Saturday, January 25, 2014

Transposed Wills: The Supreme Court on Interpretation of Contracts

In 1999, Alfred and Maureen Rawlings each decided to execute a will leaving everything to each other and, should the other not survive, to Terry Marley, whom they treated as their son. Their solicitor prepared two simple wills in accordance with these instructions: each will was a mirror image of the other. He presented it to them for signature. Unfortunately, Mr Rawlings signed Maureen’s will and Mrs Rawlings signed Alfred’s will. There was not the slightest doubt that this was a mistake. Could the court nevertheless give effect to the testator’s intention? No, said Mrs Justice Produman and the Court of Appeal. Yes, says Lord Neuberger, in giving the Supreme Court’s widely anticipated judgment this week in Marley v Rawlings, which contains some important (and controversial) observations about the interpretation of commercial contracts.

There is little more to be said about the facts, except that the mistake did not come to light when Mrs Rawlings died in 2003. It was discovered only on Mr Rawlings’ death three years later. As Mrs Rawlings had predeceased him, Mr Marley would inherit if the will was valid. If the will was invalid, Mr Rawlings be treated as having died intestate, and the property would pass to his natural sons. Mr Terry Rawlings, the natural son, duly contested the validity of the will. Mr Marley admitted that Mr Rawlings had signed the wrong will but contended that the court had the power to rectify it. In the general law, there was some doubt over whether the jurisdiction to rectify—which undoubtedly did and does exist for contracts—can be exercised for wills. In 1982, Parliament intervened to expressly confer the power by way of section 20 of the Administration of Justice Act, 1982. But the argument for Mr Terry Rawlings was that: (1) this section only applies if ‘a will is so expressed that it fails to carry out the testator’s intentions’; there is no ‘will’ unless it has been signed by the testator (under section 9(a) of the Wills Act, 1837) and therefore no power to rectify; (2) in any event, the power to rectify is confined to the correction of ‘clerical errors’ and signing the wrong will is not a clerical error. Mrs Justice Proudman accepted both objections and, echoing the words of Sir James Hannen in an old case, said ‘much as I regret the blunder, I cannot repair it’. In the Court of Appeal, Lady Justice Black, giving the leading judgment, agreed with the view that there was no jurisdiction to rectify as this document was not a ‘will’ and therefore did not decide the second point. Mr Marley appealed to the Supreme Court.

In the Supreme Court, leading counsel for Mr Marley advanced the argument that it was open to the court to interpret (not rectify) the will to give effect to what was plainly Mr Rawlings’ intention. The inspiration for this argument—and the reason for the difficult issues that have arisen in recent years about the difference between interpretation and rectification—was the approach of Lord Hoffmann in Investor Compensation Schemes v West Bromwich Building Society and other well-known cases. As we have noted on this blog, Lord Hoffmann in these cases—dealing with contracts, not wills—explains that interpretation is the ascertainment of the meaning the document would convey to a reasonable third person with all the background knowledge the parties to the contract would reasonably have had, except pre-contractual negotiation and evidence of subjective intention. It follows, said Lord Hoffmann, that it is misleading to suggest that a judge is bound by the ‘natural and ordinary’ meaning or ‘grammatical’ meaning of the words used: if it is clear that ‘something has gone wrong’, the judge can interpret the document as a reasonable third person (realising that something has gone wrong) would have done (his famous example of Mrs Malaprop illustrates the point). So ‘January 12’ can mean ‘January 13’ and “any claim (whether sounding in rescission for undue influence or otherwise)" can mean “any claim for rescission (whether sounding in undue influence or otherwise)", in both cases without resorting to rectification.

As the Supreme Court notes, Lord Hoffmann’s approach has raised many difficult issues. Lord Justice Buxton and Lord Justice Lewison (see Chapter 9) have suggested that it virtually renders rectification redundant (except that pre-contractual negotiation is admissible in a rectification action) and Lord Grabiner (2012 LQR) has argued that the words chosen by the parties nevertheless remain the starting point—and often the final destination. In Marley, Lord Neuberger began by holding that there is no obvious reason to not apply the same principles of interpretation to contracts and wills: the fact that contracts are bilateral while wills are unilateral makes no difference. With respect, although it would have made no difference on the facts of this particular case, it is not obvious this is correct: the fulcrum of the modern approach to the interpretation of contracts is founded on the common law’s ‘objective’ theory of contract which is concerned not with what the parties actually intended but with the manifestation of their intention. As Professor Atiyah pointed out on numerous occasions, one of the justifications for adopting this theory is to protect the reasonable expectations of the counterparty, which it is not obvious carries over to wills.

Turning to the merits, Lord Neuberger cast some doubt on the language used by Lord Hoffmann in setting out his (now famous) five propositions of interpretation in West Bromwich (‘the language in which the propositions are expressed may be a little extravagant’) and described the all-important second sentence of Proposition 5 as ‘controversial’. Although he preferred not to express a concluded view on this ‘difficult’ question as it was unnecessary to do so, he did explain why the difference between rectification and interpretation can have important practical consequences:

40. At first sight, it might seem to be a rather dry question whether a particular approach is one of interpretation or rectification. However, it is by no means simply an academic issue of categorisation. If it is a question of interpretation, then the document in question has, and has always had, the meaning and effect as determined by the court, and that is the end of the matter. On the other hand, if it is a question of rectification, then the document, as rectified, has a different meaning from that which it appears to have on its face, and the court would have jurisdiction to refuse rectification or to grant it on terms (eg if there had been delay, change of position, or third party reliance).This point is made good in relation to wills by the provisions of section 20(2) and (3).

The reason it was unnecessary to decide the interpretation point was that Mr Marley was able to persuade the Supreme Court that it had jurisdiction to rectify the will. This, of course, turned entirely on the two questions set out above: could the will signed by Mr Rawlings be described as a ‘will’ for the purposes of section 20 of the 1982 Act and if so was the error a ‘clerical error’? Lord Neuberger held that the will signed by Mr Rawlings is a ‘will’ even though the person named in it as the testator is Mrs Rawlings. This was because one must separate the existence of a will (and formality requirements) from its construction: the signature appended to the will was undoubtedly Mr Rawlings’ and therefore the section 9 hurdle was crossed. Further, the Court held that the expression ‘clerical error’ should be construed widely and accordingly includes not only errors of ‘copying’ or ‘typing’ but also errors of this type.

The case is an important one: for commercial lawyers, it is a reminder, if one was needed, that the common law is yet to fully work out the implications of Lord Hoffmann’s approach to the interpretation of documents.

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