empirical evidence when that contract was made. Consequently, it is considerably more challenging to prove a mistake of fact where the invalid belief is tainted by opinion or prediction.

True mistakes of fact can be remedied by the Court.

Conclusion

Careful assessment is needed to determine whether the mistake is one in law or fact such that it can be fixed by the court.

Once a judge has determined there is a mistake in the contract, they have wide powers to fix the problem. They can cancel or vary the contract, require that compensation be paid, or direct property be assigned or delivered to someone who is not in possession of that property.

If a contract contains a mistake we can assist and attempt to negotiate a new contract. If this is not possible, we can advise you about your legal position and represent you in making a claim to the court.