Hawksford Trustees Jersey Ltd v Stella Global UK Ltd & Anor

Rectification may correct a professionally drafted commercial agreement where convincing proof establishes that the parties had a continuing common intention, expressed outwardly, which the instrument failed to record by mistake.

For a company, the relevant intention is ordinarily that of the decision-maker for the transaction. That person need not be the formal signatory or the person with authority to bind the company, and may be identified by actual or ostensible authority and by the substance of the company’s arrangements. Complex drafting, repeated execution, legal advice and an entire agreement clause justify caution but do not prevent rectification where the evidence is sufficiently compelling.

The claimant trustee held most of the shares in Global Travel Group plc. It, the first defendant and the second defendant entered into an amended share purchase agreement concerning the sale of Global. The agreement provided for deferred consideration calculated by reference to EBITDA.

The claimant sought rectification so that the calculation of 2007 EBITDA excluded consultancy payments made to George Begg under a 2003 consultancy agreement, as well as specified asset costs. The executed amended agreement expressly excluded the asset costs but referred to payments under a differently defined consultancy agreement, thereby omitting the 2007 payments.

The central issues were whether the relevant decision-makers for each contracting party shared a continuing common intention, whether they entered the amended agreement under a mistake, and whether rectification should be ordered despite the agreement’s complexity, legal drafting and entire agreement clause.

1. Construction. The contractual wording was clear. The reference to payments made pursuant to the defined Consultancy Agreement did not include the 2007 payments under the earlier agreement. The construction claim therefore failed.
2. Applicable test. Rectification requires convincing proof that the parties had a common intention concerning the relevant term, an outward expression of accord, continuation of that intention until execution, and a mistaken failure of the instrument to record it. The inquiry is objective and examines what the parties said and did. Subjective intention and subsequent conduct may assist, particularly where the consensus was partly oral.
3. Relevant decision-makers. The relevant mind is that of the decision-maker, not necessarily the negotiator or signatory. The court considers the company’s primary and general rules of attribution, including actual and ostensible authority, and identifies who in substance made or was held out as making the decision for the transaction.
4. Mr Begg was the relevant decision-maker for the claimant in relation to the detailed terms of the amended agreement. The claimant retained formal approval and execution, but had left the substantive decision to him and held him out as having authority to negotiate and agree the terms.
5. Mr Krecklenberg, with Mr Bender on matters of detail, was the relevant decision-maker for both defendants. Their communications objectively established a continuing intention that all of Mr Begg’s approximately £1m of 2007 costs, including the consultancy payments and asset costs, should be excluded from 2007 EBITDA. Mr Botterill also communicated assent on the same basis.
6. The omission resulted from a genuine common mistake. The mistake was established by convincing proof notwithstanding the complexity of the agreement, the several drafts, professional advice and entire agreement clause. Those factors required caution but did not outweigh the evidence.
7. Rectification was ordered against both defendants. The definition of 2007 EBITDA was to be amended to exclude the specified asset costs and all payments made by Global to Mr Begg under the consultancy agreement dated 1 February 2003 for the year ended 31 December 2007.