Lloyds TSB Bank Plc v Crowborough Properties Ltd & Ors

Rectification corrects a document that fails to express an agreement already reached. It does not improve a bargain made on a shared but mistaken assumption about the legal effect of the words used. The claimant must establish, by objective evidence, the parties’ complete agreement or common continuing intention, including the term said to have been omitted or misstated. That intention must continue to execution and be outwardly manifested with sufficient certainty. Where the parties never addressed the creation of a new security right, but assumed that existing security already produced the desired result, the court cannot rectify the document to create that new right. The appropriate conclusion is that the parties made a bad bargain, not that their agreement was incorrectly recorded.

The bank sought rectification of a Tomlin order compromising claims arising from substantial company indebtedness and personal guarantees given by two individual defendants. The settlement released the guarantees after payment of a settlement sum, but the bank later contended that the drafting unintentionally failed to preserve receiverships and security over properties owned by the individuals.

The proposed rectification would effectively create a new charge securing the company’s indebtedness over those properties. The central issue was whether the parties had reached, and objectively manifested, a common continuing intention to create that additional security, or whether they had merely proceeded on the mistaken assumption that existing charges already secured the company’s debt.

The claim for rectification was dismissed.

1. Rectification requires proof that the document fails to reflect the parties’ true agreement or common continuing intention. The intention must be established objectively from the parties’ words and conduct, rather than from private, uncommunicated intentions. The court must be able to identify the agreement with sufficient certainty. The relevant common intention must continue until execution of the document: [63]–[69].

2. The settlement negotiations showed a drafting error in releasing the personal guarantees without preserving the bank’s security over properties held by the individual defendants. The parties had assumed that the existing charges secured the company’s indebtedness, when in fact they secured only the individuals’ guaranteed liability: [14]–[18], [52]–[57].

3. That mistake did not establish an agreement to grant a new charge over the properties. The proposed wording would have created security for the company’s debt, together with an equity of redemption, although nobody had turned their mind to that mechanism. There was no objective manifestation or outward expression of accord on that essential matter: [59]–[62], [74]–[78], [83].

4. The case fell on the